India has “ample” buffers for West Asia crisis, but a prolonged conflict poses a downside risk, the World Bank said on Thursday.
“Risks are tilted to the downside as prolonged periods of elevated oil prices can significantly impact the Indian economy, but risks are cushioned by ample buffers,” World Bank Lead Economist for India Aurelien Kruse said while presenting India Development Update. These buffers comprise a net energy import share of 2.8-3 per cent of GDP, foreign exchange reserves capable of covering over 10 months of imports, and low inflation alongside a minimal current account deficit, among other factors.
On Wednesday, the World Bank had raised India’s growth forecast for the current fiscal by 30 basis points to 6.6 per cent from its earlier estimate of 6.3 per cent, though this remains lower than the previous fiscal. In its South Asia Economic Update report, it said India’s growth is estimated to have accelerated to 7.6 per cent in FY26 from 7.1 per cent in FY25 owing to strong domestic demand and export resilience.
Comparing the current situation to an “earthquake”, Kruse said, “But India has the right structure of house and fire trucks are coming.” Further, he mentioned that India has remained the fastest-growing large economy in the world in FY26, despite facing some of the highest tariffs on its exports globally. He also said the income tax cuts and GST rate reductions last year supported domestic consumption, while exports and investment, areas which were expected to be adversely affected by tariffs, performed much better than anticipated.
“India showed very strong performance and resilience,” Kruse said. All the estimates have assumed oil price in FY27 at $90-100/ barrel for arriving at its growth estimates.
Kudos to Centre
The World Bank commended the Indian government’s strategy of handling the energy crisis due to the West Asia conflict. “The authorities have struck a right balance between taking measures to manage supply without doing massive rationing or massive restrictions and also trying to soothe the initial volatility by maintaining retail prices of oil relatively constant to avoid kind of very sharp, non-linear adjustment that would have been probably more detrimental than beneficial in the short term. So having said that, the risks are obviously massive. They’re tilted to the downside,” Kruse said.
World Bank Regional Practice Director for South Asia (Prosperity), Sebastian Eckardt, stated that India’s strong growth momentum is supported by positive policies, including the EU FTA and new labour reforms. Despite global headwinds, “we do see India and the region, continuing to be a very strong, performed gross performing region compared to other emerging markets across the world,” he said.
Rising deficit
The Bank said that India’s current account deficit in FY27 is expected to increase to 1.8 per cent of gross domestic product due to higher energy import bill. The general government (Centre and States combined) fiscal deficit is projected to increase marginally to 7.6 per cent of GDP versus 7.3 per cent in the absence of the conflict, 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.
Published on April 9, 2026