OECD Upgrades India’s FY27 Growth Outlook, Flags Energy Price Risks
The Organisation for Economic Co-operation and Development (OECD) has raised its growth forecast for India for FY27 to 6.3 percent, up from its earlier estimate of 6.1 percent, citing the country’s economic resilience. However, the global body cautioned that rising energy prices and supply disruptions linked to the ongoing conflict in West Asia could pose significant risks to growth and inflation.
In its latest Economic Outlook report, the OECD projected India’s economic growth to moderate from 7.6 percent in FY26 to 6.3 percent in FY27, reflecting the impact of higher energy costs, fuel rationing measures and softer domestic demand.
The report highlighted that escalating energy prices are adding pressure to inflation, with food and fuel costs expected to rise further. Inflation is projected to increase to 4.8 percent in FY27 from 2.1 percent in FY26, although this remains below the OECD’s earlier estimate of 5.1 percent.
According to the OECD, the depreciation of the Indian rupee is also contributing to imported inflation by increasing the domestic cost of fuel, fertilisers and other traded goods. In response to these inflationary pressures, the organisation expects the Reserve Bank of India (RBI) to maintain a cautious monetary stance and potentially raise the policy repo rate by around 25 basis points in the near term to keep inflation within its target range.
The report warned that prolonged disruptions to global energy supplies could further impact industrial production and agricultural output. India, which relies on West Asia for nearly half of its oil and gas imports, has already introduced measures to prioritise domestic fuel availability, including restrictions on commercial cooking gas consumption and the diversion of industrial fuel supplies towards household LPG production.
Higher inflation is also expected to affect consumer spending. The OECD noted that rising prices could erode household purchasing power, slowing private consumption growth. At the same time, weaker global demand and increased production costs may weigh on investment activity and export performance, despite some support from lower US import tariffs.
The organisation also expects India’s current account deficit to widen as higher energy import bills offset the effects of slower domestic demand.
To shield households and businesses from the impact of rising energy costs, the government is expected to introduce support measures. However, the OECD cautioned that such interventions could widen the fiscal deficit by around 0.4 percent of GDP beyond the budgeted target and slow the pace of public debt reduction.
The report recommended targeted cash transfers instead of broad-based price subsidies as a more efficient way to protect vulnerable sections while containing fiscal pressures.
Looking ahead, the OECD expects some of the current challenges to ease in FY28. Economic growth is projected to improve slightly to 6.4 percent as commodity prices stabilise, inflationary pressures moderate and monetary policy gradually shifts towards easing. Fiscal consolidation is also expected to resume as temporary energy support measures are phased out.
Despite near-term uncertainties, the OECD maintained that India remains among the world’s fastest-growing major economies, supported by strong domestic fundamentals and continued policy reforms.
