Higher energy costs, gas rationing, weaker global demand and increased production expenses are likely to weigh on investment and exports, it said on Wednesday.
Despite the anticipated slowdown, India is expected to remain among the world’s fastest-growing major economies.
Gross domestic product growth is expected to edge slightly up to 6.4% in FY28, according to the Paris-based institution. India imports more than 85% of its crude oil requirements, with about half passing through the Strait of Hormuz, which has remained largely blocked since the start of the Iran war on February 28.
“Rising inflation is expected to weigh on private consumption, while investment slows amid higher oil and gas prices and gas rationing,” said the OECD.
Private consumption growth is expected to moderate to 6.8% in FY27 from 8.2% in FY26, it noted. Growth in gross fixed capital formation, an indicator of investment, is also projected to ease to 6% from 7.1%.
Inflation is forecast to accelerate to 4.8% in FY27, driven by higher food and energy prices as well as currency depreciation. It is expected to ease to 4% in FY28 as commodity prices stabilise and monetary policy tightens.
The OECD anticipates a small rate hike in mid-2026, likely to be reversed in early 2027, leaving interest rates close to neutral levels. The Reserve Bank of India’s monetary policy committee entered its June 3-5 meeting with the repo rate at 5.25% and a neutral policy stance.
India’s current account deficit is expected to widen to 2.1% of GDP in FY27, reflecting higher energy import costs and weaker external demand.
Globally, the OECD expects GDP growth to slow to 2.8% in 2026 from 3.4% in 2025. In a scenario of prolonged disruption from the Middle East conflict, growth could weaken to 2.1% this year. “The global economy entered 2026 with robust momentum, but the outlook has weakened significantly since the start of the conflict in the Middle East, with effects likely to be felt for some time. The longer the disruptions last, the larger the economic and social costs become,” OECD secretary-general Mathias Cormann said.