World Bank Retains India’s FY26 Growth Forecast at 6.3%

Context:

In its latest Global Economic Prospects report, the World Bank retained its FY26 GDP growth forecast for India at 6.3%, despite a global economic slowdown driven by policy uncertainty and trade tensions. This forecast reaffirms India's position as the fastest-growing large economy.

India’s Economic Outlook:

FY26 GDP growth forecast: Unchanged at 6.3%
FY27 growth projection: projected at 6.5%
FY28 projection: Estimated to rise to 6.7%, supported by robust services and a moderate recovery in exports
Domestic inflation: Expected to average 3.7% in FY26, giving policymakers room to stimulate growth
Public debt-to-GDP ratio: Projected to gradually decline, aided by fiscal consolidation and revenue buoyancy

Global Economy forecast:

While India's growth resilience stood out, the broader global picture painted by the World Bank was far more concerning. Growth projections were revised down for nearly 70% of the world’s economies, driven by surging trade tensions, policy unpredictability, and waning investment confidence.

Global growth for 2025: Lowered to 2.3% (from 2.7% in January), the slowest pace outside recessions since 2008
2026 forecast: Marginal improvement to 2.4%
2027 outlook: Slight uptick to 2.6%, still below pre-pandemic norms

Factors Driving Global Slowdown:

1. Trade Retrenchment:
Trade growth has decelerated from an average of 5% in the 2000s to below 3% in the 2020s, mirroring slowing global output.

2. Investment Drag:
Policy instability and financial volatility have weakened global capital flows. The report noted rising global debt levels paired with declining investment growth.

3. Tariff Wars:
The resurgence of protectionist policies, notably by the US and China, has rattled global supply chains. The Trump administration’s April 2025 tariff rollout, although temporarily paused, remains a major uncertainty.

4. Geopolitical Tensions:
Ongoing trade negotiations between the US and China, marred by export controls and retaliatory measures, could either further depress or marginally lift growth depending on the outcome.

RBI and Fiscal Strategy:

The Reserve Bank of India (RBI) recently took an accommodative turn, slashing the repo rate by 50 bps to 5.50%—bringing total rate cuts in 2025 to 100 bps. The Monetary Policy Committee (MPC) emphasized the need to stimulate private consumption and investments, especially with inflation staying comfortably within the target range.

Despite the World Bank’s modest projection, the RBI and Indian government remain more optimistic, with official FY26 growth forecasts ranging from 6.3% to 6.8%.

Conclusion:

While global economic headwinds persist, India continues to stand out as a beacon of relative stability and growth. The World Bank's stable outlook reaffirms India’s resilience, but also underscores the need for continued policy support, export diversification, and investment in productivity-enhancing reforms to sustain momentum in a rapidly shifting global landscape.