The World Bank has raised India’s growth forecast to 6.5 percent for FY26 from its earlier projection of 6.3 percent in June citing resilient domestic demand, strong rural recovery and the positive impact of tax reforms, a statement said on October 7, however, it is cautious on next year's growth due to the impact of Trump's tariffs on exports.
“India is expected to remain the world’s fastest-growing major economy, underpinned by continued strength in consumption growth,” the World Bank said in its South Asia Development Update.
“Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected. The government’s reforms to the Goods and Services Tax (GST)—reducing the number of tax brackets and simplifying compliance—are expected to support activity,” said the World Bank.
Consumption and Investment Drive Momentum
The upgrade follows stronger-than-expected performance in the first half of FY26, with real GDP growth of 7.8 percent in Q1FY26, which was the fastest in five quarters.
“Investment growth remains robust, supported by public infrastructure projects, strong credit growth, and loosening monetary policy. Strong rural wage growth has offset slowdowns in urban consumption, as seen in weakness in car sales and personal credit. Industrial production and imports have largely maintained their strong momentum,” the World Bank said.
The Reserve Bank of India in its latest assessment has projected a growth of around 7 percent for Q2FY26.
Tariffs to Weigh on FY27 Growth
The Washington-based lender, however, trimmed the FY27 forecast to 6.3 percent from 6.5 percent earlier, warning that higher US tariffs could weigh on India’s exports.
“India had been expected to face lower US tariffs than its competitors in April but as of the end of August it faces considerably higher tariffs,” the report said. “Almost one-fifth of India’s goods exports went to the United States in 2024, equivalent to about 2 percent of GDP.”
Policy Support to Continue
Economists expect the GST cut and income tax relief to support household spending, reinforcing the recovery in consumption-led sectors this festive season.
The World Bank’s update adds to a string of upward revisions for India’s growth outlook this year—from the RBI, S&P, and OECD—reflecting optimism that domestic demand can cushion the economy against global headwinds in FY26.
Reserve Bank of India last week revised India's growth projection to 6.8 percent growth for FY26 from 6.5 percent projected earlier.
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