World Bank lifts India FY27 growth view to 7.1% on robust domestic demand | Economy & Policy News

The World Bank on Tuesday raised India’s growth projection for the current financial year to 7.1 per cent from 6.6 per cent estimated previously, citing robust domestic demand and strong exports despite global headwinds. However, the agency has also cautioned against risks from a global oil price shock, El Niño, and stock market corrections leading to capital flow volatility.

 

“For India, we have upgraded our FY27 (April 2026-March 2027) growth forecast to 7.1 per cent from 6.6 per cent, as growth has held up better than expected despite trade and geopolitical uncertainties,” the agency said in the October edition of its India Development Update.

  

“Private consumption is expected to remain the main driver of growth, although a rainfall deficit through August is likely to weigh modestly on rural demand, while subdued government consumption will stay muted.”

 

Several global agencies have raised their FY27 growth forecasts for India after the economy posted better-than-expected growth of 7.8 per cent in the first quarter of the financial year. In fact, the growth projections for India by most global agencies are currently higher than the Reserve Bank of India’s (RBI’s) estimate of 6.7 per cent for FY27.

 

According to the World Bank, the Indian government’s supportive policy measures, including cuts in direct and indirect tax rates last year, along with the slashing of excise duty on fuel this year, have helped cushion the economy against the impact of the West Asia conflict.

 

However, risks remain elevated on the downside. “A prolonged or intensifying Middle East conflict could keep oil prices elevated for longer, increasing pressures on domestic inflation in India, the current account, and public finances, while disrupting goods trade,” the World Bank said.

 

“Domestically, a larger-than-expected rainfall deficit associated with El Niño could reduce agricultural output, raise food prices, and weaken rural consumption.”

 

The agency has projected India’s retail inflation at 4.8 per cent in FY27, which is likely to ease going ahead to 4.4 per cent in the next financial year and 4.0 per cent in FY28, the report showed.

 

Inflation pressures were building in India as food prices rise and global oil price increases pass through, World Bank Senior Economist for India Vincent Belinga said at a press briefing.

 

Conversely, a faster resolution of the conflict and normalisation of energy markets could ease inflationary and external pressures, while more favourable rainfall would strengthen external demand and rural activity, respectively.

 

“Over the medium term, growth is expected to pick up as external headwinds ease. Assuming the energy supply chain returns to pre-conflict conditions in early 2027, growth is projected to accelerate to 7.2 percent in FY28 before easing to 7.0 percent in FY29, in line with the economy’s medium-term potential,” the agency said in its report.

 

The World Bank’s latest projections for India for FY27 assume crude oil prices of around $90-$100 per barrel, World Bank Lead Economist for India Aurelien Kruse said at the same briefing. The multilateral agency expects oil prices to ease to $80-$85 a barrel in the medium term, Kruse added.

 

The agency has projected India’s current account deficit (CAD) to widen to 1.5 per cent of GDP in FY27 from 0.7 per cent in the last financial year. The CAD is expected to narrow to 1.2 per cent of GDP in the next financial year and 0.6 per cent of GDP in FY29.

 

“While strong domestic demand is expected to sustain imports, continued growth in services exports and improving merchandise exports should help contain external imbalances. Net foreign direct investment inflows are expected to rise to around 0.6 per cent of GDP over the medium term, comfortably covering the current account deficit alongside other capital inflows,” the World Bank said.

 

India is projected to be the fastest-growing economy in South Asia. The entire region is expected to grow 6.7 per cent in calendar year 2027. Excluding India, the region’s growth pace would have been 3.8 per cent, the World Bank report showed.