World Bank Raises India's Growth Forecast to 6.5% for FY25

World Bank Raises India's Growth Forecast to 6.5% for FY25

The World Bank has increased India's growth projection for the current financial year to 6.5%, up from the previous estimate of 6.3%. This adjustment is attributed to a stronger-than-expected performance in the first quarter. However, the bank has lowered its growth forecast for the next financial year, FY27, to 6.3% due to the impact of a significant 50% tariff imposed by the United States on Indian goods.

In its South Asia Development Update, the World Bank highlighted that India is expected to remain the fastest-growing major economy, driven by robust consumption growth. The report noted that domestic conditions, particularly in agriculture and rural wage growth, have exceeded expectations. It stated, "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 report also mentioned that real GDP growth in India accelerated to 7.8% in the April-to-June quarter of 2025. Despite this positive outlook, the forecast for FY26/27 has been downgraded due to the imposition of high tariffs on a large portion of India’s exports to the US. Approximately one-fifth of India's goods exports were sent to the US in 2024, which accounted for about 2% of the country's GDP.

The World Bank emphasized that strong private consumption and investment have bolstered growth, aided by lower-than-expected prices. It noted, "Investment growth remains robust, supported by public infrastructure projects, strong credit growth, and loosening monetary policy."

Inflation in India was recorded at 2.1% in August, remaining within the central bank's target range of 2-6%. The central bank has maintained its policy rate at 6.5% since early 2023 but has reduced it by one percentage point since the start of 2025. Public investment growth in India averaged 10% from 2022 to 2024, significantly higher than the average of 0.6% for Emerging Market and Developing Economies (EMDEs). The report concluded that facilitating internal worker migration could help individuals access higher-productivity jobs in growing regions.