World Bank scales up India’s FY27 GDP growth projection to 7.1%

The World Bank has scaled up India’s GDP growth forecast for FY27 to 7.1% as the economy has performed better than expected despite trade and geopolitical uncertainties. This is a significant revision from its previous forecast in April of 6.6% growth in the current fiscal year that had come in the midst of the West Asia crisis.

The World Bank also expects growth to pick up and remain over 7% in the medium term as external headwinds ease. If energy supply chain returns to pre-conflict conditions in early 2027, growth is projected to accelerate to 7.2% in FY28 before easing to 7% in FY29, in line with the economy’s medium-term potential, said the World Bank’s India Development Update released on Tuesday.

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The revision in FY27 growth forecast comes in the back drop of the Indian economy clocking higher than anticipated growth of 7.8% in the first quarter of the fiscal year. Since then, several agencies have also scaled up their GDP growth projections for India for FY27. The Monetary Policy Committee of the Reserve Bank of India will also release its estimates for growth and retail inflation on Wednesday and it is widely expected to revise up its previous estimate of 6.7% for FY27.

“The momentum has carried into FY27, with GDP growing 7.8% in Q1, above expectations, before moderating in subsequent quarters. 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,” said the World Bank report.

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The investment outlook is broadly unchanged, with heightened global uncertainty weighing on private investment as frontloading fades, partly offset by supportive financial and policy conditions, including stronger public investment, it further said, adding that exports have performed better than expected and are expected to provide the main upside to the FY27 growth outlook.

On the supply side, industry is now forecasted to perform better than initially expected and offset a weaker agricultural outlook, the report said, adding that industry has exceeded expectations despite global headwinds.

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It however, expects retail inflation to rise to an average 4.8% in FY27 from 2.1% in FY26 but then ease marginally to 4.4% next fiscal. The report also cautioned that compared with the April forecasts, risks remain elevated and tilted to the downside, particularly from the duration and intensity of the West Asia conflict. “A prolonged or further escalation of the conflict would further raise energy prices and domestic inflation, eroding household purchasing power and weighing on consumption, while increasing production costs,” it said. Other key risks include global trade tensions, monsoon conditions, and global growth, particularly the pace of AI-related investment.

Noting that supportive policies by the government helped cushion the economic impact of the conflict without putting excessive stress on public finances, the World Bank has projected general government fiscal deficit to remain stable at 7.4 % of GDP in FY27, despite higher subsidy outlays and the impact of lower excise duties.