Rama Krishna Sangem
Notwithstanding Trump tariffs, the World Bank on October 7, Tuesday raised India’s economic growth forecast for 2025-26 to 6.5% from 6.3% projected in June, even as it trimmed its 2026-27 estimates by 20 basis points to 6.3%, citing the impact of steeper-than-expected US tariffs on Indian exports.
India will remain the world’s fastest-growing major economy, underpinned by continued strength in consumption growth, according to the World Bank’s biannual South Asia Development Update (October 2025).
The government’s reforms to the GST are expected to support activity, the World Bank said. The government’s reforms to the GST are expected to support activity, the World Bank said.(AFP)
“India is expected to remain the world’s fastest-growing major economy, underpinned by continued strength in consumption growth. Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected,” the World Bank said in its biannual South Asia Development Update (October 2025).
GST, IT reforms boost economy
“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. The forecast for FY26/27 has been downgraded, however, as a result of the imposition of a 50% tariff on about three-quarters of India’s goods exports to the US,” it added.
The multilateral lender noted that while India had been expected to face lower US tariffs than its competitors earlier this year, by the end of August, it faced considerably higher rates. Nearly one-fifth of India’s goods exports went to the US in 2024, equivalent to approximately 2% of the country’s gross domestic product (GDP).
India’s real GDP growth outperformed expectations in the June quarter of 2025, accelerating to 7.8% year-on-year, driven by strong private consumption and investment amid lower-than-expected prices, according to the World Bank.
Investment momentum also remained firm, supported by public infrastructure spending, robust credit growth, and monetary easing, it said. Global agencies have offered a range of forecasts for India’s 2025-26 growth, reflecting both optimism and caution.
India accounts for 70 pc of South Asian growth
The World Bank also said South Asia’s growth is likely to surpass earlier expectations, reaching 6.6% in 2025 before easing to 5.8% in 2026, partly due to the higher US tariffs on Indian exports.
India accounts for nearly 70% of South Asia’s total economic output, according to the lender. In comparison, Bangladesh is projected to grow at 4.8% in 2025-26 and 6.3% in 2026-27; Nepal at 2.1% and 4.7%; Sri Lanka at 3.5% and 3.1%; Bhutan at 7.3% and 6.1%; and the Maldives at 3.9% and 4%, respectively.
Higher impact of US tariffs
India’s Q1FY26 GDP growth of 7.8% was “well above our projections”, Franziska Ohnsorge, the World Bank’s chief economist for South Asia, told Mint, adding that the growth is expected to moderate as part of the surge was one-off.
“The tariffs have turned out to be higher than we had anticipated earlier. Remember, our previous forecast in April was based on a 25% tariff; now it’s 50%. So, naturally, we had to revise our projections,” she said.
However, Ohnsorge noted that the World Bank’s October forecast does not yet factor in the recent GST rate rationalization rolled out in September, which the government expects will boost consumption during the festive season and, in turn, support stronger growth.
