The World Bank on Tuesday raised its forecast for India’s economic growth in fiscal year 2025–26 (FY26) to 6.5 percent, up from its June projection of 6.3 percent, while trimming the growth outlook for FY27 to 6.3 percent, citing adverse effects from new U.S. tariffs, according to its South Asia Development Update.
The upgrade for FY26 reflects stronger-than-expected domestic demand, a resilient rural recovery, improved agricultural output, rising rural wages, and support from recent tax reforms including changes in India’s Goods and Services Tax (GST) regime.
In its update, the Bank stated that India is expected to remain the world’s fastest-growing major economy, supported by continued strength in consumption growth.
However, the Bank’s revision downward for FY27 is driven by concerns that significantly higher tariffs imposed by U.S. President Donald Trump on Indian exports will weigh on growth, particularly in export-intensive and labour-intensive sectors.
The U.S. tariffs, which reach up to 50 percent, affect a broad swath of Indian goods exports, including textiles, gems and jewellery, and seafood, according to the World Bank report.
The Bank noted that nearly one-fifth of Indian goods exports in 2024 went to the U.S., equivalent to roughly 2 percent of India’s GDP, making the country vulnerable to U.S. trade actions. It further observed that while India had been expected to face lower U.S. tariffs relative to competitors earlier in the year, by August its tariff exposure had become “considerably higher.”
At the regional level, the World Bank projects that growth in South Asia will slow sharply: from 6.6 percent in 2025 to 5.8 percent in 2026.
The Bank flagged multiple downside risks to the region’s outlook, including global economic uncertainty, shifts in trade policy (especially on intermediate goods), socio-political tensions, and labour market disruptions due to artificial intelligence (AI) advancements.
The World Bank also argued that further reforms—particularly lowering tariffs, improving trade openness, and encouraging technology adoption—could help India and the region mitigate these headwinds and sustain inclusive growth.
In response to these global pressures, Indian policymakers have signalled continued support for the economy. In recent comments, Finance Minister Nirmala Sitharaman reaffirmed the government’s commitment to boosting capital investment to offset external headwinds.
The Reserve Bank of India has also maintained its policy rate, holding it steady at 5.5 percent, while raising its own FY26 growth outlook.
Overall, while the World Bank has raised its near-term optimism for India’s growth trajectory, it tempers that with caution about U.S. tariffs and broader trade pressures that could dampen momentum starting in FY27.
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