Welcome to The Indian Awaaz   Click to listen highlighted text! Welcome to The Indian Awaaz

R. Suryamurthy

India’s economic growth is projected to ease over the next two fiscal years as it navigates increasing turbulence in the global economy, the World Bank said in its latest regional outlook released today. While domestic drivers are expected to offer some cushion, the institution underscored the broader South Asian imperative for stronger domestic revenue mobilisation to enhance fiscal resilience, a point echoed by other recent economic assessments.

The World Bank’s South Asia Development Update, “Taxing Times,” forecasts India’s GDP growth to slow slightly from 6.5 percent in the current fiscal year (FY24-25) to 6.3 percent in FY25-26. This moderation is anticipated as the positive impact of domestic monetary easing and regulatory streamlining on private investment is partially offset by prevailing global economic headwinds and policy uncertainty.

While the World Bank’s report centres on the South Asian region, its conclusions carry significant weight for India, a dominant economic force in the area. The assessment highlights a general weakening of growth prospects across South Asia, with downward revisions for most countries. This interconnectedness underscores the potential for global economic volatility to impact India’s growth trajectory.

“Multiple shocks over the past decade have left South Asian countries, including India, with limited buffers to withstand an increasingly challenging global environment,” stated Martin Raiser, World Bank Vice President for South Asia. He emphasised the critical need for “targeted reforms to address vulnerabilities such as fragile fiscal positions… and the impact of climate-related shocks” throughout the region.

The World Bank report also flagged a concerning trend of lower-than-potential tax revenue collection across South Asia, despite often higher tax rates compared to other developing economies. This suggests that bolstering tax policy and administration could be a vital avenue for India, alongside its neighbours, to fortify its fiscal standing.

“Low revenues are at the root of South Asia’s fiscal fragility and could threaten macroeconomic stability, especially in times of elevated uncertainty,” noted Franziska Ohnsorge, World Bank Chief Economist for South Asia. While the report doesn’t delve into India’s specific tax revenue situation, the overarching message highlights the importance of efficient revenue collection for maintaining economic stability amid global volatility.

The World Bank advocates for South Asian nations, including India, to prioritise policies aimed at enhancing tax revenues through measures such as closing loopholes, simplifying tax codes, strengthening enforcement, and facilitating tax compliance. The report specifically mentions reducing tax exemptions, streamlining tax regimes, and leveraging digital technology for tax administration as potential areas for improvement.

The World Bank’s tempered growth forecast for India aligns with recent assessments from other international financial institutions and rating agencies. On Tuesday, the International Monetary Fund (IMF) trimmed its FY26 growth projection for India by 30 basis points to 6.2 percent, citing escalating trade tensions and global uncertainty in its World Economic Outlook.

Similarly, rating agency Fitch recently revised India’s GDP growth forecast for FY25 downwards to 6.3 percent from 6.4 percent, while maintaining its FY26 projection at 6.5 percent. Fitch noted that while more aggressive U.S. trade policies pose a risk, India’s low reliance on external demand offers some insulation. The agency also highlighted high business confidence, continued strong bank lending to the private sector, and the government’s focus on public capital expenditure as positive factors.

Despite a recent dip in consumer confidence, Fitch anticipates that lower inflation will boost real incomes, supported by increased tax-free income allowances and revised tax brackets. This is expected to underpin consumer spending growth, albeit at a slower pace than the previous year. Fitch forecasts a gradual decline in India’s headline inflation rate to 4.0 percent by the end of 2025, with a mild increase to 4.3 percent by December 2026, driven by food price dynamics.

While India’s growth prospects remain comparatively robust within the South Asian region, the consensus from the World Bank, IMF, and Fitch signals a period of moderate expansion amid a complex global economic landscape. The emphasis on fiscal prudence and efficient revenue mobilisation, as highlighted by the World Bank, underscores the importance of strong domestic fundamentals for navigating these uncertainties and sustaining long-term economic stability.

Click to listen highlighted text!