World Bank raises India FY27 GDP growth forecast to 7.1 per cent

The World Bank has raised its economic growth forecast for India's 2026-27 financial year to 7.1 per cent, up from its previous estimate of 6.6 per cent.

Strong domestic spending and robust exports are shielding the country from global headwinds, keeping India at the forefront of the world's fastest-growing major economies. This upgrade follows a stretch of strong economic performance, including a 7.8 per cent growth rate during the April-June quarter.

India remains the primary engine of expansion for South Asia. The World Bank now projects the wider region to grow by 6.9 per cent in 2026. However, the breakneck pace of India's growth is expected to cool slightly from the 8.6 per cent expansion estimated for the 2025-26 fiscal year.

Energy prices and weather shocks remain risks

While the upgrade reflects a highly resilient domestic market, the World Bank warned that the outlook is still vulnerable to external shocks. Persistent global oil prices, potential corrections in global stock markets, and geopolitical tensions in the Middle East could disrupt capital flows and feed inflation.

South Asian nations are heavily dependent on imported energy, making them particularly sensitive to oil price spikes. Despite this, local consumption has held up remarkably well. Franziska Ohnsorge, the World Bank's Chief Asia Economist, noted that the resilience of Indian consumption has been striking, especially because high inflation usually erodes consumer spending power.

Weather patterns also pose a significant challenge. A severe El Nino shock could damage agricultural output, which would hurt rural demand and drive up food inflation. The central bank expects inflation to average 5 per cent this fiscal year, with economists widely anticipating further interest rate hikes to keep prices under control.

The artificial intelligence opportunity

Beyond short-term shocks, the World Bank urged regional policymakers to look to artificial intelligence as a way to sustain growth and boost productivity.

India is already seeing a massive surge in AI activity. Private investment in AI more than tripled, jumping from $1.2 billion in 2024 to $4.1 billion in 2025. Over the same period, employment in Global Capability Centres grew from 1.9 million to 2.36 million professionals.

"Harnessing AI as a development tool - not just a technology - could be one of the most powerful levers India has to boost productivity and improve public services," said Paul Procee, the World Bank's Acting Country Director for India.

However, India still has significant ground to cover. Only 23 per cent of Indian firms currently use AI, compared to 43 per cent in the United States. To close this gap, the World Bank recommended policy changes to improve digital infrastructure, make AI more accessible to smaller businesses, and support workers through the technological transition.