New Delhi [India]: India’s fiscal deficit is forecast to shrink further, bolstered by rising tax revenues, as highlighted in the latest World Bank report. This trend aligns with the government’s fiscal consolidation policies, reinforcing the country’s improving fiscal position.
“In India, fiscal deficits are expected to continue shrinking, largely on account of growing tax revenues,” the report noted, emphasizing India’s standout performance in South Asia, where fiscal deficits in most countries remain tight.
Regional Comparison
While India’s fiscal deficit is on a declining trajectory, fiscal adjustments in other South Asian countries are offset by increased interest payments in Pakistan and infrastructure investments in Bangladesh. Consequently, region-wide fiscal deficits, excluding India, are projected to remain stable.
The report also warned that government debt-to-GDP ratios across South Asia will remain elevated despite a gradual decline. It added that debt-servicing costs will persist at high levels due to elevated borrowing costs.
“While government debt-to-GDP ratios in the region are expected to decline gradually, they will remain elevated,” the report stated.
Inflation and Growth Forecasts
Inflation in South Asia is expected to moderate during the projection period, supported by stabilizing exchange rates. For countries such as India, Nepal, and Sri Lanka, inflation is forecast to stay within or below target ranges.
On the economic growth front, India is set to maintain its position as the fastest-growing economy among the world’s largest economies, with GDP growth projected at 6.7% for both FY2025-26 and FY2026-27.
Sectoral and Consumption Growth
The World Bank highlighted India’s robust services sector, which is expected to sustain its growth momentum. Additionally, manufacturing activity is anticipated to strengthen, driven by government initiatives to enhance logistics infrastructure and streamline tax reforms.
“The services sector is expected to enjoy sustained expansion, and manufacturing activity is anticipated to strengthen, supported by government initiatives to enhance logistics infrastructure and improve the business environment through tax reforms,” the report added.
Investment and Economic Resilience
Investment growth in India is projected to remain steady, supported by rising private investments, improved corporate balance sheets, and better financing conditions. Furthermore, the labor market’s improvement, increased credit availability, and easing inflation are likely to boost private consumption growth. However, government consumption growth is expected to remain restrained.
India’s economic resilience is expected to strengthen further in the coming years, underpinned by a combination of favorable domestic and international factors.