The World Bank on Wednesday revised India’s GDP growth forecast for FY 2025-26 down to 6.3 per cent, a 0.4 percentage point cut from its previous estimate of 6.7 per cent. The downgrade reflects global economic headwinds and domestic policy uncertainties, according to the bank’s biannual South Asia Development Update titled Taxing Times.
“In India, growth is expected to slow from 6.5 per cent in FY2024-25 to 6.3 per cent in FY 2025-26, as the benefits to private investment from monetary easing and regulatory streamlining are expected to be offset by global economic weakness and policy uncertainty,” the report stated, as quoted by news agency PTI.
The World Bank noted that India’s growth underperformed expectations in the current fiscal due to lower-than-anticipated private investment and shortfalls in public capital expenditure targets.
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The International Monetary Fund (IMF) also lowered India’s GDP forecast on Tuesday, revising its projection to 6.2 per cent for FY2025-26, down from 6.5 per cent in January.
Despite tax cuts supporting private consumption and improved public investment execution, the report cautioned that export demand would remain constrained due to shifting global trade dynamics and slowing international growth.
Across South Asia, growth projections have been broadly lowered. The World Bank now expects regional growth to ease to 5.8 per cent in 2025—0.4 percentage points below its October forecast—before rebounding slightly to 6.1 per cent in 2026.
The report emphasized that better domestic revenue collection could help countries in the region strengthen their fiscal positions and build resilience against future shocks. It noted that while tax rates in South Asia often exceed those in other developing regions, overall tax revenue remains low. From 2019 to 2023, government revenues in South Asia averaged 18 percent of GDP—well below the 24 per cent average for other developing economies.The region faces persistent gaps in consumption taxes, corporate taxes, and personal income taxes.
Among India’s neighbors, Bangladesh’s growth is projected to fall to 3.3 per cent in FY2024-25 due to political uncertainty and ongoing financial challenges, with a moderate recovery to 4.9 per cent in FY 2025-26.
Pakistan is expected to grow 2.7 per cent in FY2024-25 and 3.1 per cent in FY 2025-26 as it continues to recover from recent natural disasters, external pressures, and high inflation.
Sri Lanka is projected to grow 3.5 per cent in 2025, supported by progress in debt restructuring and improved investment and external demand. Growth is expected to moderate to 3.1 per cent in 2026.
