India’s Growth Steady at 6.3% Amid Global Economic Slowdown

The World Bank, in its latest June 2025 edition of the Global Economic Prospects report, has reaffirmed India’s GDP growth projection for fiscal year 2025–26 at 6.3%, even as it revised downward growth estimates for more than 70% of the global economies. This development comes at a time of heightened global trade tensions, waning industrial momentum, and geopolitical uncertainties.

While many economies face slowing momentum or even potential stagnation, India continues to be a notable exception, driven by resilient domestic demand, a booming services sector, and robust capital spending. Still, challenges remain.

India’s Growth Story: A Resilient Domestic Engine

Despite the slight downgrade from the earlier 6.7% projected in January, India’s revised 6.3% growth forecast still places it as the fastest-growing major economy globally in FY26.

Key Contributors:

1. Construction and Infrastructure Push: Massive government spending on infrastructure projects, including highways, urban transport, and green energy, continues to generate strong forward and backward linkages.

2. Services Sector Momentum: Technology, financial services, and digital platforms remain high-growth areas contributing significantly to overall GDP.

3. Private Consumption Recovery: After a subdued post-pandemic recovery, rural and urban demand has been reviving steadily.

4. Moderate Inflation and Accommodative Policy: A stable monetary policy regime with projected inflation of around 3.7% offers comfort for continued growth without sharp interest rate hikes.

Despite global turbulence, India's internal economic drivers have shielded it from much of the global downturn's brunt.

Global Context: Broad-Based Downward Revisions

The broader picture painted by the World Bank is far more sobering. It projects global growth at just 2.3% in 2025, down from its previous forecast of 2.7%. This would mark one of the slowest growth rates in a non-crisis year in decades—second only to post-2008 crisis years.

Breakdown by Region:

• Advanced Economies: Growth is projected at a sluggish 1.1%, with significant slowdowns in the U.S. and the eurozone.

• China: Expected to grow at around 4.5%, a sharp drop from its earlier potential, constrained by demographic decline, a property crisis, and weak exports.

• South Asia: Overall regional growth is expected to average around 5.8%, driven primarily by India.

The global slowdown is attributed to a perfect storm of factors, including prolonged inflation, rising interest rates, geopolitical fragmentation, and tightening credit markets.

Trade Tensions and Protectionism Weigh Heavily

A major highlight of the report is the growing protectionism and trade fragmentation that has deeply impacted the global trade architecture.

• Tariff escalations, especially between major economies like the U.S. and China, are creating ripple effects across global supply chains.

• Sanctions regimes, export controls on key minerals, and rising preference for near-shoring and deglobalization are dampening international trade volumes.

• The World Bank warns that if these trade barriers continue to intensify, global growth could fall by an additional 0.5% by 2026.

In this environment, countries that rely heavily on exports for growth—particularly in East Asia and Latin America—are seeing steeper downward revisions.

70% of Economies Face Lowered 2025 Growth Forecasts

The World Bank cut 2025 growth projections for more than 70% of all countries it tracks. This includes both developed and developing economies, signifying a synchronous global slowdown not seen since the late 2000s.

Specific Downward Revisions Include:

• U.S.: Now expected to grow at 1.2%, down from 1.9% earlier.

• Eurozone: Growth cut to 0.7%, with Germany and Italy bordering on stagnation.

• Latin America: Weighed down by fiscal tightening and commodity price volatility.

• Sub-Saharan Africa: Still struggling with post-pandemic recovery, external debt burdens, and climate-related disruptions.

India’s Future: Strong, but Not Immune

While India stands out, it is not without vulnerabilities. The World Bank highlights several key risks that could derail or dampen India’s medium-term growth outlook:

1. Industrial Slowdown

Industrial output has been patchy, with certain manufacturing sectors still below pre-pandemic levels. Reviving private capex in core industries remains a challenge.

2. Global Export Weakness

With global trade slowing and developed markets in contraction or stagnation, Indian exporters—especially in textiles, electronics, and automotive parts—face uncertain demand.

3. Weather and Agriculture

A poor monsoon or extreme climate events could disrupt rural income and demand, which still accounts for nearly half of consumption.

4. Financial Sector Health

While banks have been recapitalized, pockets of stress remain in NBFCs and shadow lending, particularly in rural credit segments.

5. Rising Geopolitical Risks

Any escalation of conflicts in Asia or the Middle East could spike oil prices, widen India’s current account deficit, and stoke inflationary pressures.

The Medium-Term Picture: Rebound Expected

Despite these risks, the World Bank projects India’s growth to improve to 6.5% in FY27 and 6.7% in FY28, supported by:

• Continued policy reforms in logistics, infrastructure, and taxation.

• Acceleration in digitization and productivity gains across sectors.

• Gradual revival in global demand and trade.

Policy Prescriptions for India

To maintain momentum and reach its long-term goal of becoming a $5 trillion economy, India needs to:

1. Boost Manufacturing: Expand incentives under PLI schemes and ease regulatory bottlenecks.

2. Enhance Job Creation: Encourage labor-intensive sectors and reduce skill mismatches through targeted skilling.

3. Address Urban Infrastructure Deficits: Smart cities and sustainable housing must keep pace with urban migration.

4. Increase R&D Investment: Shift focus from consumption-led growth to innovation-driven growth.

5. Ensure Fiscal Prudence: While continuing public investment, maintain a credible roadmap to reduce fiscal deficit and manage public debt.

Comparative Institutional Forecasts

These forecasts, despite minor differences, reflect a broad consensus that India will outperform its peers through the mid-2020s.

 India Shines, but Must Stay Vigilant

In a time of global uncertainty, India’s macroeconomic performance offers optimism—but also a reminder that resilience is not immunity. The government and private sector must work in tandem to sustain growth through reforms, policy stability, and targeted investment.

The World Bank’s decision to retain the 6.3% growth forecast reflects confidence in India’s economic fundamentals. However, the widespread global downgrades for 2025 signal storm clouds ahead. India must navigate these challenges smartly—leveraging its domestic strengths while staying alert to global shifts.

The world is slowing. India is growing. But to stay ahead, the momentum must not just be preserved—it must be accelerated.