The World Bank Tuesday lowered its GDP growth forecast for India by 20 basis points (bps) to 6.3 per cent for 2026-27 due to risks from the 50 per cent tariff imposed by the US. At the same time, the multilateral agency raised the forecast for the current fiscal by 20 bps to 6.5 per cent on the back of the higher-than-expected growth rate of 7.8 per cent clocked in the April-June quarter, said Franziska Ohnsorge, World Bank’s Chief Economist for the South Asia Region. She added that there are signs of urgency from the Indian government to implement reforms. “It is very obvious that the authorities are keen on deregulating. There is a new sense of urgency for labour market reforms and to actually implement it on the ground. There are all these trade agreements that they are currently negotiating. This signals a keen sense of urgency and desire to deregulate and to make it easier to do business in India,” Ohnsorge told The Indian Express in an interview following the release of the World Bank’s South Asia Development Update report. At 6.5 per cent and 6.3 per cent, the World Bank’s growth forecasts for the current and next year are lower than that of the Reserve Bank of India (RBI). On October 1, RBI had raised its forecast for 2025-26 by 30 bps to 6.8 per cent. Meanwhile, its six-monthly Monetary Policy Report said that assuming a normal monsoon and no major external or policy shocks, GDP growth in 2026-27 is seen at 6.6 per cent. Reform push In terms of reforms, government has looked to push domestic consumption in 2025. First, in February, the Union Budget for 2025-26 reduced personal income tax rates under the new direct tax regime. Then, in early September, the GST Council reduced Goods and Services Tax (GST) rates with effect from September 22. The GST rate cuts were part of a broader reform of the indirect tax regime. On Monday, BVR Subrahmanyam, Chief Executive Officer, NITI Aayog, said that another round of major reforms is expected before Diwali, with a committee led by former Cabinet Secretary and current NITI Aayog member Rajiv Gauba having already submitted its first set of reports on these measures. In addition to the two committees led by Gauba and set up in August to drive the reform agenda, two informal groups of ministers have also been formed – following Prime Minister Narendra Modi’s Independence Day speech – under Home Minister Amit Shah and Defence Minister Rajnath Singh to prescribe economic and social sector reforms, respectively. A task force on deregulation has also been created. External risks According to Ohnsorge, the biggest risk to India is from the external front. “It’s true that India is more closed than other emerging markets and developing economies. But if the global economy does slow down more, then of course India would also be affected. It’s had big growth slowdowns during all the global recessions and global downturns, so it would not escape this one, if there was one,” she said. The return of Donald Trump to the US Presidency has seen the imposition of sweeping tariffs on goods entering the world’s largest economy, with India facing a penal tariff of 25 per cent for its import of Russian oil and arms on top of a reciprocal tariff of 25 per cent. India enjoyed a significant merchandise trade surplus of $41 billion with the US in 2024-25, as per commerce ministry data. Trump, who wants to erase US trade deficit with its partners, has looked to strike favourable bilateral agreements that include promises of investment in manufacturing capacities in the US in exchange for lower tariffs. India, which was one of the first countries to begin talks with the US over a trade deal, however, continues to face higher tariffs as negotiations continue. Transforming Indian manufacturing According to Ohnsorge, a key area for India to explore is manufacturing goods to export them. Not only would it attract plenty of foreign direct investment (FDI) – which she said has noticeably slowed down – but also create the jobs India needs. However, this push would require “a big policy decision to really make exporting and importing easy”. This would involve reducing tariffs on intermediate goods – “which are currently more than double of what they are in the average emerging market and developing economy” – to begin with, Ohnsorge said. Meaningfully moving the needle for India would require a reduction in non-tariff barriers. With a trade agreement with the UK already sewn up, Ohnsorge said that if India could add Europe, Australia, Canada, and the US to the list, it would have access to markets that account for 50 per cent of the world’s GDP. “For millions of jobs and millions of factories, you probably need a broader improvement in trade barriers and market access,” Ohnsorge said.
