The World Bank has increased its GDP growth forecast for India for fiscal year 2026 to 7.2%, a 70 basis point rise from its previous projection. The revision reflects the World Bank's confidence in India's robust domestic demand, which is fueled by strong private consumption, tax reforms, and rising household earnings in rural areas.

Key Drivers and Projections:

• Domestic Demand: The World Bank emphasized that strong domestic demand is a primary factor driving India's economic growth. This demand is supported by strong private consumption, improvements in real household earnings in rural areas and earlier tax reforms.
• FY27 and FY28 Projections: The World Bank also forecasts growth for FY27 at 6.5%, a slight increase from the previous 6.3% projection, and 6.6% for FY28.
• Government Estimates: The Indian government's first advance estimate projects a GDP growth of 7.4% for FY26. The Reserve Bank of India (RBI) had projected a 7.3% GDP growth for the same period.
• Global Comparisons: Despite the upward revision, the World Bank's projection is slightly lower than the Indian government's estimate of 7.4%. The World Bank expects India to maintain its position as the fastest-growing major economy in the world. The global economy is projected to expand 2.6% in FY27.
• Inflation: The World Bank anticipates that inflation in India will converge to the RBI's 4% target in FY27, assuming stable seasonal conditions help to contain food price inflation.
• Tariffs: The World Bank noted that India's services exports have remained resilient, and merchandise exports rose in November despite a 50% tariff imposed by the US. The impact of higher US tariffs on Indian exports is expected to be offset by stronger domestic demand and more resilient exports than previously anticipated.

Additional Factors and Considerations:

• Global Economic Prospects: The World Bank's latest Global Economic Prospects report, released on Tuesday, highlighted these revised growth forecasts.
• Fiscal Consolidation: The World Bank expects fiscal consolidation to continue in India, with the effects of tax cuts being offset by a decline in current spending, leading to a gradual reduction in the public debt-to-GDP ratio. The Indian government has set a fiscal deficit target of 4.4% of GDP for FY26.
• Services and Exports: India's GDP growth is expected to be underpinned by robust services activity, a recovery in exports, and a pickup in investment.
• Regional Growth: South Asia's growth is anticipated to rise to 7.1% in 2025, largely due to India's strong economic performance.

The World Bank's revised forecast signals confidence in the Indian economy's strong domestic engines. While global factors and trade tensions pose some risks, India's resilient domestic demand and policy support are expected to drive continued growth.