The World Bank has stated that India possesses sufficient economic buffers to manage the fallout from the ongoing crisis in West Asia, although it warned that a protracted conflict could pose significant risks. Speaking on Thursday during the release of the India Development Update, the bank’s lead economist for India, Aurelien Kruse, highlighted several factors cushioning the country’s economy despite external shocks.

Kruse pointed out that India’s net energy import bill accounts for only about 2.8 to 3 percent of its gross domestic product (GDP). The country also maintains foreign exchange reserves adequate to cover over 10 months of imports, alongside relatively low inflation and a modest current account deficit. These buffers collectively provide resilience against disruptions caused by volatile global energy markets.

In a recent revision, the World Bank raised India’s growth forecast for the current fiscal year to 6.6 percent, a 0.3 percentage point increase from its earlier estimate of 6.3 percent. This projection, however, remains below the previous year’s growth rate. The bank’s South Asia Economic Update anticipates India’s economy expanding by 7.6 percent in the fiscal year 2025-26, up from 7.1 percent estimated for the current year, driven by robust domestic demand and resilient exports.

Kruse likened the current West Asia crisis to an “earthquake,” but emphasized that India’s “structure” is sound, with government interventions acting as “fire trucks” mitigating damage. Despite facing some of the highest tariffs on its exports, India continued to be the fastest-growing major economy globally in the current fiscal year. Measures such as income tax reductions and cuts in the Goods and Services Tax (GST) rates last year helped support domestic consumption. Moreover, export and investment sectors, expected to weaken under tariff pressures, performed better than anticipated.

The World Bank also praised the Indian government’s approach to managing energy supply challenges resulting from the conflict. Authorities struck a balance by avoiding large-scale rationing or price hikes, instead maintaining relatively stable retail oil prices to prevent sharp economic adjustments that could have been more damaging in the short term. Still, the bank noted that risks remain heavily skewed to the downside, particularly if oil prices stay elevated for longer than expected.

Sebastian Eckardt, Regional Practice Director for South Asia at the World Bank, highlighted India’s sustained growth momentum, attributing it to favorable policies such as the recent trade agreement with the European Union and new labor reforms. He expressed confidence that India and the broader South Asian region will continue to outperform other parts of the world despite ongoing global headwinds.

On fiscal matters, the bank projected India’s current account deficit to widen to 1.8 percent of GDP in the 2026-27 fiscal year due to higher energy import costs. The combined fiscal deficit of the central and state governments is expected to rise marginally to 7.6 percent of GDP, up from an estimated 7.3 percent absent the conflict. This increase is attributed to greater expenditure on fertilizer and fuel subsidies partially offset by continued excise duty cuts. However, the bank forecasts a gradual reduction in the overall fiscal deficit over the medium term.