World Bank: India to stay fastest-growing major economy, but growth seen slowing to 6.6% in FY2026-27

India will remain the fastest-growing major economy, but its pace of expansion is set to cool this year, the World Bank said in its latest India Development Update. The twice-yearly report projects growth of 7.6 per cent in the financial year that ended on March 31, 2026 (FY2025-26), easing to 6.6 per cent in the financial year that has just begun (FY2026-27).

The World Bank attributes the slowdown primarily to expected increases in energy costs tied to conflicts in the Middle East. Higher oil prices are anticipated to feed through to retail petrol and diesel prices and, in turn, push up food costs and overall inflation.

The update also flags potential drags from a likely moderation in foreign remittances from Indian workers, particularly in Gulf countries, and from India’s substantial exports to the region. Even so, the report says India retains important policy buffers that offer some insulation from external shocks.

These include a decent foreign exchange balance, a relatively low rate of inflation, a government debt stock that is largely rupee-denominated, a robust financial sector, and recent moves to diversify trade through free trade agreements.

“A predictable, business-enabling environment will help unlock investment and create jobs at scale in priority sectors,” said Paul Procee, the World Bank’s head in India, adding that “boosting private sector-led growth will be critical to strengthen economic resilience.” A major focus of the update is India’s push on trade agreements.

The report notes that the country carved out deals with major markets like the UK and the EU over the last financial year and says these efforts could now yield tangible gains. According to World Bank economists, FTAs could double India’s exposure to export markets and lift household incomes as tariff cuts reduce prices, with a particularly pronounced benefit for rural households.

World Bank officials also played down the risk of a migration shock stemming from the Middle East. They said remittance flows tend to be resilient and stable, and the number of Indians returning from Gulf jobs has been very low. “Out of one crore, just a handful have returned,” one official said, adding that, in their experience, remittances are typically steady.

The report credits India’s strong showing in FY26 to resilient exports, massive domestic consumption, low inflation and growth in manufacturing. “Low inflation, driven by food prices, provided room for monetary policy easing to support growth amid global trade policy tensions,” it noted.

Despite US tariffs, India’s current account deficit narrowed in the first three quarters of FY26, helped by a steady rise in services exports and incoming remittances. Looking ahead, the World Bank cautions that significant downside risks stemming from the Iran war remain.

Its base case for FY27 is muted: GDP growth is forecast to drop by a full percentage point from 7.6 per cent to 6.6 per cent. The report underscores that maintaining a predictable policy environment and advancing private sector-led investment will be key to sustaining resilience as global uncertainties persist.