Can India dodge the energy shock? World Bank sees growth cooling but not cracking

India is expected to retain its position as the world’s fastest-growing major economy, even as global energy market disruptions weigh on near-term growth, according to the World Bank. 

The multilateral lender projects India’s economy to grow 7.6% in FY26, before moderating to around 6.6% in FY27, reflecting the impact of rising energy costs and external uncertainties. 

Strong domestic demand anchors growth 

The World Bank highlights that India’s growth continues to be driven by robust domestic consumption, resilient services exports, and sustained public investment. 

Government-led infrastructure spending and steady urban demand are expected to remain key pillars supporting economic activity, even as global conditions turn less favourable. 

Energy shocks pose key risk 

India’s heavy reliance on imported crude makes it particularly vulnerable to global oil price volatility. Higher energy costs are likely to: 

• Push up inflation, especially through fuel and transport prices 
• Widen the current account deficit due to a larger import bill 
• Put pressure on the rupee amid global financial tightening 

The World Bank cautions that prolonged energy disruptions could amplify these risks and dampen growth further. 

External headwinds & trade outlook 

While India’s export sector has shown resilience, weaker global demand and geopolitical uncertainties may weigh on trade performance going forward. 

However, recent trade agreements and supply chain diversification trends are expected to create new opportunities for Indian exporters, helping offset some of the external pressures. 

Fiscal and policy challenges 

The report notes that India may face fiscal pressures if the government increases subsidies or support measures to shield consumers from rising fuel prices. 

At the same time, maintaining macroeconomic stability while sustaining growth will require careful policy calibration, particularly in managing inflation and public finances. 

Medium-term outlook remains strong 

Despite short-term headwinds, India’s medium-term growth outlook remains robust, supported by: 

• Continued infrastructure development 
• Expansion in manufacturing and services sectors 
• Ongoing structural reforms and digitalisation 

The World Bank underscores that India’s economic fundamentals position it well to navigate global uncertainties and sustain high growth relative to peers. While global energy shocks are expected to moderate India’s growth trajectory in the near term, strong domestic drivers and policy support are likely to keep the economy on a solid expansion path.