World Bank raises India growth forecast to 7.1% on stronger-than-expected momentum

The World Bank on Tuesday raised India’s economic growth forecast for the current financial year to 7.1%, up sharply from the 6.6% projected in April, after stronger-than-expected growth in the first quarter and resilient economic activity despite global trade and geopolitical uncertainties.

In its latest India Development Update, the World Bank said growth had held up better than anticipated, with consumption remaining robust and exports and industrial activity exceeding earlier expectations. The 50-basis-point upgrade comes after India recorded GDP growth of 7.8% in the first quarter of FY27.

Growth beats expectations

“We have upgraded our FY27 growth forecast to 7.1% from 6.6% in April, as growth has held up better than expected despite trade and geopolitical uncertainties,” the World Bank said.

The upgrade follows a strong FY26, when the Indian economy expanded 7.8%, accelerating from 7.2% in FY25. Strong investment and private consumption supported the expansion, while favourable policy and credit conditions helped offset external trade pressures.

That momentum continued into the current financial year, with the economy expanding 7.8% in the April-June quarter. The World Bank, however, expects the pace of expansion to moderate in subsequent quarters.

The revised forecast nevertheless indicates that the slowdown will be less pronounced than the institution had anticipated six months ago.

Consumption remains key

Private consumption is expected to remain the principal driver of economic activity during FY27.

The World Bank said rural consumption had initially outpaced urban demand in the previous financial year, supported by strong agricultural performance, rural income support measures, food subsidies and low inflation.

Urban consumption strengthened later in the year following income-tax relief and GST cuts, providing an additional boost to household spending.

The consumption outlook remains broadly positive in FY27, although the rainfall deficit through August is expected to exert some pressure on rural demand. Government consumption, meanwhile, is likely to remain subdued.

Exports offer upside

A significant factor behind the upgraded forecast is the stronger performance of Indian exports.

The World Bank said exports had performed better than anticipated and were likely to provide the main upside to the FY27 outlook compared with its April projections.

The performance assumes greater significance against a backdrop of uncertainty surrounding global trade, geopolitical tensions and changes in international supply chains.

India’s resilience on the external front has helped cushion some of the impact of weaker agricultural prospects and uncertainty surrounding private investment.

Investment outlook steady

The outlook for investment is broadly unchanged from the World Bank’s April assessment.

Heightened global uncertainty is expected to weigh on private investment as the impact of earlier front-loading fades. However, stronger public investment and supportive domestic financial and policy conditions are expected to provide an offset.

The assessment points to continued importance of public capital expenditure in sustaining investment momentum at a time when private businesses remain cautious about committing capital amid an uncertain international environment.

Industry beats forecasts

On the supply side, the World Bank has become more optimistic about industrial activity, which is now expected to perform better than previously forecast.

Industrial growth has exceeded expectations since April despite external headwinds. The stronger performance partly reflects front-loading of activity earlier in the year as well as robust infrastructure and construction demand.

Growth in infrastructure and construction goods accelerated to 7.2% in the first quarter from 6.1% a year earlier, highlighting continued momentum in investment-linked activity.

Summer demand also provided a substantial boost to utilities. The electricity sector expanded 9.3% in the first quarter, a sharp turnaround from the 1.5% contraction recorded during the corresponding period last year.

The stronger industrial outlook is expected to partly compensate for weaker prospects in agriculture.

Rainfall weighs on farms

Agriculture has emerged as one of the softer areas in the World Bank’s latest assessment.

Although above-average rainfall since July helped narrow the monsoon deficit, the overall shortage during the southwest monsoon season has weakened agricultural prospects.

The rainfall deficit could affect farm output and rural incomes, which in turn may have a modest impact on rural consumption. The World Bank nevertheless expects other components of domestic demand to keep overall economic growth resilient.

The divergence between stronger industrial activity and weaker agriculture is consequently expected to shape the supply-side composition of growth during the year.

Services stay resilient

India’s services sector, another major pillar of the economy, has continued to record strong growth.

The World Bank said services growth remained elevated even though it had moderated from the high base recorded in FY26. The sector’s resilience, combined with stronger industrial activity, is expected to support overall economic expansion despite agricultural weakness.

Domestic consumption, services and investment have provided India with a relatively strong buffer against volatility in the external environment.

Resilience amid uncertainty

The 7.1% forecast represents a substantial improvement in the World Bank’s assessment of India’s near-term economic prospects. In April, it had expected growth to moderate to 6.6%, reflecting concerns over trade uncertainty and a challenging global environment.

Economic activity has since proved stronger than anticipated. A better first-quarter GDP print, resilient exports, robust industrial activity and sustained household consumption have prompted the upward revision.

Risks remain, particularly from global trade tensions, geopolitical uncertainty, weaker rainfall and their potential impact on private investment and rural demand. But stronger exports and industrial performance have provided greater support than previously expected.

The World Bank’s revised assessment suggests that domestic demand will remain central to India’s growth story in FY27, with private consumption leading expansion while industry and exports provide additional support.