India's economy is projected to remain among the world’s fastest-growing major economies, with growth estimated at 7.2 per cent in FY2025-26, supported by strong domestic demand despite rising global trade tensions, the World Bank said on Tuesday.

In its latest Global Economic Prospects report, the World Bank said India’s resilience helped lift overall growth in South Asia in 2025, offsetting the impact of heightened policy uncertainty and global trade frictions.

Growth in South Asia strengthened to 7.1 per cent in 2025, "mainly because of resilient activity in India", the report noted.

The World Bank does not include Pakistan and Afghanistan in South Asia, and their economies are included in the Middle East and North Africa division.

India’s expansion is "mainly reflecting robust domestic demand, including strong private consumption, supported by earlier tax reforms and improvements in real household earnings in rural areas", the bank said.

India’s growth is projected to slow modestly to 6.5 per cent in FY2026-27, assuming higher US import tariffs remain in place, before edging up to 6.6 per cent in FY2027-28, the report said. The bank attributed this to strong services activity, a recovery in exports, and improved investment flows.

The report said that despite higher tariffs on certain exports to the United States, India’s growth forecast is unchanged from earlier projections because "the adverse impacts of higher tariffs will be offset by stronger momentum in domestic demand than previously anticipated".

Across South Asia, India remains the region’s primary growth engine. Excluding India, growth in South Asia is forecast to strengthen to 5.0 per cent in 2026 and 5.6 per cent in 2027, while the region as a whole is expected to slow to 6.2 per cent in 2026 before rebounding.

Globally, the World Bank said easing financial conditions and fiscal expansion in major economies are helping cushion the impact of softer trade and demand. However, it warned that the 2020s are on track to be the weakest decade for global growth since the 1960s.

"With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty," said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. "But economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets."

Gill warned that the world economy is set to grow more slowly than it did in the 1990s, even as it carries record levels of public and private debt, underscoring the need for reforms to sustain long-term growth.

For developing economies such as India, the report highlighted the importance of strengthening productivity and job creation. It said per capita income growth in developing economies is projected at 3 per cent in 2026, well below long-term averages, limiting convergence with advanced economies.