World Bank raises India’s FY26 growth forecast to 6.5%, cites tariff risks ahead

The World Bank on Tuesday raised India's economic growth forecast for FY26 to 6.5% from 6.3% earlier, while it lowered projections for FY27 by 0.2 percentage points to 6.3%, citing higher-than-anticipated tariffs by the US.

Even so, India is set to remain the world's fastest growing major economy, supported by resilient consumption growth, said the Bank in its latest South Asia Development Update, Jobs, AI, and Trade.

India’s economy grew 6.5% in FY25 and hit a five-quarter high of 7.8% in the April-June period.

“Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected. The government’s reforms to the Goods and Services Tax (GST)—reducing the number of tax brackets and simplifying compliance—are expected to support activity,” it said.

The US has imposed a 50% tariff on Indian goods, among the highest globally alongside Brazil. It is 20% on Bangladesh and Sri Lanka, and 10% on Nepal, Bhutan, and Maldives.

India's goods exports to the US account for around 2% of gross domestic product (GDP).

Overall, growth in South Asia is projected to ease to 5.8% in 2026 from 6.6% in 2025, in part due to higher tariffs on India by the US, according to the World Bank.

“The forecast for 2025 has been revised up (from 6.1%) amid higher-than-anticipated public investment in India and a broad-based recovery in Sri Lanka,” the report said.

“Despite the slowdown, South Asia will be the fastest growing economy in the emerging market region,” said Franziska Ohnsorge, World Bank chief economist for South Asia.

In the long run, the report noted, Artificial Intelligence could support productivity and growth.

“Increasing trade openness and growing adoption of AI could be transformative for South Asia,” said Ohnsorge.

She said that India is exceptionally well placed on the government AI Readiness Index, positing it to benefit from the shift towards AI.