India’s growth to slow down in FY27, but still to remain fastest-growing major economy: World Bank

The World Bank, in its Global Economic Prospects report, has said that India’s economic growth is likely to moderate to 6.6%in fiscal year 2026-27 (FY27), down from 7.7% in the previous year. Despite this slowdown, India is likely to retain its position as the world’s fastest-growing major economy. The moderation in growth is attributed to slower private demand, driven by higher energy prices and rising input costs. However, the report noted that reductions in Goods and Services Tax (GST) rates are expected to provide some support to consumer demand. It also projected that economic growth would rebound to 7.2% in FY28.

The report further highlighted that, despite heightened uncertainty arising from the ongoing conflict, India’s economic activity remained robust in the early part of the year, supported by resilient domestic demand. Private consumption, particularly in rural areas, remained strong, while urban demand showed signs of recovery. It also noted a steady increase in tax collections from domestic sales. To ease inflationary pressures stemming from higher energy costs and shortages of agricultural products - especially fertilizers- the government has implemented several measures, including reductions in fuel taxes.

It said ‘Reduced US tariffs and the expected implementation of free trade agreements will likely mitigate the impact of weaker external demand due to the conflict, particularly on merchandise exports’. It further said ‘Growth is then anticipated to rebound over the next two fiscal years, driven by firming domestic demand and a pickup in export growth’. In per capita terms, growth in Emerging Markets and Developing Economies (EMDEs) in 2026 is projected to slow to its weakest pace since the pandemic, with the conflict and lingering disruptions impacting EMDEs to varying degrees.

In EMDEs, excluding China and India, subdued per capita income growth is expected to lead to nearly a decade of lost income convergence with advanced economies by 2028. Moreover, growth in the South Asia Region is expected to soften to 6.3% in 2026, mainly reflecting the adverse impact of the conflict in the Middle East, including higher energy prices, reduced supplies of oil and natural gas, and disruptions to remittances and tourism.