India's Economic Growth Forecast Remains Strong Amid Global Uncertainties
India's Projected Economic Growth
According to a recent report from the World Bank, India's economy is expected to expand at a rate of 6.3% during the financial year 2025-2026. This forecast was confirmed in the latest edition of the 'Global Economic Prospects' report, where the World Bank maintained its growth prediction for the current fiscal year, despite a previous reduction of 40 basis points in April.
For context, a basis point is one-hundredth of a percentage point, commonly used to indicate changes in financial metrics.
The World Bank has expressed concerns regarding a potential decline in investment driven by global economic uncertainties. Nevertheless, India is projected to be the fastest-growing major economy worldwide at this rate.
Additionally, the World Bank has revised its growth forecast for India downwards by 20 basis points for the fiscal year 2026-2027, now estimating it at 6.5%. The GDP is anticipated to grow by 6.7% in 2027-2028, supported in part by strong service sector activity that is expected to enhance export performance.
Recent Monetary Policy Changes
The World Bank's decision to uphold the 6.3% growth forecast follows the Reserve Bank of India's recent announcement of a larger-than-anticipated 50 basis point reduction in its policy repo rate on June 6, lowering it to 5.5%.
The repo rate is the interest rate at which the central bank lends to commercial banks, and adjustments to this rate are made by the Reserve Bank's Monetary Policy Committee every two months. Typically, a decrease in the repo rate aims to stimulate economic growth by making borrowing more affordable for consumers and businesses, resulting in lower equated monthly installments for borrowers.
Global Economic Outlook
The World Bank has also downgraded growth forecasts for nearly 70% of global economies, attributing this to increased trade tensions and policy uncertainties. As a result, global growth is projected to decline to 2.3% in 2025, marking the slowest pace since 2008, excluding periods of outright global recessions.
In January, the global growth forecast for 2025 was set at 2.7%. The anticipated growth for 2026 is only slightly higher at 2.4%, down from the earlier prediction of 2.7%.
While a global recession is not anticipated, the average global growth for the early 2020s is on track to be the slowest since the 1960s if these forecasts materialize.
The World Bank noted that global growth could recover more swiftly than currently expected if major economies succeed in easing trade tensions, thereby reducing policy uncertainty and financial volatility. The analysis suggests that resolving current trade disputes and halving tariffs could enhance global growth by 0.2 percentage points on average during 2025 and 2026.
Impact of US Tariffs
On April 2, the United States announced 'reciprocal' tariffs affecting numerous countries, including a 26% levy on India. President Donald Trump has previously indicated his intention to impose a reciprocal tax on India, citing high tariffs on foreign goods.
The implementation of these tariffs began on April 9, but shortly after, Trump reduced the tariff rates on imports from most countries to 10% for a period of 90 days to allow for trade negotiations.