India’s economic outlook remains resilient despite a complex global environment, with the finance ministry upgrading the country’s growth forecast for FY27 in its February 2026 Monthly Economic Review. The report underscores that strong domestic macroeconomic fundamentals and continued structural reforms are positioning the economy for sustained expansion even as global trade tensions and geopolitical risks intensify.

According to the review, real GDP growth for FY27 is now projected in the range of 7–7.4 percent, marking a 20 basis point upgrade from the 6.8–7.2 percent range earlier outlined in the Economic Survey. The upgrade reflects consistent economic performance over recent years, including three consecutive years of growth above 7 percent, along with improving trade engagement and policy support aimed at boosting investment and productivity.

The report highlights that the policy architecture outlined in the Union Budget 2026–27 provides a strong foundation for maintaining this growth momentum. The budget strategy combines fiscal consolidation with sustained capital expenditure, alongside targeted initiatives aimed at strengthening manufacturing, agriculture, MSMEs, infrastructure and human capital development.

These measures are expected to improve productivity, stimulate private investment and expand employment opportunities across sectors, reinforcing India’s medium-term growth trajectory.

India’s fiscal management continues to be a central pillar supporting macroeconomic stability. During April–January FY26, government capital expenditure grew 11.2 percent, while revenue expenditure remained contained. As a result, the fiscal deficit remained lower than the corresponding period of the previous year.

Data from the Controller General of Accounts shows that the fiscal deficit up to January reached 63 percent of the revised estimate, compared with 74.5 percent in the same period last year. This reflects improved fiscal discipline and revenue management.

The government has reiterated its commitment to fiscal consolidation, with the Union Budget 2026–27 targeting a fiscal deficit of 4.3 percent of GDP, following 4.4 percent for FY26. However, adjustments in the nominal GDP series imply the FY26 deficit may translate closer to 4.5 percent of GDP under the revised calculation methodology.

Maintaining fiscal credibility while continuing infrastructure spending remains a key policy objective, as infrastructure-led growth is widely viewed as a driver of long-term productivity gains.

The economic outlook, however, is unfolding against a volatile geopolitical backdrop. The Monthly Economic Review notes that much of the analysis was completed before the outbreak of the recent conflict escalation in the Gulf region, which could have significant implications for global energy markets.

Military strikes involving the United States and Israel on Iran on February 28, followed by retaliatory threats, have disrupted shipping activity through the Strait of Hormuz, one of the world’s most critical energy chokepoints that handles roughly 20 percent of global oil flows.

Damage to energy infrastructure in the region has heightened concerns about supply disruptions and energy price volatility.

Following the escalation, Brent crude prices have risen roughly 9 percent to near $80 per barrel, while global LNG prices have surged around 50 percent. Such movements underscore the sensitivity of global energy markets to geopolitical shocks in the Middle East.

For India, which remains heavily dependent on imported crude oil, sustained increases in energy prices could present macroeconomic challenges. Nevertheless, the report emphasises that India currently has sufficient buffers to absorb moderate external shocks.

The country’s foreign exchange reserves remain strong, the current account deficit stood at just 0.8 percent of GDP in the first half of FY26, and inflation has remained relatively contained. These factors collectively provide policy space to manage the immediate effects of rising global energy prices.

However, the ministry cautions that if the crisis persists, the implications could extend beyond energy prices. A prolonged geopolitical conflict could lead to currency pressure, widening current account deficits and inflationary risks, particularly if global oil prices remain elevated for an extended period.

Capital flows may also face headwinds in such an environment. Heightened geopolitical uncertainty often leads to a flight to safety among global investors, potentially resulting in weaker capital inflows into emerging markets and increased volatility in currency markets.

Certain domestic sectors could face more direct exposure to energy price shocks. Industries dependent on LNG and crude oil inputs particularly fertilisers and petrochemicals could experience cost pressures if global energy prices remain elevated.

Despite these risks, India’s external sector remains relatively stable. The report points to active trade diplomacy as a key factor supporting long-term resilience. Negotiations and agreements such as the India–EU Free Trade Agreement, the India–US Interim Trade Arrangement, and the India–Oman Comprehensive Economic Partnership Agreement are expected to diversify export destinations and strengthen global trade integration.

Budget initiatives aimed at improving logistics efficiency, trade facilitation and export competitiveness are also expected to support India’s external sector over the medium term.

Labour market indicators also remain supportive. The review notes improving employment trends and expects new budget measures focusing on skilling, workforce development and sector-specific employment initiatives to further strengthen labour participation and employability.