Washington, April 8
India's economy is projected to grow 7.6 per cent in FY2025/26 before moderating to 6.6 per cent the following year, anchoring South Asia even as regional growth slows to 6.3 per cent in 2026, the World Bank said on Wednesday.
The latest South Asia Economic Update said India remains the primary engine of regional expansion, with its growth underpinned by strong domestic demand, trade reforms, and new agreements, including a free trade pact with the European Union.
According to the World Bank, South Asia's overall growth is expected to ease from 7 per cent in 2025 due to global energy disruptions and geopolitical uncertainty, but recover to 6.9 per cent in 2027.
In its report, the World Bank noted that this outperformance "is entirely due to India," highlighting New Delhi's central role in sustaining regional momentum.
India's growth accelerated on the back of robust consumption and resilient services exports, even as goods exports faced headwinds from global trade volatility. The report said domestic demand has remained strong, supported by policy reforms and improving consumer confidence.
However, the outlook faces mounting external risks.
The region's reliance on imported energy leaves India exposed to rising oil prices driven by the Middle East conflict. Higher energy costs could push up inflation, tighten financial conditions, and weigh on household spending.
"Despite a challenging global environment, South Asia's growth prospects remain strong," said Johannes Zutt, World Bank Vice President for South Asia. "Countries need to implement critical policy reforms to sustain growth, create jobs, and increase resilience to shocks."
The report underscored that India's economic trajectory will largely determine the region's overall performance. Excluding India, South Asia's growth is projected to remain closer to other emerging markets.
Industrial policy-widely deployed across South Asia and increasingly in India-has shown mixed results.
"Import-restricting policies... were associated with significant declines in imports, but export-promoting measures were not associated with significant increases in exports," the report said.
India has focused its industrial policy on high-wage and high-productivity sectors, particularly manufacturing. Yet, the services sector-especially IT and business process outsourcing-continues to drive job creation, despite receiving less policy attention.
The World Bank warned that artificial intelligence could disrupt services exports, a key strength for India, even as it opens opportunities in higher-value segments.
Franziska Ohnsorge, World Bank Chief Economist for South Asia, said targeted interventions can still support growth.
"While broad-based reforms remain the priority, well-calibrated industrial policies could address specific market failures," she said, citing skill development, industrial parks, and improved export standards.
The report stressed that sustaining India's growth will require continued reforms to improve infrastructure, ease trade barriers, and strengthen the business environment.
According to the World Bank, India's strong domestic demand, services exports, and trade reforms have helped offset global uncertainties and keep growth above that of most emerging economies.
South Asia grew 7 per cent in 2025, largely driven by India's performance. Without recent disruptions in global energy markets, growth would likely have remained at similar levels in the near term.
The Bank said India's policy direction will remain decisive-not only for sustaining its own growth trajectory but for shaping the broader economic outlook across South Asia.
- IANS
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