World Bank Raises India’s FY27 Growth Forecast to 7.1% on Strong Domestic Demand

The World Bank also said the services sector growth remained elevated despite a slowdown from the high base in FY26.

By Sakshi

New Delhi, October 6: The World Bank raised India's GDP (Gross Domestic Product) growth prediction for the current fiscal year to 7.1%, up 0.5 percentage points from its April projections, citing strong domestic demand and exports despite global challenges.

According to the international organisation's most recent India Development Update, India's economy continues to grow at one of the quickest rates in the world and plays a significant role in global development.

"We have upgraded our FY27 growth forecast to 7.1 per cent from 6.6 per cent in April, as growth has held up better than expected despite trade and geopolitical uncertainties," it stated.

Strong private consumption and investment propelled India's GDP from 7.2% in FY25 to 7.8% in FY26 as trade issues were overcome by favorable policy and financial conditions, it added.

The World Bank stated that the medium-term prospects are favorable for India. (Image from News On Air)

World Bank Warned Favorable and External Risk

The World Bank stated that the medium-term prospects are favorable, but it also warned that there are significant external risks, such as downside risks associated with El Nino, global oil prices, and stock market corrections that might cause volatility in capital flows.

It noted that rural consumption initially outpaced urban demand supported by strong agricultural performance, while urban consumption strengthened later in the year following income-tax relief and GST (Goods and Services Tax) cuts.

The momentum has carried into FY27, with GDP growing 7.8 per cent in Q1, above expectations, before moderating in subsequent quarters, it said.

Private consumption is expected to remain the main driver of growth although a rainfall deficit through August is likely to weigh modestly on rural demand, while subdued government consumption will stay muted, it said.

The investment Outlook

The investment outlook is broadly unchanged, with heightened global uncertainty weighing on private investment as frontloading fades, partly offset by supportive financial and policy conditions, including stronger public investment, it said.

India's exports have performed better than expected and are likely to provide the main upside to the FY27 growth outlook relative to the April forecasts, it said.

On the supply side, it said, the industry is now forecast to perform better than initially expected and offset a weaker agricultural outlook.

Since April, industrial activity has exceeded expectations despite global headwinds.

This partially reflects the stronger-than-expected front-loading earlier in the year, with infrastructure and construction goods growth accelerating to 7.2 per cent in Q1 from 6.1 per cent last year, as well as the higher summer utility demand, which drove the electricity sector to expand by 9.3 per cent in Q1 compared to a 1.5 per cent contraction last year.

Although above-average rainfall since July narrowed the monsoon deficit, the overall rainfall shortage during southwest monsoon has weakened agricultural prospects, it said.

services sector growth remained elevated

The World Bank also said the services sector growth remained elevated despite a slowdown from the high base in FY26.

Assuming the energy supply chain returns to pre-conflict (West Asia conflict) conditions in early 2027, it said growth is projected to accelerate to 7.2 per cent in FY28 and ease to 7 per cent in FY29, in line with the economy’s medium-term potential.

The government’s recent reform programmes, including GST rationalisation, trade and FDI liberalisation, labour-market reforms and measures to improve access to finance for MSMEs are expected to gain momentum over the medium term, supporting growth, it said.

The Asian Development Bank (ADB) and the OECD, and other international organizations including S&P and Fitch increased India's projection for GDP growth in FY27 to about 7% last month, citing strong economic activity in the June quarter and strong domestic demand in spite of the war in West Asia.

The Organization for Economic Cooperation and Development (OECD), located in Paris, increased its GDP growth prediction for FY27 by 80 basis points, to 7.1%.

The Indian economy has benefitted from lower-than-expected supply interruptions and continued capital inflows, which helped lessen the impact of the war in West Asia, according to ADB, which raised the growth prediction to 7% from 6.6% in July.

(With PTI Inputs)