India is set to remain the world’s fastest-growing major economy, according to the World Bank’s latest South Asia Development Update. This growth is fueled by strong consumption, improved farm output, and rising rural wages. The report highlights the nation’s resilience amid global economic shifts. It underscores India’s pivotal role in regional prosperity.
South Asia’s overall growth is projected at 6.6 percent this year. However, a slowdown to 5.8 percent is anticipated by 2026. This reflects broader regional trends and potential headwinds. The World Bank cautions that risks could disrupt this momentum.
Global economic uncertainty and trade policy changes pose significant threats. Socio-political tensions and labor market disruptions from AI add to the challenges. These factors could impact the steady growth trajectory.
Johannes Zutt, World Bank Vice President for South Asia, emphasized the region’s enormous potential. He noted that South Asia continues to lead global growth. Proactive measures are essential to address risks effectively.
Governments can boost productivity and job creation by leveraging AI benefits. Reducing trade barriers is another key strategy. This approach could help sustain economic momentum.
South Asian countries are among the least open to international trade and finance. High tariffs protect declining sectors but harm manufacturing. Tariffs on intermediate goods are more than double those in other developing economies.
The services sector has been a major employment driver. It accounted for nearly three-quarters of job growth in the past decade. Lower tariffs in this area have facilitated its expansion.
Careful tariff reductions, especially via free trade agreements, could spur private investment. This would encourage job creation across sectors. The World Bank advocates for such reforms to enhance competitiveness.
AI’s rapid transformation requires urgent preparation. South Asia’s workforce has limited AI exposure currently. Moderately educated young workers in IT and business services are particularly vulnerable to job shifts.
Since ChatGPT’s launch, job listings for AI-affected roles dropped by about 20 percent. Demand for AI-related skills is rising sharply. These roles offer wages nearly 30 percent higher than other professional jobs.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, highlighted the transformative potential of trade openness and AI adoption. Policy measures supporting worker mobility and skill development are crucial. They help attract investment and sustain employment.
India’s economic outlook remains strong despite a slightly lower forecast for FY26/27. Higher export tariffs are a contributing factor. The nation’s growth continues to outpace other major economies.
Other South Asian nations show varied trends. Bangladesh is accelerating, while Sri Lanka recovers faster than expected. Nepal and the Maldives face pressures from political and external factors.
The World Bank’s twice-a-year regional outlook stresses the need for strategic actions. Maximizing AI benefits and reducing trade barriers can drive growth. This ensures the region remains a global growth leader.
India’s economy stands out as a beacon of progress. Its sustained growth underscores the importance of adaptive policies. The World Bank’s insights guide future economic strategies.