World Bank Increases 2026 Growth Projection

Context

The World Bank has raised India's growth forecast for the fiscal year 2025-26 from 6.3% to 6.5%. This increase is primarily a result of a strong domestic market and the impact of the government's visionary GST reforms.

State of Performance on the Domestic Front

• The World Bank's South Asia Development Update report, released in October 2025, presents positive signs for India. According to this report, India's real GDP growth rate in the April-June quarter of 2025 was 7.8%, exceeding all forecasts. This performance is attributed to rising private consumption, accelerating investment, and controlled inflation.
• According to the World Bank, India is expected to remain the world's fastest-growing major economy, driven by sustained consumption growth.
• Furthermore, domestic conditions, such as improved agricultural production and rising rural wages, have been better than expected, providing real strength to the economy.
• Government reforms, such as reducing GST (Goods and Services Tax) slabs and simplifying compliance procedures, are also being considered important factors boosting economic activity.

Next Year's Challenge: Trump's Tariff War

• The report also notes that increased US tariffs will put pressure on Indian exports. Due to current tensions in trade relations with the US, India could face tariffs of up to 50% on nearly three-quarters of its goods.
• This is the primary reason for reducing the growth forecast from 6.5% to 6.3%. Nearly 20% of India's merchandise exports go to the US, representing approximately 2% of GDP.

Tariff Duty

• A tariff refers to a tax or duty imposed on imports or exports
• When a country imports goods from another country, the government imposes a certain tax on those goods, which is called an import tariff.
• Similarly, if a country imposes a tax on its exports, it is called an export tariff.

Conclusion

The World Bank projects that India's economy will remain the world's fastest-growing major economy in 2025-26, but US tariffs may slow Indian growth in 2026-27. Amid these changing circumstances, India will need to reorient its trade and economic strategies.