A closer analysis of India’s new FY26 growth estimate reveals that the World Bank downgraded its prediction to 6.3%, or 40 basis points below 6.7%, in its April 2025 South Asia Development Update due to an array of international headwinds and internal investment failures. Weaker export demand in the face of trade tensions and a tighter global funding environment, along with slower private capital formation and underspending on public infrastructure at home, have dragged on the outlook. Other multilateral institutions echo the caution: the IMF forecasts 6.2% growth for India in FY26, and the RBI stands at 6.5%, capturing a broadly subdued near-term path. Forecast Revision and Context
Biannual South Asia Development Update
In its April 23, 2025, South Asia Development Update, the World Bank reduced regional growth estimates, with India’s estimate declining from 6.7% to 6.3% for FY2025- 26
FY26 Forecast Change for India
India’s fiscal year 2025-26 extends from April 1, 2025, through March 31, 2026. The 40 bps reduction is the first downward revision since October, highlighting increasing external and domestic uncertainties.
Drivers of the Revision
Global Economic Headwinds
The World Bank highlighted rising trade tensions and uneven recoveries in large markets as major drags on India’s export growth, along with tighter global financial conditions, benefits from domestic monetary easing, and regulatory reforms having been largely negated. Concurrently, the IMF trimmed its global growth forecast to 2.8% for 2025, noting a more widespread slowdown in world demand.
Domestic Growth Impediments
Even after two RBI rate cuts pushed the benchmark to 6%, corporate loan growth is weak, indicating caution by companies to increase lending in the face of uncertain demand. Public capital spending in FY25 also underperformed budgeted targets, limiting infrastructure-driven growth. Additionally, low tax collections, supported by a big informal sector, have restricted fiscal space for counter-cyclical support.
Institutional Comparisons
IMF’s 6.2% Projection
In its April 2025 update, the IMF trimmed India’s FY26 growth forecast to 6.2%, down from 6.5% in January, citing the same mix of external and policy uncertainties.
RBI’s 6.5% Outlook
The Reserve Bank of India maintained its FY26 estimate at 6.5%, projecting quarterly growth of 6.5%, 6.7%, 6.6%, and 6.3% in Q1 through Q4, respectively.
Private Sector and Other Forecasts
Large financial institutions have also tempered their expectations: Goldman Sachs reduced its FY26 estimate to 6.1%, while Citi puts the drag from new U.S. tariffs at 40 bps.
Regional Implications
Region-wide, growth is now estimated at 5.8% for 2025, 0.4 pp lower than in October’s projection.
- Bangladesh: Decelerate to 3.3% in FY24/25, recovering to 4.9% in FY25/
- Bhutan: Estimate reduced to 6.6% for FY24/25, increasing to 7.6% in FY25/26.
- Nepal: 4.5% growth in FY24/25 picking up to 5.2% in FY25/26
- Pakistan: Picking up to 2.7% in FY24/25 and 3.1% in FY25/26.
- Sri Lanka: Estimated at 3.5% in 2025, even with high U.S. tariffs.
- Maldives: Growth led by new airport infrastructure at 5.7% in 2025
Policy Outlook and Recommendations
Fiscal Measures
The World Bank emphasized the importance of increasing domestic revenue mobilization to support fiscal buffers and fund essential public investment.
Monetary Policy Stance
With inflation well within the 4% target, the RBI has room for limited accommodation to revive credit off-take.
Structural Reforms
Ongoing regulatory simplification, improved agricultural productivity, and faster green-energy investments were identified as critical to strengthening long-term resilience.
Even with the downward revision, India is still likely to be the fastest-growing large economy in 2025 due to robust domestic demand and continued reform momentum.
