India's expected economic growth of 6.6% for fiscal 2027 could face significant risks as the Iran war fans inflation worries, but ample foreign exchange buffers and a well-capitalised banking system could help mitigate some of it, the World Bank said.
Doubts lingered over a fragile two-week Middle East ceasefire, raising concerns that energy flows through the crucial Strait of Hormuz will remain restricted. India, which imports about 90% of its oil, is among economies most exposed to prolonged war-related energy supply disruptions.
Retail inflation in the South Asian nation is projected at 4.9% for the current fiscal year, reflecting higher food and energy prices and exchange depreciation pressure, World Bank's India Economist Aurelien Kruse said at a news conference in New Delhi on Thursday, after the release of its biannual report on the nation.
The vulnerability has already rattled investors. The rupee has slid to a record low as foreign funds pulled nearly $19 billion from markets between March and early April.
India's central bank expects growth to fall to 6.9% in fiscal 2027 from an expected 7.6% in the fiscal year ended March 31, 2026. Average inflation for the year is projected at 4.6%.
Input costs will rise for the industrial sector due to high costs of energy and petroleum-based raw materials and services, Kruse added.
India's forex reserves—sufficient for at least 11 months as per the Reserve Bank of India—could help, the World Bank said. Forex reserves rose to $697.1 billion as of April 3, per the latest data, from $688.06 billion in the previous week.
"Even with the slowdown, India remains among the fastest-growing major economies in the world," the World Bank said.
Rising deficits
India's current account deficit in the fiscal 2027 is expected to increase to 1.8% of gross domestic product due to higher energy import bill, according to the World Bank.
The general government fiscal deficit is projected to increase marginally to 7.6% of GDP versus 7.3% in the absence of the conflict, according to the bank, as higher energy prices will feed into higher spending on fertilizer and fuel subsidies while excise duty cuts will contain revenue growth.
Over the medium term, however, the overall fiscal deficit is projected to decline gradually, the bank added.
