New Delhi: As global economic growth slows down amid the West Asia crisis, India is projected to register 6.3 per cent growth in 2026–27 (FY27) and 6.4 per cent in 2027–28 (FY28), the Organisation for Economic Cooperation and Development (OECD) said on Wednesday.
In the emerging-market economies, China’s growth is projected to ease from 5.0 per cent in 2025 to 4.5 per cent in 2026 and 4.3 per cent in 2027, as energy-related vulnerabilities and real estate sector adjustments weigh on activity despite mitigating factors such as the increasing share of renewables in the energy mix, adequate oil reserves and gasoline price caps, said the report.
“The conflict in the Middle East has become the dominant force shaping the global economic outlook. Energy prices and the prices of other key agricultural and industrial inputs produced in the Persian Gulf economies have soared since February as production and exports have been curtailed. This has been pushing up inflation, putting pressure on real incomes and economic growth. GDP growth projections have been revised down, while inflation has been revised up,” the report mentioned.
The Reserve Bank of India reduced the monetary policy rate from 6.5 per cent in January 2025 to a broadly neutral level of 5.25 per cent in February 2026 and average lending rates have fallen.
Non-food bank credit (bank credit net of food procurement-related lending) expanded by 15.9 per cent year-on-year in March.
However, recent developments point to a re-emergence of inflationary pressures. Headline inflation has begun to rise, driven primarily by higher food prices as favourable base effects fade.
“In this context, a temporary increase in the policy rate of around 25 basis points is projected by the end of the first quarter of FY2026-27 to help maintain inflation within the 4 per cent target band and anchor expectations. As inflationary pressures recede over the projection horizon, monetary policy is expected to ease in FY2027-28,” the OECD report stated.
Fiscal policy is projected to become expansionary in FY2026-27 to cushion the impact of higher energy prices.
The FY2026-27 budget envisaged a reduction in the fiscal deficit from 4.4 per cent of GDP in FY2025-26 to 4.3 per cent of GDP. However, measures adopted to mitigate the energy price shock are expected to widen the deficit by around 0.4 per cent of GDP relative to the budgeted path.
These measures will provide near-term support to household real incomes and limit the impact on consumption but will also slow the pace of public debt reduction, which is expected to reach 54.7 per cent in FY2027-28. Fiscal policy is expected to return to a moderate consolidation path in FY2027-28 as energy prices stabilise and temporary support measures are phased out.
(IANS)
