World Bank Lowers India’s FY26 Growth Outlook to 6.3%
The World Bank has revised its GDP growth forecast for India, lowering it to 6.3 percent for the fiscal year 2025-26, a decrease of 0.4 percentage points from its earlier estimate of 6.7 percent. This adjustment is attributed to global economic challenges and uncertainties in domestic policy, as highlighted in the bank’s latest South Asia Development Update. The report indicates that while private investment benefits from monetary easing and regulatory changes, these gains may be overshadowed by external economic pressures and domestic policy instability.
Economic Growth Projections
According to the World Bank, India’s economic growth is expected to decelerate from 6.5 percent in FY 2024-25 to 6.3 percent in FY 2025-26. The report emphasizes that the anticipated advantages of monetary easing and regulatory reforms for private investment may not be sufficient to counterbalance the effects of global economic weakness and domestic policy uncertainties. The bank noted that India’s growth has not met expectations in the current fiscal year, primarily due to lower-than-expected private investment and failures to meet public capital expenditure targets. This trend raises concerns about the overall economic trajectory as the country navigates through challenging times.
Regional Economic Outlook
The World Bank’s report also highlights a broader trend of lowered growth projections across South Asia. The region’s growth is now expected to ease to 5.8 percent in 2025, a reduction of 0.4 percentage points from previous forecasts. However, a slight rebound to 6.1 percent is anticipated in 2026. The report underscores the importance of enhancing domestic revenue collection to strengthen fiscal positions across South Asian countries, which would help build resilience against future economic shocks. Despite high tax rates in the region, overall tax revenue remains low, averaging only 18 percent of GDP from 2019 to 2023, significantly below the 24 percent average for other developing economies.
Comparative Growth Forecasts for Neighboring Countries
In addition to India’s revised forecast, neighboring countries are also facing economic challenges. Bangladesh’s growth is projected to decline to 3.3 percent in FY 2024-25 due to political instability and ongoing financial difficulties, with a modest recovery to 4.9 percent anticipated in FY 2025-26. Pakistan’s growth is expected to be 2.7 percent in FY 2024-25 and 3.1 percent in FY 2025-26 as it continues to recover from recent natural disasters and high inflation. Meanwhile, Sri Lanka is projected to grow by 3.5 percent in 2025, aided by progress in debt restructuring and improved investment conditions, although growth is expected to moderate to 3.1 percent in 2026.
Implications for Future Economic Policies
The World Bank’s findings suggest that while tax cuts have bolstered private consumption and improved public investment execution, export demand remains constrained due to changing global trade dynamics and a slowdown in international growth. The report calls for a reevaluation of fiscal policies to enhance revenue collection and address the persistent gaps in consumption, corporate, and personal income taxes across South Asia. As countries in the region grapple with these economic challenges, the focus on strengthening fiscal frameworks will be crucial for sustainable growth in the coming years.
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