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The World Bank on Wednesday slightly increased India's growth forecast for the financial year 2026-27 to 6.6 percent. The bank said that although the cut in GST rates will boost consumer demand in the initial months of the financial year, disruptions arising from the Middle East crisis may slow down growth.

This estimate for FY 2027 is compared to the estimates of 6.9 percent by Reserve Bank of India, 6.1 percent by OECD and 6 percent by Moody's Ratings. In its 'South Asia Economic Update' report, the World Bank said that due to strong domestic demand and stability in exports, India's growth rate is projected to increase from 7.1 percent in FY 2025 to 7.6 percent in FY 2026. Growth in private spending has been particularly strong, supported by low inflation and the Goods and Services Tax (GST) reform. The World Bank said that the growth rate is expected to decline to 6.6 percent in fiscal year 2027, which reflects the disruptions arising from the Middle East conflict.

The bank further said that although the cut in GST rates should continue to support consumer demand in the first half of FY 2027, high global energy prices are likely to put upward pressure on prices and limit the disposable income of households. The growth in government expenditure is expected to slow down as expenditure on subsidies on cooking fuel and fertilizers is increasing. The World Bank said that amid increasing uncertainty and increase in the cost of raw materials, the pace of increase in investment is also likely to slow down.

What did you guess earlier?

The bank further said that the benefits of better access to the United States and the European Union (EU) for India's exports will be mitigated by slower growth rates in major trading partners. The World Bank, in its 'Global Economic Prospects' report in January, had estimated India's growth rate to be 6.5 percent in 2026-27.

The World Bank said the impact of the Middle East crisis is highly uncertain, and other forecasters have also revised their growth projections for fiscal 2027 to a range of 5.9 to 6.7 percent. On February 28, the US and Israel launched military strikes against Iran, in response to which Tehran retaliated on a large scale. On April 8, Iran, the US and Israel agreed to a two-week ceasefire in the war that has ravaged the Middle East and disrupted global energy markets.