The World Bank has revised its growth forecast for India for the financial year 2025–26 (FY26) to 6.3 percent, a downward adjustment of 0.4 percentage points from the earlier forecast of 6.7 percent made in January 2025. This change reflects subdued export activity and slower investment growth, in line with a broader global economic slowdown.

Despite the cut, India is projected to remain the fastest growing major economy in the world, according to the World Bank’s June 2025 edition of the Global Economic Prospects report, which was released on June 10, 2025, in Washington, D.C.

India’s Growth Outlook: What the World Bank Says

According to the World Bank’s report, “India is projected to maintain the fastest growth rate among the world’s largest economies, at 6.3% in FY 2025-26.” This statement highlights India's continued economic strength even amid global headwinds. However, the downward revision underscores challenges India faces in terms of external trade and investment momentum.

The report added that the 0.4 percent downgrade in India’s GDP growth is in sync with the World Bank’s overall global growth forecast, which has also been revised downward from 2.7 percent to 2.3 percent.

Key Reasons Behind the Downgrade

1. Subdued Export Growth:
   The World Bank has attributed India’s downgrade to weaker activity in key trading partners, as global demand slows. In addition, rising global trade barriers and geopolitical tensions have hampered India’s export potential. Major markets such as the European Union, United States, and China are experiencing stagnation, which directly affects Indian exporters.

2. Slowdown in Investments:
   According to the report, investment growth is expected to decelerate. This is largely due to heightened global policy uncertainty, including tighter monetary policies, elevated inflationary trends, and the volatile geopolitical landscape affecting investor confidence. The World Bank warns that unless certainty returns to the global markets, private capital investment may remain cautious.

3. Domestic Industrial Slowdown:
   The Bank notes that industrial production in India has moderated, which weighs down on overall economic activity. This contrasts with steady services sector activity and a partial recovery in agriculture, both of which have offered some balance to the slowdown.

Comparison With RBI Forecast

The Reserve Bank of India (RBI), in its latest monetary policy review on June 6, had forecasted a slightly higher GDP growth of 6.5 percent for FY26. This difference between the RBI’s and the World Bank’s projections reflects differing assumptions about global economic recovery, domestic resilience, and policy outcomes.

While the RBI remains cautiously optimistic about domestic demand, the World Bank appears more conservative, given India’s dependence on external trade and capital flows for higher growth trajectories.

Medium-Term Prospects: Optimism Beyond FY26

Despite the lowered outlook for FY26, the World Bank maintains a positive medium-term view on the Indian economy. It projects India’s GDP growth to rise again in FY27 and FY28, reaching an average of 6.6 percent annually.

This projected rebound will be led by:

• Robust services activity

• Improvement in global trade conditions

• Recovery in exports

• Strong consumption patterns

• Continued infrastructure push

The report mentions that the services sector in particular will play a central role in India’s growth story, as digital transformation, outsourcing, and financial services continue to boom.

Context: Global Economic Trends and Their Impact on India

The global economy, as outlined in the same World Bank report, is currently facing its slowest pace of expansion since 2008, barring full-fledged global recessions.

World Bank’s Chief Economist Indermit Gill remarked in a blog post accompanying the report, “This year alone, our forecasts indicate the upheaval will slice nearly half a percentage point off the global GDP growth rate that had been expected at the start of the year, cutting it to 2.3%.”

He further added, “That’s the weakest performance in 17 years, outside of outright global recessions.” This global slump is due to:

• Ongoing geopolitical conflicts

• Stubbornly high inflation

• Trade protectionism

• Delayed recovery in key economies

India, while somewhat shielded by its strong domestic demand, is not immune to these factors.

South Asia Regional Outlook

India, being South Asia’s largest economy, has a strong influence on the regional economic performance. According to the World Bank:

• South Asia’s outlook depends heavily on India’s economic activity.

• Any dip in Indian growth directly impacts countries like Bangladesh, Nepal, Sri Lanka, and Bhutan, which are closely integrated through trade and remittances.

Policy Implications and What Needs to Be Done

The World Bank’s growth downgrade serves as a cautionary signal for policymakers. The report implicitly recommends that India should:

1. Diversify its export basket to reduce over-dependence on specific markets.

2. Enhance infrastructure and reduce logistics costs to improve trade competitiveness.

3. Stabilise regulatory and taxation frameworks to attract more private investment.

4. Strengthen agricultural productivity and supply chains to support rural consumption.

5. Encourage digital economy and services exports, which are less vulnerable to geopolitical barriers.

The focus should be on ensuring that India’s economic fundamentals remain strong, especially as the global economy undergoes a transition period.

What Lies Ahead

The global economy is likely to remain uncertain in the short term. India’s economic strategy in the next few quarters will have to walk a fine line between:

• Boosting domestic demand

• Ensuring fiscal prudence

• Stimulating exports

• Maintaining inflation control

If India can continue its capital expenditure momentum, stimulate private sector confidence, and enhance global competitiveness, the forecasted rebound to 6.6 percent growth in FY27 and FY28 may well be achievable.

Conclusion: Growth May Slow, But India Retains Momentum

While the World Bank has trimmed India’s FY26 growth forecast, it remains clear that India is still in a position of strength compared to most global economies. The report reaffirms that India’s structural fundamentals are intact, and its long-term outlook remains robust.

In a volatile global economic environment, India’s resilience, domestic demand, and tech-driven services sector could continue to anchor its growth, even amid temporary slowdowns.

Disclaimer

This article is for educational and informational purposes only and does not constitute financial advice. Investment decisions should be based on individual risk tolerance and consultation with SEBI-registered advisors. Market conditions are volatile and subject to change. Neither the author nor the platform is responsible for losses arising from use of this information.

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