India Retains Top Spot as Fastest-Growing Economy, Reports World Bank

Post by : Bianca Suleiman

According to the latest Global Economic Prospects report from the World Bank, India is poised to remain one of the fastest-growing major economies in the world, with a projected economic growth of 7.2% in FY 2025-26. This optimistic forecast is underpinned by robust domestic demand, notwithstanding the escalating tensions in global trade and uncertain policy environments.

The World Bank emphasized that India's economic resilience plays a significant role in uplifting overall growth in South Asia. Growth in the region is expected to reach 7.1% in 2025, primarily due to India's vigorous economic performance, which has helped mitigate the adverse effects of global trade frictions.

Interestingly, Pakistan and Afghanistan are not classified as part of South Asia in this report, with their economies categorized under the Middle East and North Africa region.

The driving force behind India’s economic expansion can be attributed to strong private consumption, facilitated by prior tax reforms and increasing real household incomes, particularly in rural areas. Solid consumer demand continues to serve as a foundational component of growth.

Looking forward, growth in India is anticipated to slightly decrease to 6.5% in FY 2026-27, assuming that higher US import tariffs persist. Subsequently, growth is forecasted to rise to 6.6% in FY 2027-28, bolstered by a thriving services sector, a rebound in exports, and enhanced investment inflows.

The World Bank acknowledges that while elevated US tariffs on certain Indian exports might present challenges, India’s growth outlook remains stable. This stability can be credited to strong domestic demand likely offsetting the adverse impacts of international trade barriers.

India remains the primary growth catalyst for South Asia. Without India, the region's growth is projected to increase to 5.0% in 2026 and 5.6% in 2027. Overall, South Asia’s growth is expected to decelerate to 6.2% in 2026 before recovering later.

Globally, the World Bank has noted that improved financial conditions and fiscal support across major economies are mitigating the impacts of sluggish trade and demand. Nevertheless, it warns that the 2020s could emerge as the weakest decade for global economic growth since the 1960s.

Indermit Gill, Chief Economist at the World Bank, has cautioned that even though the global economy seems resilient to policy unpredictability, a combination of slower growth and historically high levels of public and private debt could challenge public finances and credit markets.

For developing nations, particularly India, the report highlights the imperative of enhancing productivity and job creation. It forecasts a 3% growth in per capita income in developing countries by 2026, which is below long-term averages and may hinder income equalization with advanced economies.