- India's growth is forecasted to slow to 6.6% in fiscal year 2026-27 due to higher energy costs
- The World Bank cut global growth forecast for 2026 to 2.5%, slowest since the pandemic
- India's growth is expected to rebound to 7.2% in 2028 and moderate slightly to 7% in 2029
The World Bank expects India's growth to moderate in fiscal year 2026-27, citing the impact of higher energy prices and rising input costs stemming from the ongoing conflict in the Middle East, even as it expects the country's growth momentum to remain among the strongest globally. The World Bank cut its global growth forecast for 2026 to 2.5%, the slowest pace since the Covid-19 pandemic.
In its latest outlook released on Thursday, the World Bank said India's growth forecast for fiscal 2027 is at 6.6%. It expects growth to rebound to 7.2% in financial year 2028 before moderating slightly to 7% in fiscal 2029.
"Despite heightened uncertainty related to the conflict, 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.
The institution noted that tax collections from domestic sales have continued to rise steadily, reflecting underlying economic strength.
However, it expects growth to moderate in fiscal 2027 as elevated energy prices and higher production costs weigh on household spending and business activity.
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"Growth in India is projected to moderate to 6.6% in fiscal 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 rates should somewhat support consumer demand," the report said.
The World Bank added that measures undertaken by the government, including fuel tax reductions and efforts to address shortages of agricultural inputs such as fertilisers, could help cushion some of the inflationary pressures.
The report also highlighted potential support from trade policy. Reduced US tariffs and the anticipated implementation of free trade agreements are expected to soften the impact of weaker global demand, particularly on India's merchandise exports.
Looking beyond fiscal year 2027, the World Bank expects domestic demand to strengthen and export growth to improve, supporting a rebound in economic activity. It also said structural reforms and trade agreements are likely to bolster foreign direct investment inflows over the forecast period.
The moderation in growth of India comes against the backdrop of a weaker global outlook. According to the report, higher energy prices, rising inflation, tighter monetary conditions and weaker trade flows are weighing on economic activity worldwide.
The World Bank said the conflict in the Middle East has disrupted global trade routes, particularly energy shipments through the Strait of Hormuz, leading to sharp increases in oil and gas prices.
Reduced energy supplies from the Gulf region have increased cost pressures globally and contributed to rising inflation, prompting expectations of tighter monetary policy. While the World Bank expects global growth to recover to an average of 2.8% during 2027-28 as energy prices moderate and financial conditions ease, it warned that continued geopolitical tensions remain a significant risk to the outlook.
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