The World Bank on Tuesday upped India’s growth estimates for the current fiscal (FY26) by 20 basis points to 6.5 per cent from its June projection of 6.3 per cent. However, considering the US’s tariff action, the multilateral agency has cut the forecast for the next fiscal (FY27) by 20 basis points to 6.3 per cent
In its the latest South Asia Development Update (SADU) titled ‘Jobs, AI, and Trade’, the multilateral agency said India is expected to remain the world’s fastest growing major economy, underpinned by continued strength in consumption growth. Domestic conditions, particularly agricultural output and rural wage growth, have been better than expected. The government’s reforms to the Goods and Services Tax (GST) — reducing the number of tax brackets and simplifying compliance — are expected to support activity.
“The forecast for FY26/27 has been downgraded, however, as a result of the imposition of a 50 per cent tariff on about three-quarters of India’s goods exports to the US,” the report said. Further, India was expected to face lower US tariffs than its competitors in April, but as of the end of August it faces considerably higher tariffs. Almost one-fifth of India’s goods exports went to the US in 2024, equivalent to about 2 per cent of GDP, the report noted.
Growth of South Asia
According to the report, growth in South Asia is projected to be robust at 6.6 per cent this year — but a significant slowdown looms on the horizon. It projects growth in the region to slow to 5.8 percent in 2026, a downward revision of 0.6 percentage points from the April forecast. “Downside risks include spillovers from the global economic slowdown and uncertainty around trade policy, socio-political unrest in the region, and labour market disruptions posed by emerging technology such as artificial intelligence (AI),” the report added.
The report also recommends harnessing the potential of AI to boost productivity and incomes. The rapid development of AI is transforming the global economy and reshaping labour markets. South Asia’s workforce has limited exposure to AI adoption due to the predominance of low-skill, agricultural and manual jobs. But moderately educated, young workers, especially in sectors such as business services and information technology, are vulnerable.
“Since the release of ChatGPT, job listings have fallen by around 20 per cent in jobs most exposed to, and most replaceable by AI relative to other occupations. But AI could also bring substantial productivity gains, especially in sectors that have strong potential for AI to complement humans,” the report said.
Further, job listings data in the region indicate rapidly growing demand for AI skills, with such jobs commanding a wage premium of nearly 30 per cent relative to other professional roles. The report’s recommendations include steps to help accelerate job creation by streamlining size-dependent regulations that discourage firms’ growth, better transport and digital connectivity, more transparent housing search options, upskilling and job matching, as well as providing safety nets for affected workers.
“Increasing trade openness and growing adoption of AI could be transformative for South Asia,” said Franziska Ohnsorge, World Bank Chief Economist for South Asia. Also, policy measures to facilitate the reallocation of workers across firms, activities, and locations can help channel resources to productive sectors and are critical for boosting investment and job creation in the region, she concluded.
Published on October 7, 2025