New Delhi, April 09: India’s economy is projected to expand by 7.6% in FY2025–26 before moderating to 6.6% in the following fiscal, positioning it as the primary growth engine for South Asia, according to the latest report by the World Bank.
The South Asia Economic Update highlights that regional growth is expected to slow to 6.3% in 2026 from 7% in 2025, amid global energy disruptions and geopolitical uncertainties, before recovering to 6.9% in 2027. The report attributes the region’s outperformance largely to India, underscoring its central role in sustaining economic momentum.
India’s growth trajectory is being driven by strong domestic demand, resilient services exports, and ongoing trade reforms, including new agreements such as a proposed free trade pact with the European Union. Robust consumption trends and improving consumer confidence have further supported economic expansion, even as merchandise exports face pressure from global trade volatility.
However, the outlook remains exposed to external risks, particularly rising energy prices due to Middle East tensions. As a net energy importer, India could face higher inflation and tighter financial conditions, potentially impacting household spending and overall growth dynamics.
The report also points to structural challenges in industrial policy across the region. While import-restrictive measures have reduced inbound shipments, export-oriented policies have yet to significantly boost outbound trade. In India, policy efforts have focused on high-productivity manufacturing sectors, although the services sector—particularly IT and business process outsourcing—continues to be the primary driver of employment and exports.
The World Bank cautioned that emerging technologies such as artificial intelligence could disrupt services exports, while also creating opportunities in higher-value segments.
Looking ahead, sustaining growth will require continued reforms to improve infrastructure, reduce trade barriers, and enhance the business environment. The report emphasizes that India’s economic performance will remain decisive not only for its own trajectory but also for shaping the broader outlook of South Asia.
