The World Bank on Tuesday raised India's GDP growth forecast for the current fiscal to 7.1 per cent, up 0.5 percentage points from its projections in April, supported by robust domestic demand and strong exports, despite global headwinds.
India remains one of the fastest-growing major economies in the world and a key contributor to global growth, the multilateral organisation said in its latest India Development Update.
"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 said.
India's growth accelerated to 7.8 per cent in FY26 from 7.2 per cent in FY25, driven by strong investment and solid private consumption, as favourable policy and credit environment outweighed trade tensions.
The medium-term prospects are strong, the World Bank said, but also cautioned that external risks are elevated, including downside risks related to global oil prices, El Nino, and stock market corrections that would result in capital flow volatility.
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 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 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.
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 medium-term potential.
The governments 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.
Last month, Asian Development Bank (ADB) and OECD and other global agencies like S&P and Fitch raised India's FY27 GDP growth projection to around 7 per cent, boosted by robust June quarter economic activity and resilient domestic demand despite the West Asia conflict.
Paris-based Organisation for Economic Cooperation and Development (OECD) upped GDP growth forecast by 80 basis points to 7.1 per cent for FY27.
ADB, while raising the growth forecast to 7 per cent, from 6.6 per cent estimated in July, said the Indian economy has benefited from lower-than-expected supply disruptions and sustained capital inflows, which helped cushion the impact of the conflict in West Asia.