World Bank raises India FY27 growth forecast to 7.1%, flags oil, El Niño risks

The World Bank raised its forecast for India's economic growth in fiscal 2026-27 to 7.1% from 6.6%, saying resilient domestic consumption had helped the economy absorb the impact of higher energy prices even as inflationary pressures persisted.

It lifted its 2026 growth forecast for South Asia to 6.9%, 60 basis points above its previous estimate.

India, the region's largest economy, was expected to remain a key driver of that expansion, although growth was set to slow from 8.6% in 2025-26.


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The World Bank's revision added to a broader run of upgrades to India's growth outlook, with major global and domestic forecasters turning more optimistic as the economy showed greater resilience than expected despite inflationary and external pressures.

The upgrades followed stronger-than-expected domestic activity, with India's economy growing 7.8% in the April-June quarter. However, the World Bank warned that elevated oil prices, a severe weather shock and a correction in global financial markets could put pressure on the outlook.

Consumption cushions energy shock

The World Bank said higher energy prices had so far failed to derail consumption growth in South Asia, with government measures to shield consumers, strong remittances and resilient domestic demand helping absorb the shock.

The region had proved more resilient than expected to supply disruptions stemming from the US-Israeli war on Iran, Reuters reported, citing an interview with World Bank Chief Asia Economist Franziska Ohnsorge.

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For India, the resilience of consumption was particularly notable because higher inflation had already eroded consumers' purchasing power. Ohnsorge described the divergence between inflation and consumption as "quite striking", according to the report.

The World Bank expected inflation to remain elevated into 2027 and said the impact on economic activity could take time to emerge. In emerging markets, the usual lag between an inflation shock and its effect on growth was around 18 months, Ohnsorge told Reuters.

Oil, El Niño pose risks

The outlook remained vulnerable to another prolonged energy shock. South Asian economies are heavily dependent on energy imports, making persistently high oil prices a key risk to inflation, consumption and growth.

A strong El Niño could add to those pressures, particularly in India, where agriculture plays an important role in rural demand and food inflation, Ohnsorge said.

India last experienced El Niño conditions in 2023, when monsoon rainfall was 95% of the long-period average.

India's central bank expected inflation to average 5% in the current financial year. Reuters' latest poll of economists showed expectations of a 25-basis-point rate increase on October 7, followed by another hike in December.

World Bank pushes AI adoption

Beyond the near-term outlook, the World Bank urged South Asian economies to accelerate the adoption of artificial intelligence to sustain growth and create better jobs.

India had significant room to expand AI adoption, with about 23% of Indian firms reported using AI, compared with 43% of US firms, according to the World Bank.

The bank said wider deployment of AI could help the region maintain growth momentum over the medium term, even as higher energy costs, inflation and global economic risks weigh on the outlook.