Forbes India
India’s economy is projected to grow at 6.6 percent in FY27, a step down from an estimated 7.6 percent expansion in FY26, according to the World Bank’s latest South Asia Economic Update. However, the FY27 forecast marks a 30-basis point upgrade from the bank’s October 2025 projections.The bank attributes the pullback primarily to disruptions in global energy markets stemming from the conflict in West Asia, which is pushing up production costs, eroding household incomes, and forcing the government to absorb higher subsidy outlays for cooking fuel and fertilisers. Other forecasters have converged on a range of 5.9 to 6.7 percent for FY27, reflecting unusual uncertainty around the energy price trajectory.“Improved access to the US and the European Union for India’s exports will be undermined by slower growth in major trading partners,” the report stated.Also Read: India’s FY26 GDP growth pegged at 7.4% in first advance estimatesStrong base, external headwindsThe revision comes off a high base. India’s GDP grew 7.8 percent in the October-December quarter of FY26, driven by “robust retail sales and consumer confidence” that hit its strongest post-pandemic confidence reading in November 2025.“Recent updates to GDP data and calculation methods revealed that the economy was slightly smaller than previously thought, but that recent growth has been faster,” the bank states in the report.Tax simplification through GST reforms provided an additional consumption boost. However, goods exports nearly stagnated, rising just 0.1 percent in 2025, after the US briefly imposed 50 percent tariffs.Services exports held firm, growing roughly 16 percent between December and February, helping contain the current account deficit alongside “strong remittance” inflows.While lower GST rates will continue to provide some relief to consumers in the first half of FY27, the report mentions that “elevated global energy prices are expected to put upward pressure on prices and constrain households’ disposable income”.On the fiscal side, the government is expected to rein in its own spending to absorb ballooning subsidy bills for cooking fuel and fertilisers. Business investment, meanwhile, is likely to lose steam as companies deal with heightened global uncertainty and rising input costs.The report notes that the Reserve Bank of India’s 5.25 percent rate and a weaker rupee kept conditions easy, despite rising FY27 inflation.Also Read: India's new GDP series explained in 7 chartsTrade deals change the calculusA significant structural positive is India’s signing of comprehensive free trade agreements (FTAs) with the United Kingdom and the European Union. Cutting tariffs on 95 percent of goods, these deals double India’s market access to a third of global GDP. Rural consumers benefit the most, as manufactured goods comprise a larger share of their spending.Equity cautionIndia’s manufacturing sector expanded more than 10 percent annually between 2023 and 2025, with the electronics segment, driven by the production linked incentive scheme, recording nearly a 28-fold surge in mobile phone output over the past decade. However, the World Bank flags one area of vigilance: Indian equity valuations, with the market’s cyclically adjusted price-to-earnings ratio at 33 in January, well above its long-run average of 25 and almost twice the emerging-market peer average, leaving room for a potential correction.Also Read: RBI keeps repo rate unchanged, flags inflation risks and global uncertaintyIndia carries the regionSouth Asia as a whole is forecast to grow at 6.9 percent in 2027. The report notes that “uncertainty” around this forecast is “unusually elevated”.“The baseline incorporates the assumption that the acute disruption to energy supplies largely dissipates after a few months,” it states.The World Bank notes that the regional outperformance is entirely due to India. The rest of South Asia is expected to grow at just 4.1 percent in 2026, broadly in line with other emerging markets. Despite the near-term energy shock, India’s domestic demand resilience, expanding trade footprint and industrial momentum keep it the fastest-growing major economy in the world.
Go to News Site