World Bank Increases India's FY26 Growth Estimate to 6.5%, Sees Country as Fastest-Growing Large Economy

New Delhi, October 7, 2025 – The World Bank on Tuesday increased India’s GDP growth estimate for FY2025-26 to 6.5% from the earlier 6.3% on the back of strong domestic consumption, continued rural upturn, and the benefits from the implementation of GST 2.0 reforms. As per the most recent South Asia Development Update (October 2025), India will continue to be the world’s fastest-growing large economy, despite the lender warning of potential headwinds from the United States’ 50% tariffs on Indian exports.

Domestic Consumption Drives Growth

The World Bank highlighted that India’s growth momentum rests on robust domestic demand, more than anticipated farm production, increasing rural wages, and easy GST structures with fewer tax slabs and reduced compliance. Such domestic drivers are poised to offset short-term external pressures, including moderation in global trade and constraint on exports due to tariff-related issues.

Tariff-Related Adjustments for FY27

While retaining a positive near-term projection, the World Bank lowered India’s FY2026-27 growth projection from 6.7% to 6.5%, ascribing the downgrade to the 50% tariff on about three-quarters of India’s goods exports to the US. Further out, FY2027-28 GDP growth is expected to moderate to 6.3% as global economic activity stabilizes and external demand returns to normal.

Regional Context and Inflation Outlook

South Asia as a whole will see growth moderate from 6.6% in 2025 to 5.8% in 2026, although the region will still grow faster than other emerging and developing economies. India’s inflation, as well as that of neighboring countries, is expected to stay in or move towards central bank targets, aided by stable food prices and conservative monetary policy actions.

Outlook

The World Bank concluded that India has the potential to maintain high growth over the medium term due to robust domestic demand, policy stability, and continued fiscal reforms. Nevertheless, global market volatility and trade protectionism may slow down export momentum and therefore it is indicated that external risks are likely to remain a dominant driver influencing the country’s growth path for the next two years.

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