World Bank raises India’s FY26 growth forecast to 7.2%, sees limited impact from US tariffs

The World Bank has revised India’s FY26 growth projection upward to 7.2 per cent, citing resilient domestic demand despite higher US tariffs. This marks a notable increase from the 6.3 per cent estimate made in June 2025.

Growth, however, is expected to moderate to 6.5 per cent in FY27, assuming the 50 per cent tariffs imposed by the Trump administration remain in place throughout the forecast period, according to the World Bank’s latest Global Economic Prospectus report.

The agency said the impact of higher US tariffs on India would be subdued, supported by stronger-than-anticipated momentum in domestic demand and improved consumption patterns. The upgraded outlook is also driven by robust domestic consumption, aided by recent tax cuts and higher real rural incomes.

The World Bank report read: “In SAR, the projected slowdown in 2026 mainly reflects the impact of increased U.S. tariffs on India’s goods exports. Growth in South Asian Regime (SAR) is then set to rebound in 2027, as exports improve and domestic demand firms, aided by strong services activity as the effects of political uncertainty dissipate in several economies."

However, it cautioned that US tariffs could dampen India’s goods exports and weigh on overall growth, despite the strong performance of services exports. Flagging concerns over a large fiscal deficit and spending pressures, the World Bank said it expects India’s fiscal deficit to gradually decline through consolidation measures.

The agency added that still-rapid growth, led by India, is expected to support further economic convergence, accompanied by a significant reduction in poverty rates.

In 2026, growth in SAR is projected to slow to 6.2 per cent, largely due to the impact of increased US tariffs on India.

“The forecast for this year has been downgraded by 0.2 percentage point compared with June projections. The revision reflects higher U.S. import tariffs than previously assumed and updated assumptions about the timing of the tariff effects—from 2025 to early- to mid-2026—and of subsequent recovery." 

The report further mentioned that, excluding India, growth in the region is expected to strengthen at 5 per cent in 2026 and at 5.6 per cent in 2027.