Samarkand: India’s growth outlook remains “relatively robust,” but risks have increased due to global disruptions, particularly energy market volatility linked to geopolitical tensions, Asian Development Bank chief economist Albert Park said. He called for sustained reforms, particularly to improve the business environment, boost trade integration and attract foreign investments.

“We're in a global shock… Everyone's struggling. But I think India is still in a robust growth position,” Park told ET.

Also Read: Prolonged West Asia crisis may pull down India's GDP growth to less than 6.5 pc: CII President

India’s growth may moderate closer to 6.3% in the current fiscal year from the earlier projection of around 6.9% but the slowdown is likely to be temporary, with growth expected to recover next year, he said.

This negative 0.6% impact on growth this year in line with the region as a whole except China, he said.

“India is still ahead of many peers in terms of growth prospects. The challenge is to navigate this period of global shocks while continuing structural reforms,” Park said, adding that reforms can unleash the underlying potential of the country.

Despite near-term challenges, India remains one of the fastest-growing major economies amid strong domestic demand, ongoing reforms and a favourable demographic profile, he said.

Park said not much should be read into slowing foreign investment flows. “I know there's a little bit of a concern in India about foreign direct investment flows. But it’s such a crazy world right now. I wouldn’t read too much, but certainly, I think that’s an area that India should really continue to focus on,” he said.

He flagged inflation as a bigger concern. As per the multilateral development bank’s estimates inflation in India could rise by an additional 2.4 percentage points this year relative to its earlier baseline, taking it close to 6.9%. A further increase of about 0.8 percentage points is expected in 2027. The Consumer Price Index-based inflation rose marginally to 3.4% in March from 3.2% in February.

The sharper inflationary impact compared to the broader Asia-Pacific region is largely due to India’s dependence on imported oil and gas, Park said. “Higher energy prices feed directly into domestic inflation, and the effects are more pronounced in India,” he noted.

Park also flagged the risk of food inflation if adverse weather conditions such as El Niño affect monsoon rains. “Any disruption to agricultural output in India has both domestic and global consequences, especially given its large role in rice markets,” he said.

With inflation risks rising, Park indicated that central banks, including the Reserve Bank of India (RBI), may need to remain cautious on rate cuts. “Most central banks had begun easing as inflation declined, but the current environment has led many to pause. The key question is whether supply shocks become persistent enough to trigger second-round inflation effects,” he said.

On subsidies, he said they should be targeted at the vulnerable sections. “There is a clear trade-off between subsidies and investment. Better targeting of social protection and reducing inefficient subsidies can free up resources for infrastructure and long-term growth,” he said.

India has a lot of different support programmes and some of them are overlapping with the same kind of beneficiaries, Park said. India can probably target these well with its strong digital public infrastructure, he added.

Also Read: No systemic risk to BFSI sector; may see short-term slowdown in loan growth: Deepak Parekh

To reduce vulnerability to external shocks, Park underscored the importance of accelerating the shift towards renewable energy and diversifying import sources. “Reducing dependence on imported fossil fuels is essential not just for energy security but also for long-term sustainability,” he said, while cautioning against increased reliance on coal as a short-term response.

On the impact of artificial intelligence, Park said India faces both disruption and opportunity. Sectors such as business process outsourcing could see job displacement, but strong digital infrastructure positions the country to benefit from AI-driven productivity gains.

“The key will be supporting worker transitions and investing in skills,” he said, adding that the long-term impact on employment remains uncertain.