The World Bank on 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 estimate by 20 basis points to 6.3%, citing the impact of steeper-than-expected US tariffs on Indian exports.
“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).
“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.
To be sure, global agencies have offered a range of forecasts for India’s 2025-26 growth, reflecting both optimism and caution.
Mixed forecasts
Fitch Ratings is the most upbeat, projecting 6.9% growth on the back of strong momentum in services and resilient household and government spending.
The Reserve Bank of India (RBI) has placed its estimate slightly lower at 6.8%, citing robust consumption, investment, and public spending, supported by an above-normal monsoon and the GST overhaul.
The Organisation for Economic Co-operation and Development (OECD) expects 6.7% growth, citing solid domestic demand and a stable external sector, while S&P Global and the Asian Development Bank (ADB) forecast growth at 6.5%, with the ADB highlighting potential drag from new US tariffs on exports.
Meanwhile, strong rural wage growth helped offset weakness in urban consumption, as evidenced by slower car sales and personal credit demand. Industrial production and imports maintained solid momentum, according to the World Bank.
However, it added that net foreign portfolio inflows turned negative in June amid rate cuts and heightened geopolitical uncertainty.
South Asia outlook
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.
To be sure, 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.
US tariff impact
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, addingthat 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.
She added that the World Bank could revise its estimates for India if necessary, but cautioned that it may take a few quarters for the GST benefits to be reflected in the country’s growth numbers.
Upside risks
Ohnsorge said there are also upside risks, but emphasized that the main downside for South Asia, and India in particular, remains a potential global economic slowdown.
While the region has so far seen mostly positive surprises, she warned that growth could decelerate sharply if the global economy softens.
“India is more insulated than other major emerging markets, but it is not immune and would still be affected,” she said, identifying this as the foremost risk for the country.
She added that longer-term risks and opportunities stem from technology-driven developments, particularly those related to artificial intelligence and trade, which could reshape the region’s growth dynamics.
AI impact
Speaking on AI, Ohnsorge said while US studies show many jobs exposed to AI, exposure doesn’t indicate whether the effect is positive or negative.
Using the same methodology for India, she noted that far fewer workers are exposed, given the country’s large agricultural and manual labour base, making it less vulnerable to AI risks and opportunities.
About 23% of jobs-and 42% of wages-are in roles exposed to AI, many of which are high-skill “good” jobs requiring judgment and experience, she said.
The impact depends on whether roles are complementary to AI, offering productivity gains, or substitutable, where workers could be replaced, she said, adding that service-sector roles that complement AI could see productivity gains of roughly 15%.
“Entry-level or mid-skill positions for college-educated workers are most at risk,” she said, adding that these tasks are more easily automated.
Understanding which jobs are complementary versus substitutable is key to gauging India’s AI exposure, she added.
“The ones who benefit the most are highly skilled and experienced professionals whose work requires judgment, context, and personal skills-roles AI cannot replicate,” Ohnsorge said.
For example, a dentist, you can’t do without one, even if AI assists. That’s roughly 15% of jobs that gain from AI, and on balance, more people should benefit overall,” she added.
Meanwhile, speaking on trade, Ohnsorge said India will need to carry out labour market reforms to boost its trade prospects.
“I know labour market reform can be contentious. It could take many forms to make it easier for people to switch jobs, skills development, training, and so on,” she added.