India is expected to remain among the world’s fastest-growing major economies in 2026-27 despite headwinds from the West Asia war, supported by strong macroeconomic fundamentals, said Aurelien Kruse, lead economist for India at the World Bank on Thursday.
The country has built robust buffers, including adequate foreign exchange reserves, a predominantly domestically held public debt profile, a well-capitalized banking system, low inflation and a relatively low dependence on net energy imports as a share of gross domestic product (GDP), the senior World Bank economist said.
However, risks remain tilted to the downside. An extended period of geopolitical instability could keep global oil prices elevated for longer, potentially weighing on India’s growth outlook.
“While India’s strong macroeconomic buffers offer some protection against downside risks, the conflict underscores the importance of energy diversification, prudent fiscal management and trade diversification,” Kruse said while briefing the media on the bank’s latest India Development Update released on Thursday.
The World Bank’s South Asia chief economist, Franziska Ohnsorge, said that even with a moderation in growth, remains strong.
“Even with our projection of lower 6.6% growth for 2026-27, the country would remain among the fastest-growing economies globally. This reflects strong buffers and policies that continue to support growth while maintaining fiscal consolidation,” she said.
Growth forecast
In its latest South Asia Economic Update released on Wednesday, the World Bank projected India’s economy to grow at 6.6% in 2026-27, slower than the estimated 7.6% expansion in 2025-26. The moderation reflects the impact of global uncertainties, particularly the US-Israel and Iran war.
The multilateral lender’s projection is slightly lower than the 6.9% growth forecast by the Reserve Bank of India (RBI) in its latest monetary policy statement, and the government’s estimate of 6.8–7.2% made in January, before the escalation of tensions in .
Kruse noted that India’s exposure to global energy volatility remains relatively contained. Net energy imports account for about 2.8% of GDP, significantly lower than several other energy-importing economies such as Thailand and South Korea.
“India is exposed to volatility in energy markets, but its exposure is still lower compared to peers. With plans to diversify energy import sources, the country is better placed to manage such shocks,” he added.
The India Development Update is a companion piece to the World Bank Group’s South Asia Economic Update, which examines economic developments and prospects in the South Asia region.
The latest South Asia Economic Update, Working with Industrial Policy, projects growth in South Asia to slow to 6.3% in 2026-from 7% in 2025, due to disruptions in global energy markets. Despite the slowdown, South Asia continues to grow faster than other emerging markets and developing economies. Growth is expected to recover to 6.9% in 2027.
“South Asia’s mixed success on industrial policy in part reflects the region’s limited implementation capacity, fiscal space, and market size in some countries,” said Ohnsorge.
“While broad-based reforms remain the priority, well-calibrated industrial policies could address specific market failures, including through measures such as industrial parks, skill development programmes, market access assistance and improving export quality standards.”
The South Asia Economic Update has recommended implementing carefully designed policy measures in sectors such as urban development, tourism and digital services, alongside broad-based improvements in the underlying business environment, regulatory predictability, and state capacity-all of which are critical for job creation.
Inflation and jobs
For India, the World Bank update said Consumer Price Index-linked inflation is projected at 4.9% in 2026-27, reflecting rising food prices from a low base, partial pass-through of high international energy prices into domestic markets, and exchange depreciation pressures.
Input costs will rise for the industrial sector due to high energy and petroleum-based prices, as well as higher transport and restaurant costs, the India development update said.
On the macroeconomic front, the update said that while fiscal consolidation helped reduce the overall fiscal deficit, public debt levels remained elevated.
Another official of the World Bank said the overall government debt of India (centre and states) is expected to rise from 7.4% of GDP in 2025-26 to 7.6% in 2026-27.
Kruse said in their assessment that there was no risk to India of missing its fiscal deficit target, even though the current geopolitical situation may expand government spending.
In the job environment, Ohnsorge said adoption of AI is reshaping job prospects in the South Asian region, with jobs down by double digits in AI-exposed areas. She said Indians are less affected by AI, as about 40% of their labour force is employed in agriculture.
Kruse said private investment in the country was not bad, but there was still room for the investment rate to grow, with public spending supporting the crowding in of private investment.
On exports, Ohnsorge said, while India has managed well to tide over trade disruptions caused by high US tariffs and has reported growth in exports, the country’s export promotion measures have not resulted in the desired growth. “The policy priority for India should be to create an environment for faster growth that also supports job creation,” she said.