India possesses substantial economic buffers to manage the ongoing crisis stemming from tensions in West Asia, though a prolonged conflict could present significant challenges, according to the World Bank. Speaking on Thursday during the presentation of the India Development Update, the World Bank’s Lead Economist for India, Aurelien Kruse, noted that while risks remain tilted to the downside due to sustained high oil prices, the country’s economic fundamentals provide a degree of protection.

Kruse highlighted several key factors underpinning India’s resilience, including a relatively low net energy import share of 2.8 to 3 percent of GDP, foreign exchange reserves sufficient to cover more than 10 months of imports, low inflation rates, and a modest current account deficit. These elements collectively strengthen India’s capacity to absorb external shocks related to fluctuating global energy markets.

The World Bank also revised upward its growth forecast for India in the current fiscal year by 30 basis points, projecting a 6.6 percent expansion compared to an earlier estimate of 6.3 percent. Nevertheless, this revised forecast remains lower than the growth recorded in the previous fiscal year. Looking ahead, the Bank’s South Asia Economic Update projects growth to accelerate further to 7.6 percent in the fiscal year 2025-26, up from 7.1 percent in 2024-25, driven by robust domestic demand and resilient exports.

Comparing the current geopolitical disruptions to an “earthquake,” Kruse said that India’s “structure of house and fire trucks are coming,” referring to the country’s preparedness and policy responses to external shocks. He underscored India’s status as the fastest-growing large economy globally in fiscal 2025-26 despite facing some of the highest tariff barriers on its exports worldwide. Tax reforms, including income tax cuts and reductions in goods and services tax (GST) rates introduced last year, have bolstered domestic consumption. Exports and investment have also performed better than initially expected, despite concerns over tariff implications.

The Bank’s growth assumptions for fiscal 2026-27 incorporate an estimated oil price range of $90 to $100 per barrel. It praised the Indian government’s approach to managing the energy market volatility caused by the West Asia crisis, emphasizing efforts to balance supply stabilization without resorting to extensive rationing or harsh restrictions. The government maintained relatively stable retail oil prices to avoid abrupt economic shocks, a strategy the Bank identified as prudent.

World Bank Regional Practice Director for South Asia Prosperity, Sebastian Eckardt, pointed to India’s strong growth momentum being supported by favorable policies, including progress toward a free trade agreement with the European Union and recent labor reforms. He said that despite global economic headwinds, India and the broader region are expected to remain among the more robust performers worldwide.

In terms of fiscal impact, the World Bank forecasts India’s current account deficit to widen to 1.8 percent of GDP in fiscal 2026-27 due to increased energy import costs. The combined fiscal deficit for the central and state governments is projected to increase slightly to 7.6 percent of GDP, up from 7.3 percent in a scenario without the crisis, reflecting higher subsidies on fertilizers and fuel. However, excise duty cuts are expected to restrain revenue growth. Over the medium term, the Bank anticipates a gradual reduction in the overall fiscal deficit.