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World Bank Retains India’s FY26 Growth Forecast at 6.7%

The global economy is forecast to grow at 2.7 per cent in both 2025 and 2026, mirroring the 2024 growth rate, as inflation and interest rates decline gradually.

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World Bank Retains India’s FY26 Growth Forecast at 6.7%

The World Bank on Thursday maintained its growth forecast for India at 6.7 per cent for the fiscal year 2025-26, reaffirming that the country will continue to be the fastest-growing major economy for the next two years.

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In its Global Economic Prospects report, the multilateral lender projected that India's services sector would see sustained expansion, while manufacturing activity is expected to strengthen, supported by government efforts to enhance logistics infrastructure and improve the business environment through tax reforms.

“The services sector is expected to enjoy sustained expansion, and manufacturing activity is anticipated to strengthen, supported by government initiatives to enhance logistics infrastructure and improve the business environment through tax reforms,” the report stated.

The global economy is forecast to grow at 2.7 per cent in both 2025 and 2026, mirroring the 2024 growth rate, as inflation and interest rates decline gradually. Developing economies are expected to maintain a steady growth rate of about 4 per cent over the next two years.

Highlighting long-term challenges for developing economies, World Bank Chief Economist Indermit Gill remarked, “The next 25 years will be a tougher slog for developing economies than the last 25. Most of the forces that once aided their rise have dissipated. In their place, headwinds—high debt, weak investment and productivity growth, and rising costs of climate change—have come. Developing economies will need a new playbook that emphasizes domestic reforms to quicken private investment, deepen trade relations, and promote more efficient use of capital, talent, and energy.”

The World Bank noted that India’s private consumption growth would be supported by an improving labor market, expanding credit, and declining inflation, though government consumption growth may remain limited. It added, “Overall investment growth is expected to be steady, with rising private investment, supported by healthy corporate balance sheets and easing financing conditions.”

India’s economic growth is projected to decelerate to 6.5 per cent in 2024-25 from 8.2 per cent in 2023-24 due to a slowdown in investment and weak manufacturing growth. However, the report highlighted that services activity has remained stable, while agricultural growth has recovered. “Private consumption growth has remained resilient, primarily driven by improved rural incomes. In contrast, higher inflation and slower credit growth have curbed consumption in urban areas,” it stated.

The fiscal policies in most South Asian countries, including India, are expected to remain tight over the forecast period. The report further noted, “In India, fiscal deficits are expected to continue shrinking, largely on account of growing tax revenues.”

The World Bank identified heightened policy uncertainty, including adverse trade policy shifts in major economies, as a significant downside risk for the South Asian region. “Recent trade-distorting measures against SAR countries have declined, further intensification of protectionist policies, especially in the United States and Europe, could reduce manufacturing and other industrial goods exports, dampening growth prospects,” it cautioned.

Other risks to the region include higher commodity prices, social unrest, tighter-than-expected monetary policies in response to persistent inflation, climate-related natural disasters, and weaker-than-anticipated growth in major economies.

Also Read: India’s Agri and Processed Food Exports Rise 11% to $17.77 Billion in FY25

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