OECD Forecasts Robust Indian Economic Growth Amid Global Uncertainty
The Organisation for Economic Cooperation and Development (OECD) has projected India's economy to expand by a robust 7.6% in the current fiscal year (FY 2025-26). However, this growth is expected to moderate to 6.1% in the following fiscal year (FY 2026-27), according to the multilateral body's interim Economic Outlook report.
Middle East Conflict Poses Significant Economic Risks
The OECD report highlights that the evolving conflict in the Middle East carries substantial human and economic costs for the nations directly involved. More broadly, this geopolitical tension could test the resilience of the global economy by disrupting critical energy supplies and driving up commodity prices worldwide.
"The decline in US tariffs should support growth in India, though gas rationing will disrupt some production activities and fiscal support is expected to fade," the OECD stated, explaining the anticipated growth trajectory. The organization forecasts a further easing to 6.4% growth in FY 2027-28.
Energy Price Surge and Inflationary Pressures
Specific disruptions, such as those affecting shipments through the strategic Strait of Hormuz and damage to energy infrastructure, have already triggered a sharp surge in energy prices. This volatility has a cascading effect on the global supply of essential commodities, including fertilizers.
The OECD issued a warning that inflationary pressures could intensify as the temporary deflationary effects from earlier food and energy price shocks begin to recede. For India, the report projects consumer price inflation to rise significantly from 2.0% in FY 2025-26 to 5.1% in FY 2026-27, before easing slightly to 4.1% in FY 2027-28.
To counter these stronger inflationary pressures, the OECD suggests that India, among other emerging-market economies, may need to temporarily raise policy rates during the second quarter of 2026.
Impact of US Tariff Reductions
On a positive note, the report acknowledges a decline in US bilateral tariff rates following a US Supreme Court ruling against levies imposed under the International Emergency Economic Powers Act. This has resulted in meaningful tariff reductions for several emerging-market economies, including India.
However, the OECD cautions that the overall effective US tariff rate remains elevated compared to pre-2025 levels, indicating that trade tensions have not fully dissipated.
Global Economic Outlook Remains Subdued
Globally, the OECD expects economic growth to soften to 2.9% in 2026 before showing a marginal improvement to 3.0% in 2027. The organization notes that the energy price surge and the unpredictable nature of the Middle East conflict will raise costs and dampen demand.
These headwinds are expected to offset tailwinds from strong technology-related investment, lower effective tariff rates in some areas, and the economic momentum carried over from 2025.
