Forbes India
India’s retail inflation is expected to climb to 4.9 percent in FY27, as elevated global oil prices filter through to transport and input costs, the World Bank said in its latest India Development Update.The projection marks a 90 basis-point increase from what the bank had forecast in the absence of the conflict in West Asia—a disruption it now treats as a central risk scenario, assuming extended supply chain stress through end-2026.While India possesses the resilience to handle short-term disruptions, its heavy dependence on West Asian energy imports remains a primary risk to its trade balance, inflation targets and budget stability, the report notes.“Although energy-source diversification and policy buffers provide some insulation from external shocks, persistently high global energy prices would eventually lead to higher retail inflation, weigh on domestic demand and overall growth,” the report states.Growth forecast trimmedThe inflation forecast is accompanied by a downward revision to India’s growth outlook. The World Bank now projects GDP growth at 6.6 percent in FY27, citing headwinds from the conflict, including disrupted shipping through the Strait of Hormuz, higher energy import costs and softening investor confidence.“Private consumption is expected to slow modestly as higher global oil prices will raise inflationary pressures and reduce household disposable income,” the report noted, though it flagged that September GST rate cuts should partially cushion the blow.The report also expects India to grow at an average of 7.1 percent over FY28-29.Government spending is projected to cool as fiscal discipline limits non-essential spending to balance rising subsidies for fuel and fertiliser. Meanwhile, global market turbulence is expected to dampen investor confidence, causing firms to pause capital expenditure.“Boosting private sector-led growth will be critical to strengthening economic resilience and supporting more young people to enter the workforce,” said Paul Procee, World Bank acting director for India. “To achieve Viksit Bharat, a predictable, business-enabling environment will help to unlock investment and create jobs at scale in priority sectors like energy and infrastructure, manufacturing, tourism, health care and agribusiness.”New trade agreements and easing tariffs should keep exports steady despite weakening Gulf demand. “However, stronger import demand for capital goods will limit the overall contribution of net exports to growth,” the report stated.Also Read: World Bank sees India growing 6.6 percent in FY27Fiscal and external pressures mountThe general government fiscal deficit is projected to widen to 7.6 percent of GDP in FY27, as subsidy outlays for cooking gas and fertilisers rise and excise duty cuts on fuel are deployed to limit price pass-through to consumers. The current account deficit is also expected to widen to 1.8 percent of GDP.On India’s GDP rebasing exerciseIndia’s economic landscape has seen a significant recalibration following the government’s update of the GDP base year from 2011-12 to 2022-23 in February. The World Bank noted that this new series paints a picture of growth that is not only “less volatile and more broad-based” but also more accurate.This statistical shift led to a sharp downward revision of FY24’s real GDP growth from 9.2 percent to 7.2 percent due to downward revisions in government consumption and investment growth on the demand side.However, growth in FY25 and FY26 are revised upwards to 7.1 percent and 7.6 percent respectively. Underpinning this steady momentum is a robust supply side, with the services and industry sectors expanding at 9.6 percent and 8 percent respectively between FY24 and FY26.The nominal GDP revision, however, down roughly 3 percent in the base year, has pushed India’s public debt-to-GDP ratio higher, from 82 percent to 84 percent in FY26, a recalibration with implications for both fiscal targets and state-level borrowing limits.
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