India is expected to retain its position as one of the world’s fastest-growing large economies in FY27, Aurelien Kruse, lead economist for India at the World Bank, said on Thursday. However, risks to the medium-term outlook are tilted to the downside, as uncertainty persists over the duration and scale of the Middle East conflict.
Prolonged periods of elevated oil prices can significantly impact the Indian economy, but risks are cushioned by ample buffers, the World Bank said in its report.
“Though we’re coming up with our point estimate, there is great uncertainty… there is not only economic uncertainty; there’s also political uncertainty, and there is very little we can control,” the Kruse cautioned. The World Bank projected India’s gross domestic growth at 6.6% for FY27.
The World Bank in its report “India Development Update” also said that the general government fiscal deficit is projected to increase marginally to 7.6% of gross domestic product (GDP) in FY27 versus 7.3% in the absence of the conflict, as higher energy prices will feed into higher spending on fertilizer and fuel subsidies, and excise duty cuts will contain revenue growth. Over the medium term, the overall fiscal deficit is projected to decline gradually, supported by continued consolidation in current spending and stabilization of capital expenditure as a share of GDP.
Franziska Ohnsorge, World Bank’s South Asia chief economist, said that the introduction of export-promoting policies by South Asian countries did not produce significant gains. “The policy priority for India should be to create an environment for faster growth that also supports job creation,” she said.
On the job front, Franziska Ohnsorge said that adoption of artificial intelligence is reshaping job prospects in the South Asian region, with jobs down by double digits in AI-exposed areas. She, however, stated that Indians are less affected by AI, as about 40% of their labour force is employed in agriculture.
Meanwhile, Kruse highlighted that India entered the current oil shock from a position of strength. In FY26, the economy grew at a robust 7.6%, accelerating from the previous year and remaining the fastest-growing major economy globally, even while facing some of the highest effective weighted average tariffs on exports to the US.
“Despite all the turbulence we experienced last year in FY26, the Indian economy performed very strongly,” Kruse said. “Not only on growth, but also on inflation, and very surprisingly for us on trade.”
Key drivers included resilient private consumption, supported by government measures such as tax cuts and goods and services tax rationalization, alongside surprisingly strong performance in exports and investment—the areas initially expected to suffer most from tariffs. Kruse said that these factors created “very strong buffers and very strong ability to withstand the shock.”
He noted that authorities struck a careful balance: managing the shock without imposing massive rationing or restrictions, while keeping retail oil prices relatively stable to avoid sharp, disruptive adjustments.
Franziska Ohnsorge also said that import-restricting policies were followed by statistically significant declines in imports but the export promotion policies did not produce gains. A report titled “South Asia Economic Update, Working with Industrial Policy” noted that domestic subsidies such as financial grants, loans, and interest payment subsidies can alleviate credit constraints for young firms and industries with high fixed costs. In practice, however, such subsidies have not been associated with a significant increase in sectoral exports in South Asia, the report noted.
“Public procurement policies, if used to support innovation by domestic firms, could boost firms’ competitiveness in the export market. At the same time, contracts with the public sector could reduce firms’ incentive to export if the public sector offers more attractive prices or more favourable terms than the export market. In South Asia, the introduction of public procurement measures was not followed by significantly higher or lower exports,” the report noted.
TOPICSworld bankThis article was first uploaded on April ten, twenty twenty-six, at twenty-three minutes past twelve in the am.