World Bank lowers India FY26 growth outlook to 6.3%

India’s economic growth is projected to slow down from 6.5% in FY2024-25 to 6.3% in FY2025-26, according to the World Bank’s latest South Asia Development Update, released on Wednesday.

The report, titled Taxing Times, reasoned that global economic weakness and policy uncertainty will be contributing factors, even as domestic investment gains from monetary easing and regulatory reforms are expected to continue.

South Asia’s growth is forecast to decline to 5.8% this year—down 0.4 percentage point from previous projections—before edging up to 6.1% in 2026.

The report noted that the outlook remains fragile, with elevated global risks and limited domestic fiscal space.

“Multiple shocks in the past decade have left South Asian countries with limited buffers to withstand an increasingly challenging global environment,” Martin Raiser, World Bank vice-president for South Asia, said.

“The region needs targeted reforms to strengthen economic resilience and unlock faster growth and job creation. Now is the time to open to trade, modernize agricultural sectors, and boost private sector dynamism,” he added.

The report recommended improving domestic revenue mobilization.

Despite relatively high tax rates, the region’s average government revenue during 2019–23 stood at 18% of GDP—well below the 24% average for other developing economies.

“Low revenues are at the root of South Asia’s fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty,” Franziska Ohnsorge, World Bank Chief Economist for South Asia, said . “South Asian tax rates are relatively high, but collection is weak, leaving those who pay taxes with high burdens and governments with insufficient funds to improve basic services.”

The World Bank identifies tax collection gaps of between 1 and 7 percentage points of GDP across South Asian countries, attributing part of the shortfall to widespread informality and the large size of agricultural sectors.

Even after adjusting for these factors, significant gaps remain, prompting the need for policy and administrative reforms.

To address these challenges, the report suggested eliminating tax exemptions, simplifying tax codes, enhancing enforcement, and leveraging digital technologies to improve compliance. It also advised pollution pricing as a dual tool for generating revenue and addressing environmental concerns.

This comes after the Reserve Bank of India (RBI) also cut the country’s growth forecast to 6.5% from 6.7% that was previously projected.