World Bank retains India’s FY26 growth forecast at 6.3%; downgraded from January estimate

The World Bank has retained its forecast for India's economic growth at 6.3% for the financial year 2025-26, even as global headwinds, including weakening export demand and rising trade barriers, weigh on the outlook, according to its latest Global Economic Prospects report released on Tuesday.

India is expected to remain the fastest-growing major economy in the world during FY26, supported by robust domestic demand and resilient services sector activity.

However, the latest projection marks a 0.4 percentage point downgrade from the World Bank’s January 2025 estimate, primarily due to weaker activity in key trading partners and an increasingly restrictive global trade environment.

In April, the World Bank had lowered India's growth projection for 2025-26 to 6.3% from its January forecast of 6.7%.

“Investment growth is expected to slow, primarily reflecting a surge in global policy uncertainty,” the report said.

The multilateral agency expects growth to rebound to an average of 6.6% in FY2026-27 and FY2027-28, partly supported by robust services activity that contributes to a pickup in exports.

Inflation in India is projected to remain contained over the forecast period, assuming normal seasonal conditions prevail.

The agency expects China to grow at 4.5% in 2025 and 4% next year.

In its regional outlook, the World Bank forecasted South Asia’s growth, excluding India, to inch up to 3.6% in 2025 and further to 4.4% in 2026-27, supported by easing inflation and improving macroeconomic stability in several economies.

Among India’s neighbours, Bangladesh’s economy is projected to expand by 4.9% in FY2025-26 and accelerate to 5.7% in the following year, aided by recovering investment, stable political conditions, and sustained remittance inflows. However, export activity is expected to remain constrained by softer external demand.

Pakistan’s growth is forecast to strengthen modestly to 3.1% in FY2025-26 and 3.4% in FY2026-27, supported by improving business confidence and easing borrowing costs.

Sri Lanka’s economy, grappling with the after-effects of its recent crisis, is expected to grow by 3.5% this year, slowing further to an average of 3.1% in 2026-27, as investment weakens amid persistent structural challenges and global uncertainties.

The report said a global recession is not expected. Nevertheless, if forecasts for the next two years materialise, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.

It also said global growth could rebound faster than expected if major economies are able to mitigate trade tensions, which would reduce overall policy uncertainty and financial volatility.

The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026.