New Delhi: The World Bank has raised India’s growth forecast for the fiscal year 2026-27 to 6.6%, up from its earlier estimate of 6.3% in October, citing strong domestic demand and robust export performance, even as global uncertainties linked to the Middle East conflict "pose risks to the outlook.
In its latest South Asia Economic Update, the World Bank said India’s economy is expected to grow at 7.6% in 2025-26, compared to 7.1% in 2024-25, driven by sustained domestic consumption and exports. The Reserve Bank of India has projected a slightly higher growth rate of 6.9% for 2026-27. The report noted that recent GST cuts are likely to boost consumer demand in the first half of the fiscal year, although rising global energy prices could increase inflation and reduce household spending power. Strong demand, stable food prices and higher energy costs are all expected to contribute to inflationary pressures.
Investment growth could slow due to rising uncertainty and higher production costs. While exports may benefit from improved access to markets such as the United States and the European Union, weaker growth among major trading partners could offset some gains. Over the longer term, free trade agreements, particularly with the EU and the United Kingdom, could support consumption and real incomes.
Across South Asia, GDP growth is projected to decline from 7% in 2025 to 6.3% in 2026, largely due to disruptions in global energy markets. Despite this, the region is expected to continue outperforming many other emerging markets, with India remaining the primary driver of growth. The World Bank emphasised the need for structural reforms, including improved infrastructure, reduced trade barriers, a better business environment and greater mobilisation of private capital, to sustain growth and create jobs. Sectors such as urban development, tourism and digital services were highlighted as key areas for policy support.
IMF set to lower global growth
Meanwhile, the International Monetary Fund warned that the ongoing Middle East conflict is likely to weigh on global economic growth and push inflation higher. IMF Managing Director Kristalina Georgieva said the organisation would lower its global growth forecasts, cautioning that the conflict would leave lasting damage.
“Even in a best case, there will be no neat and clean return to the status quo ante,” she said.
The conflict, triggered by the US-Israel war on Iran, has disrupted supply chains and driven up oil prices after Iran effectively blocked the Strait of Hormuz. The IMF warned that the crisis would have “asymmetric” effects, disproportionately impacting low-income, energy-importing countries.
Georgieva said the IMF expects demand for financial assistance to rise significantly, noting that “we expect near-term demand for IMF balance-of-payments support to rise by somewhere between $20 billion and $50 billion, with the lower bound prevailing if ceasefire holds.” The Fund estimates that up to $50 billion in immediate support may be required, with at least 45 million people at risk of food insecurity due to rising prices and supply disruptions.
Middle East expected to slow: World Bank
The World Bank also reported that the Middle East has suffered a serious economic toll from the conflict, with regional growth, excluding Iran, expected to slow to 1.8% in 2026. Both institutions warned that higher oil, gas and fertiliser prices, along with transport bottlenecks, are likely to drive global inflation and worsen food security.
(Cover photo by Bhupathi Srinu on Unsplash)