India is expected to maintain its position as the world’s fastest-growing major economy, with the World Bank revising its growth forecast upward to 6.5 percent for FY26 from the previous 6.3 percent projection, according to a report released Tuesday.
India’s Growth Drivers
The upgraded forecast cites resilient domestic demand, strong rural recovery, improved agricultural output, rural wage growth, and positive impacts from tax reforms. Strong consumption growth is expected to underpin economic expansion.
South Asia is projected to grow 6.6 percent this year but is expected to slow to 5.8 percent in 2026, representing a 0.6 percentage point downward revision from April forecasts.
Bangladesh’s growth is pegged at 4.8 percent for FY26, while Bhutan’s forecast has been downgraded to 7.3 percent due to hydropower construction delays, though recovery is expected in FY27. Maldives growth is projected at 3.9 percent for FY26.
Nepal faces challenges with growth expected to decline to 2.1 percent in FY26 due to recent unrest and heightened political and economic uncertainty. Sri Lanka’s forecast has been upgraded to 3.5 percent for FY26, driven by strong tourism and service exports growth.
Risk Factors and Recommendations
“South Asia has enormous economic potential and is still the fastest growing region in the world. But countries need to proactively address risks to growth,” stated Johannes Zutt, World Bank Vice President for South Asia.
Downside risks include global economic slowdown spillovers, trade policy uncertainty, regional sociopolitical unrest, and labor market disruptions from emerging technologies like artificial intelligence.
AI Impact on Labor Markets
The report examines AI’s transformative effects on regional employment. Since ChatGPT’s release, job listings in roles most exposed to AI replacement have fallen approximately 20 percent relative to other occupations.
However, AI presents opportunities for productivity gains, particularly in sectors where it complements human workers. Job listings data show rapidly growing demand for AI skills, with such positions commanding nearly 30 percent wage premiums compared to other professional roles.
Policy Recommendations
“Countries can boost productivity, spur private investment, and create jobs for the region’s rapidly expanding workforce by maximizing the benefits of AI and lowering trade barriers, especially for intermediate goods,” Zutt added.
The report recommends streamlining size-dependent regulations, improving transport and digital connectivity, enhancing housing search transparency, providing upskilling and job matching services, and establishing safety nets for affected workers.
