World Bank upgrades India growth to 6.6 per cent for FY27 despite West Asia risks

The World Bank has upgraded India’s economic growth forecast for FY2026-27 to 6.6 per cent, citing resilient domestic demand and steady export performance, even as escalating tensions in West Asia cast a shadow over the global outlook.

The revised estimate marks an improvement from the lender’s earlier projection of 6.3 per cent made in October 2025. However, the World Bank cautioned that the ongoing conflict in West Asia and its impact on global energy markets could temper growth by fuelling inflation and tightening financial conditions.

For FY2025-26, India’s economy is expected to expand 7.6 per cent, supported by robust consumption and a gradual recovery in investment activity. Growth is projected to moderate in FY27 as higher global energy prices raise input costs and weigh on household spending power.

The
Reserve Bank of India has projected a slightly higher growth rate of 6.9 per cent for FY27, indicating a broadly aligned view that India’s economy will remain resilient despite mounting global headwinds.

World Bank President Ajay Banga said the conflict in West Asia is likely to slow global growth and push inflation higher regardless of how quickly it is resolved, underscoring the risks facing emerging economies.

The lender noted that India would continue to anchor growth in South Asia, even as the region as a whole is expected to slow to 6.3 per cent in 2026 from 7.0 per cent in 2025 due to disruptions in energy markets. A recovery to 6.9 per cent is projected in 2027, keeping South Asia the fastest-growing region among emerging market and developing economies.

While India’s strong domestic demand and improving export outlook provide a buffer, the report warned that elevated oil and gas prices could force tighter monetary policy and dampen investment sentiment. Inflationary pressures are expected to rise in FY27, driven by higher energy costs even as food prices normalise.

The World Bank also highlighted that India’s trade prospects could benefit from improved access to key markets such as the United States and the European Union, although weaker growth in major trading partners may offset some of these gains.

Across South Asia, economic performance remains uneven, with several countries facing pressures from higher energy costs, political instability and weaker external demand. Nevertheless, the region’s growth prospects remain relatively strong compared with other emerging markets.

The report noted that countries in the region have stepped up industrial policy interventions at a faster pace than other emerging economies, though results have been mixed, with limited gains in exports despite policy support.

Looking ahead, the World Bank stressed that sustained reforms — including improvements in infrastructure, easing of trade barriers and efforts to mobilise private investment — will be critical to maintaining growth momentum. It added that such measures could help countries like India accelerate their path towards high-income status over the coming decades.