World Bank keeps India growth forecast unchanged amid trade uncertainty

Higher tax revenues and falling current expenditures are likely to contribute to a gradual decline in India’s public debt-to-gross domestic product (GDP) ratio and fiscal consolidation, said the World Bank’s Global Economic Prospects Report on Tuesday. 

 

The Bank has kept India's GDP growth forecast for FY26 unchanged at 6.3 per cent from its bi-annual South Asia Development update in April. This comes amid rising trade barriers and dampened exports due to weaker activity in key trade partners.  

 

“India would maintain the fastest growth rate among the world’s largest economies, at 6.3 per cent in FY26,” the World Bank said in its report. 

 

 

Finance Minister Nirmala Sitharaman, in her FY26 Budget, announced a new glide path with the debt-to-GDP ratio as the fiscal anchor. She moved away from the current practice of targeting fiscal deficit. 

 

The government now targets bringing down the debt-to-GDP ratio to 50 per cent by FY31 with a one percentage point deviation on either side.

 

While noting that FY25 growth saw moderation due to deceleration in industrial output growth, the Bank said that in the next two financial years — starting in FY27 — growth is expected to recover to 6.6 per cent a year, on an average. This would be partly supported by robust services activity, contributing to a pickup in exports. 

 

The report said that import demand from India will boost trade in the South Asia region.  

 

The World Bank has projected the global economy to grow at 2.3 per cent in 2025, the weakest growth in 17 years, excluding the outright global recessions. 

 

The report, however, said that global growth could rebound faster than expected if major economies are able to mitigate trade tensions. This would reduce overall policy uncertainty and financial volatility. 

 

It also suggested that developing economies should liberalise more broadly by pursuing strategic trade and investment partnerships with other economies. They must also diversify trade — including through regional agreements, the Bank added.

 

In April, the International Monetary Fund (IMF) pared its FY26 growth forecast for India by 30 basis points (bps) to 6.2 per cent, citing escalating trade tensions and global uncertainty in its World Economic Outlook (WEO).

 

The IMF stressed that swift escalation of trade tensions has generated extremely high levels of policy ambiguity. This is making it more difficult than usual to establish a central global growth outlook.

 

The key risks flagged by the Bank for the South Asia region include possible further intensification of trade barriers from major trading partners and heightened global policy uncertainty. 

 

“Higher-than-expected global inflation and a decline in risk appetite could lead to a tightening of global financial conditions, potentially weakening currencies in the region and causing capital outflows,” the World Bank said. 

 

Possibility of social unrest in the region and more frequent and severe natural disasters are some other downside risks to South Asian economies, it added. 

 

The report noted that growth in India’s construction and services activity remained steady. Also, agricultural output recovered from severe drought conditions, supported by resilient demand in rural areas. 

 

India’s real GDP growth for FY25 stood at 6.5 per cent, slightly below the Reserve Bank of India’s (RBI’s) projection of 6.6 per cent, according to data released by the National Statistics Office.