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Informist, Wednesday, Jun. 3, 2026

 

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--OECD raises India's FY27 GDP growth forecast by 20 bps to 6.3%
--OECD retains India's FY28 GDP growth forecast at 6.4%
--OECD:India growth seen easing on high energy prices, rationing initiatives
--OECD:More persistent energy rationing in India could lead to weaker growth
--OECD: See small rate hike in India mid-2026, to be undone in early 2027
--OECD: Rising inflation to weigh on consumption, investment in India
--OECD: Employment growth, labour mkt participation set to weaken in India
--OECD cuts India FY27 CPI inflation forecast by 30 bps to 4.8%
--OECD cuts India FY28 CPI inflation forecast by 10 bps to 4.0%
--OECD: Inflation to rise in India on higher food, energy, fertiliser costs
--OECD: Inflation to rise in India on currency depreciation
--OECD: India CAD to widen on higher energy import costs
--OECD: India's fiscal policy to turn expansionary in FY27
--OECD:India fiscal policy to turn expansionary to mitigate energy price hit

 

NEW DELHI – The Organisation for Economic Co-operation and Development has raised its forecast for India's GDP growth in the current financial year despite pressures from high energy prices caused by the war in West Asia. Inflation is projected to rise because of oil price shock, which is seen pushing the Reserve Bank of India to raise interest rates temporarily in 2026, the OECD said.

 

India's GDP is seen growing 6.3% in FY27, 20 bps higher than OECD's previous projection of 6.1%. Despite the bump up in the forecast, India's GDP growth this year would be slower than the 7.6% estimated for FY26.

 

"The negative effects of higher energy prices and gas rationing, weaker global demand and higher production costs are expected to weigh on investment and exports, despite lower US import tariffs providing some support to exports," the OECD said in its economic outlook report. 

 

Further energy rationing in India due to the oil price shock could lead to weaker growth, the OECD said. As energy prices jumped and supplies were disrupted because of the US-Israel war on Iran, the Indian government set limits on consumption of commercial cooking gas and also redirected industrial fuel towards production of liquefied petroleum gas to ensure availability for domestic use. 

 

Private consumption growth in India is projected to slow as inflation reduces households' purchasing power, OECD said. As some of these headwinds recede in FY28, GDP growth is expected to recover to 6.4%, the same as previously projected.  

 

Retail inflation in India is projected to rise to 4.8% in FY27 from around 2% in FY26, driven by higher food, energy, and fertiliser prices, and also exchange-rate depreciation, the OECD said. The inflation forecast for this financial year is 30 bps lower than OECD's previous projection of 4.8%.

 

"Persistent disruptions to energy supply, including prolonged gas rationing, could further constrain production and raise inflation, including through reduced fertiliser supply and agricultural output," the OECD said. Inflation is seen easing in FY28 to 4.0% as commodity prices stabilise and monetary policy tightens, the OECD said.

 

Trade policy uncertainty remains high, and additional restrictions or weaker global demand could weigh on exports and investment, the OECD said. "On the upside, if energy support measures effectively reduce near-term inflation and limit the erosion of real disposable incomes more effectively than assumed in the projections--particularly for liquidity-constrained households--private consumption may prove more resilient than projected," the OECD noted.

 

India's current account deficit is also expected to widen in FY27 to 2.1% from an estimated 0.7% in FY26, reflecting higher energy import costs and weaker external demand, the OECD said. Employment growth and labour market participation are also set to weaken in India, the report said. 

 

POLICY RESPONSE

The OECD expects the RBI to raise interest rates to contain inflation and the government's fiscal policy to turn expansionary in FY27 to mitigate the impact of higher energy prices.

 

The OECD sees the Monetary Policy Committee raising the repo rate by 25 bps from the current 5.25% in the June policy meeting to help maintain inflation within the RBI's 2-6% comfort band. "As inflationary pressures recede over the projection horizon, monetary policy is expected to ease in FY2027-28," the OECD said. 

 

Fiscal policy is projected to become expansionary in FY27 to cushion the impact of higher energy prices, the OECD said. The government's fiscal deficit is seen rising to 4.8% of GDP, 50 bps higher than the Budget estimate of 4.3% pf GDP. The fiscal deficit was 4.4% of GDP in FY26.

 

"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% in FY2027-28," the OECD said. "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."

 

Streamlining and harmonising regulations would reduce administrative burdens, boosting productivity and investment, the OECD said. "Accelerating the rollout of renewable energy sources would strengthen energy security and reduce carbon emissions."  End

 

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

 

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