The Indian economy is expected to grow 6.4% in FY27, slower than the 7.4% expansion estimated for FY26, owing to headwinds from the West Asia conflict, a UN Report said on Tuesday.
The ‘Economic and Social Survey of Asia and the Pacific 2026’ report by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) projected that India’s GDP growth would pick up moderately to 6.6% in FY28, driven by domestic demand and services.
Global uncertainties and energy supply disruptions are expected to drive up inflation in India. According to the report, the country’s inflation rate is projected to rise from 2.3% in FY26 to 4.4% in FY27, before easing slightly to 4.3% in FY28. Even at these levels, India’s inflation would still be within the RBI tolerance range of 2-6%.
In line with projections
The UN projections are in line with those of the Indian government and various multilateral agencies. India’s real GDP is estimated to have grown 7.6% year-on-year during FY26, as per the second advance estimates of the new GDP series with 2022-23 as the base year. According to the RBI, GDP growth for FY27 is expected to moderate to 6.9%. The Asian Development Bank has also pegged the country’s growth at 6.9% in the current fiscal, while the World Bank has projected 6.6% GDP growth.
According to the UNESCAP report, South and South-West Asia recorded economic growth of 5.4% in 2025, slightly higher than 5.2% in 2024, largely because of India’s strong performance. Economic growth in the developing countries of Asia and the Pacific is expected to slow from 4.6% in 2025 to 4% in 2026. This assumes that the Iran conflict won’t last more than a few months and there will be at least some partial de-escalation and easing of tensions later in 2026. If this turns out to be the case, average economic growth may inch up to 4.3% in 2027, the report said, adding that these are highly provisional and indicative estimates only, given the current uncertainty in the Middle East.
Overall average inflation rate is projected to increase to 4.6% in 2026 on the back of higher food and energy prices due to the conflict, UNESCAP said. Assuming it doesn’t last more than a few months and there is at least a partial de-escalation and easing of tensions, inflation may decline to 3.5% in 2027, it added.
“Before the conflict in the Middle East began, commodity prices were projected to decline by 7% in 2026, while energy prices were also expected to decline by 10% in 2026 on top of the 12% decline recorded in 2025. However, the conflict has led to a surge in the price of Brent crude oil to $90-100 range in March 2026 from an average of around $69 per barrel before the conflict started. The disruptions to trading routes and shipments will lead to higher commodity prices, especially food and fertilizers, in 2026,” the report said.
Services hold the fort
With regard to India, the report said the country registered good growth of 7.4% in FY26, driven by strong domestic demand, especially in rural regions. Policy measures such as the GST cuts and increased exports ahead of tariff hikes by the US also contributed to this expansion, it said.
However, the pace of growth slowed in the latter half of 2025, when exports to the US declined sharply following the imposition of steep tariffs. Despite this, the services sector remained a major pillar supporting the economy, the report said.
UNESCAP also pointed to a decline in foreign direct investment (FDI) inflows into developing Asia-Pacific nations due to ongoing trade tensions and geopolitical uncertainties. Even so, India continues to attract significant greenfield investments, securing around $50 billion in the first three quarters, alongside countries such as Australia, South Korea, and Kazakhstan, it said.
Remittances remain a key support for household consumption across the region. However, India may face some challenges as the US has introduced a 1% tax on remittances from January 2026. India remains the world’s largest recipient, having received $137 billion in 2024, the report said.
It also underscored the growing importance of the production-linked incentive (PLI) scheme in strengthening India’s manufacturing sector, particularly in solar energy, batteries, and green hydrogen.
