The World Bank has revised down its projection for India’s economic growth in the fiscal year 2025–26, lowering it by 0.4 percentage points to 6.3 per cent.
The downgrade, from an earlier estimate of 6.7 per cent, reflects global economic sluggishness and persistent policy uncertainties affecting both domestic and external investment climates.
In its latest South Asia Development Update, the World Bank pointed out that India’s economic momentum has slowed more than previously anticipated.
The report noted that growth in the fiscal year 2024–25 was already below expectations due to weaker private investment and delays in public capital spending.
It further cautioned that while some relief is expected from monetary policy easing and regulatory improvements, these benefits may be offset by a challenging global environment and uncertain policy frameworks.
The report does highlight some positive factors, such as potential boosts in private consumption from recent tax cuts and more effective public investment implementation. However, it warns that sluggish export demand and evolving trade policies will likely restrict India’s external growth prospects.
This outlook aligns with the latest forecast by the International Monetary Fund (IMF), which has also trimmed its estimate for India’s current fiscal growth to 6.2 per cent from the earlier 6.5 per cent.
The IMF’s broader global growth forecast has similarly been revised down to 2.8 per cent from 3.3 per cent, citing growing risks from trade tensions and shifting international policies.
Despite these downgrades, the IMF still sees India playing an increasingly vital role in the global economy. According to data based on purchasing power parity, India is expected to contribute over 15 per cent of global growth through to 2030.
This places it as one of the leading growth engines globally, second only to China, which is projected to contribute 23 per cent. In comparison, the United States’ share is now anticipated to fall to 11.3 per cent.
The IMF's analysis suggests that global economic growth will remain heavily concentrated, with the top 25 economies accounting for 80 per cent of the total. Although the US’s contribution is expected to decline slightly, it is still likely to outpace that of the European Union in the near term.
Regionally, the World Bank's outlook for South Asia has dimmed. It now expects growth across the region to slow to 5.8 per cent in 2025, a 0.4 percentage point drop from its previous forecast. A moderate rebound is anticipated in 2026, with regional growth projected to reach 6.1 per cent.
The report also shed light on underlying vulnerabilities in South Asia’s fiscal structures. It observed that despite relatively high tax rates, tax revenues remain low across the region.
On average, South Asian governments collected just 18 per cent of GDP in revenue from 2019 to 2023, well below the 24 per cent average for other developing economies.
The shortfall was particularly stark in consumption taxes, as well as corporate and personal income tax collections.
To strengthen their fiscal positions and improve resilience against future shocks, the World Bank has urged South Asian countries to focus on increasing domestic revenue mobilisation.
In terms of individual nations, the report anticipates further economic challenges for several countries in the region.
Bangladesh is forecast to see growth slow to 3.3 per cent in FY2024–25, hampered by political instability and ongoing financial difficulties. Its expected rebound in FY2025–26 has been revised down to 4.9 per cent.
Pakistan, still grappling with the aftermath of natural disasters, high inflation, and external imbalances, is projected to grow by 2.7 per cent in FY2024–25 and 3.1 per cent in FY2025–26.
Sri Lanka, which has made strides in debt restructuring, is forecast to achieve a modest recovery. Its growth in 2025 is expected to reach 3.5 per cent, supported by improved investment and external demand, before easing slightly to 3.1 per cent in 2026.
Follow us
