The World Bank has cut India’s growth forecast by 0.4 percentage points to 6.3 per cent from 6.7 per cent for the current financial year 2025-26, citing global economic weakness and policy uncertainty. It is seen slowing from 6.5 per cent growth estimate (7.0 per cent earlier) in FY25, the Bank said in its latest South Asia Development Update on Wednesday.
“In India, growth is expected to slow from 6.5 per cent in FY25 to 6.3 per cent as in FY26 as the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty,” the World Bank said.
The downgrade in India’s growth projections by the Bank comes just a day after the International Monetary Fund (IMF) also cut the growth forecast for India. The IMF had by 0.3 percentage points to 6.2 per cent from 6.5 per cent for FY26 and by 0.2 percentage points to 6.3 per cent from 6.1 per cent for FY27.
The estimates are lower than the 6.5 per cent growth projection by the Reserve Bank of India (RBI) for FY26. As per the RBI, the real GDP growth for India for FY26 is seen to be lower than the earlier projection of 6.7 per cent, with Q1 growth seen at 6.5 per cent; Q2 at 6.7 per cent; Q3 at 6.6 per cent; and Q4 at 6.3 per cent.
“Multiple shocks over the past decade have left South Asian countries with limited buffers to withstand an increasingly challenging global environment,” said Martin Raiser, World Bank vice-president for South Asia. “The region needs targeted reforms to address vulnerabilities such as fragile fiscal positions, backward agricultural sectors, and the impact of climate-related shocks.”
Growth was affected in the previous financial year 2024-25 due to slower pace of private investment and public capital expenditure falling short of targets set by the government, the Bank said. The government has announced fiscal consolidation but also tax cuts to support private consumption and regulatory streamlining to spur private investment, it said. However, the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty, it said.
“Private consumption is expected to benefit from tax cuts, and the improving implementation of public investment plans should boost government investment, but export demand will be constrained by shifts in trade policy and slowing global growth,” the Bank said.
The World Bank also made a mention of the rapid rise in India’s equity markets in recent years, in terms of both listings and valuations, that has attracted significant, although volatile, net inflows. Noting that India’s number of initial public offerings (IPOs) was second only to the US in the value of new listings in 2024, Bank said the equity correction could dampen consumption. “Equity derivatives markets have grown particularly quickly, prompting interventions from regulators concerned about investor protection. Since peaking late last year, however, valuations have undergone a correction. For now, this has not had broader ripple effects, but the decline in equity prices could dampen private consumption or investment over the medium term,” it said.
How India’s neighbours are likely to perform
Commenting on the debt position in South Asia, the Bank said governments in India, Maldives, Pakistan, and Sri Lanka are already liable for above-average net interest payments relative to GDP, and will seek to finance fiscal deficits of between 7-17 per cent of GDP in 2025. “In some countries, growing debt service pressures could generate cycles of rising risk premia and debt distress,” it said.
Overall, growth in South Asia is expected to soften to 5.8 per cent in 2025, 0.4 percentage point below October forecasts before rising to 6.1 per cent in 2026. The region’s economies face heightened downside risks, including from a highly uncertain global landscape, it said.
Growth is projected to be slower for India’s neighbours such as Bangladesh, where the growth is seen slowing to 3.3 per cent in FY25 amid political uncertainty and persistent financial challenges, and then a pickup to 4.9 per cent in FY26. In Bhutan, the growth forecast for FY25 has been downgraded to 6.6 per cent due to weak agriculture sector growth but upgraded in FY26 to 7.6 per cent due to expected strength in hydropower construction.
Pakistan’s economy is expected to grow by 2.7 per cent in FY25 and 3.1 per cent in FY26. In Sri Lanka, the government has made further progress with debt restructuring, and a projected rebound in investment and external demand is expected to lift growth in 2025 to 3.5 per cent, after which it is seen moderating to 3.1 per cent in 2026, the Bank said.
