World Bank keeps India growth forecast unchanged amid challenges

India’s economy is poised for steady growth, with the World Bank forecasting a 6.3% GDP rise for FY26, supported by fiscal consolidation through higher revenues and reduced spending. The government’s focus on cutting the debt-to-GDP ratio to 50% by FY31 signals long-term stability. While risks like trade barriers and global uncertainty persist, robust services and resilient sectors bolster recovery. The World Bank emphasizes trade liberalization and partnerships to mitigate challenges, underscoring India's role as a key driver of regional and global growth.

India’s economic trajectory continues to draw global attention, with the World Bank’s latest Global Economic Prospects Report painting a cautiously optimistic picture. The report, released on Tuesday, underscores India's steady progress in fiscal consolidation, supported by higher tax revenues and reduced public spending. This trend is expected to gradually lower the nation’s public debt-to-GDP ratio in the coming years.

The World Bank maintained its GDP growth forecast for India at 6.3% for FY26, aligning with its earlier projections in the South Asia Development Update from April. Despite headwinds such as rising trade barriers and a downturn in exports due to weaker demand from key trading partners, India is projected to sustain its position as the fastest-growing major economy globally.

Fiscal Discipline and Debt Management

Finance Minister Nirmala Sitharaman’s FY26 Budget introduced a transformative approach to fiscal policy, shifting focus from fiscal deficit targets to a debt-to-GDP ratio as the fiscal anchor. The government has set an ambitious goal of reducing the debt-to-GDP ratio to 50% by FY31, with a permissible deviation of one percentage point on either side. This policy shift aims to enhance fiscal discipline and ensure long-term economic stability.

While FY25 witnessed a slowdown in economic growth, attributed to deceleration in industrial output, the World Bank projects a rebound in the following years. From FY27 onwards, India’s growth is anticipated to average 6.6%, driven by robust performance in the services sector and a consequent boost to exports. Additionally, India’s import demand is expected to bolster trade within the South Asia region, underscoring the country’s pivotal role in regional economic dynamics.

Global and Regional Risks

On the global front, the World Bank forecasts a modest 2.3% growth in 2025 — the weakest rate in nearly two decades, excluding periods of outright recessions. However, the report suggests that global growth could recover faster if major economies succeed in mitigating trade tensions. Reduced policy uncertainty and financial volatility would play a key role in such a recovery.

For South Asia, the World Bank flagged several risks, including heightened trade barriers, global policy unpredictability, and potential financial tightening due to persistent inflation. These conditions could weaken regional currencies and trigger capital outflows. Furthermore, the report highlighted the possibility of social unrest and the increasing frequency of natural disasters as additional challenges for the region.

IMF’s Perspective on India

In contrast to the World Bank, the International Monetary Fund (IMF) revised India’s FY26 growth forecast downward by 30 basis points to 6.2% in its World Economic Outlook (WEO) published in April. The IMF attributed this adjustment to escalating trade tensions and global economic uncertainty, which have heightened policy ambiguity and complicated the task of establishing a cohesive global growth outlook.

Resilience Amid Uncertainty

Despite these uncertainties, India’s economy has demonstrated resilience. The World Bank noted steady growth in the construction and services sectors, along with a recovery in agricultural output, which had been previously impacted by severe drought conditions. Rural demand has also shown signs of strength, further supporting economic recovery.

For FY25, India’s real GDP growth stood at 6.5%, slightly below the Reserve Bank of India’s (RBI) forecast of 6.6%, according to data from the National Statistics Office. The nation's ability to maintain steady growth amidst global headwinds highlights its economic resilience and growing influence in the international arena.

Strategic Recommendations for Developing Economies

The World Bank emphasized the importance of strategic trade and investment partnerships for developing economies, including India. Greater trade liberalization and diversification — particularly through regional agreements — were identified as key strategies to mitigate global and regional risks. By pursuing these strategies, countries can strengthen their economic foundations and better navigate an uncertain global landscape.

India’s economic outlook remains strong, with consistent growth forecasts positioning it as a global leader among major economies. However, challenges such as trade tensions, global policy uncertainty, and regional risks underline the need for continued fiscal discipline and strategic policymaking. As the nation advances toward its fiscal and economic goals, its resilience and adaptability will be critical in shaping its future trajectory.