India GDP to grow 6.5 pc in 2026, but there’s urgent need for jobs: World Bank

India’s economy is projected to grow by 6.5 per cent in FY2026, according to the World Bank’s Global Economic Prospects report (June 2025 edition).

The multilateral lender, while acknowledging a moderate slowdown from the estimated 6.5 per cent growth in 2024 and the revised 6.3 per cent projection for 2025, emphasised the country’s resilience amid global uncertainties and tightening financial conditions.

Macroeconomic fundamentals

The World Bank highlighted India’s stable macroeconomic fundamentals, strong domestic demand, and relatively-contained external vulnerabilities as key pillars supporting this growth. Despite global trade tensions, India’s large domestic market is expected to drive private consumption and investment, it said.

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Although the forecast for 2025 was downgraded by 0.4 percentage points compared to earlier projections, India remains among the fastest-growing major economies in the world, it further said.

Global headwinds

The report underlined that India’s outlook is shaped by several global factors, including:

Trade policy uncertainty: Rising tariffs and global protectionism could indirectly weigh on India’s exports, especially in manufacturing.

Commodity price fluctuations: With global oil prices expected to fall to $66 per barrel in 2025 and $61 in 2026, India, a major oil importer, could benefit from reduced import costs.

Weak investment environment globally: Though India’s domestic investment remains strong, the broader EMDE (emerging market and developing economies) trend shows weakening investor sentiment due to policy uncertainty and financial volatility.

Regional context

In the broader South Asia region, growth is also expected to remain high but slightly lower than previous years, at 5.8 per cent in 2025 and 6.1 per cent in 2026. India is expected to be the primary driver of this regional growth.

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However, challenges in neighbouring countries such as Pakistan (projected growth of 2.7 per cent in 2025) and Bangladesh (3.3 per cent) underscore India’s relatively robust position.

Key concerns

Despite healthy headline growth figures, the report flagged the persistent gap in per capita income compared to advanced economies.

The working-age population in South Asia, particularly India, is projected to grow by nearly 300 million by 2050, highlighting an urgent need for productive job creation.

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Without adequate labour market reforms and improvements in human capital, this demographic dividend risks turning into a structural challenge.

Risks to watch out for

The World Bank identified several downside risks that could affect India’s medium-term trajectory:

– A further escalation of global trade restrictions.

– Financial market volatility leading to capital outflows.

– Climate-related shocks, and disruptions in key sectors like agriculture.

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Policy priorities

To maintain and improve growth momentum, the report recommends that India:

Reinvigorate private investment by ensuring regulatory predictability.

Strengthen fiscal health, especially through improved tax mobilisation and targetted subsidies.

Enhance labour market flexibility and invest in skill development to absorb the expanding workforce.

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