NEW DELHI: The World Bank on Thursday raised its economic growth projection for India by 10 basis points (bps) to 6.6 per cent for the current financial year 2026-27 (FY27), citing resilient domestic demand. It also raised India’s gross domestic product (GDP) growth forecast for FY28 by 60 bps to 7.2 per cent.
“Despite heightened uncertainty related to the conflict (in West Asia), economic activity in India remained robust early this year, supported by resilient domestic demand. Private consumption, particularly in rural areas, has been strong, with urban demand recovering,” the World Bank said in its report, Global Economic Prospects.
The multilateral body’s growth projection for FY27 is in line with that of the Reserve Bank of India (RBI). However, a projection of 6.6 per cent for FY27 is lower than the 7.7 per cent growth estimated by the government for the previous financial year.
“Growth in India is projected to moderate to 6.6 per cent in financial year 2026-27, reflecting a slowdown in private demand growth owing to higher energy prices and other input costs, though a reduction in goods and services tax (GST) rates should somewhat support consumer demand,” the report said.
“Reduced US tariffs and the expected implementation of free trade agreements (FTAs) will likely mitigate the impact of weaker external demand due to the conflict, particularly on merchandise exports,” it added.
The trade agreements, along with structural reforms undertaken to improve the business environment, are also likely to support foreign direct investment (FDI) inflows into India, the report said. India’s FTA with Oman came into force this month, and deals with at least two more trading partners — the European Union and New Zealand — are expected to be implemented soon.
According to the World Bank, India’s growth is expected to rebound in FY28 and FY29 after the West Asia war-led slowdown, supported by firm domestic demand and a pickup in export growth.
However, as the conflict in West Asia continues, the energy price shock is likely to put pressure on government finances.
“In several economies, including Bangladesh, Bhutan, India and Maldives, fiscal deficits are anticipated to rise, partly owing to increases in subsidies intended to counteract the surges in energy prices,” the report said.
The Indian government faces limited fiscal space in FY27 due to a likely expenditure overshoot of at least ₹2 trillion on food and fertiliser subsidies, and a revenue shortfall of more than ₹1.2 trillion following a cut in special additional excise duty on fuel and tax exemptions for foreign portfolio investors. The government reached nearly one-fourth of its estimated fiscal deficit in the first month of FY27.
“In India, reduced revenues due to tax reforms are forecast to be partly offset by slower capital expenditure growth and reductions in non-essential current spending,” the report said.
Taking into account the impact of hostilities in West Asia and weaker prospects for economies dependent on energy imports, the World Bank has projected global growth to slow to 2.5 per cent in 2026 from 2.9 per cent in 2025. The projected growth rate of 2.5 per cent would be the lowest since the Covid-19 pandemic.
However, global economic activity is expected to recover in 2027 and 2028 as energy supplies normalise, monetary easing resumes and trade strengthens, the report said.
Source: Business Standard / Millennium Post
