According to the World Bank, India’s economy is forecast to increase 7. 6% in FY2025/26 before slowing to 6. 6% the next year, supporting South Asia even as regional growth declines to 6. 3% in 2026.

With its growth driven by robust local demand, trade reforms, and new agreements, such as a free trade agreement with the European Union, India continues to be the major driver of regional growth, according to the most recent South Asia Economic Update. Due to global energy disruptions and geopolitical uncertainty, the World Bank projects that South Asia’s overall growth will slow from 7% in 2025, but rebound to 6. 9% in 2027.

The World Bank’s report emphasized New Delhi’s key role in maintaining regional momentum by stating that this outperformance “is entirely due to India. ” India’s growth rate increased due to strong consumer spending and robust services exports, despite the challenges that global trade volatility presented to the country’s goods exports.

According to the research, domestic demand has remained robust due to policy changes and rising consumer trust. ​

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.​

But there are growing external threats to the perspective. India is vulnerable to increasing oil costs caused by the Middle East conflict because of the area’s dependence on imported energy.

Increased energy prices might put upward pressure on inflation, restrict financial conditions, and have an impact on household expenditures. “South Asia’s growth prospects remain strong despite a difficult global environment,” stated Johannes Zutt, World Bank Vice President for South Asia. “To maintain growth, create jobs, and enhance resilience to shocks, countries must implement important policy reforms. ”

The report highlighted that the region’s overall performance will be heavily influenced by India’s economic trajectory. The growth of South Asia, with the exception of India, is predicted to be more in line with other developing markets. ​

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, which is widely used in South Asia and is becoming more prevalent in India, has produced varied outcomes.

The study stated that import-restricting regulations were linked to substantial decreases in imports, whereas export-promoting initiatives were not correlated with noticeable gains in exports. India has concentrated its industrial strategy on industries with high wages and high productivity, notably manufacturing.

Nevertheless, despite getting less political attention, the services industry—particularly IT and business process outsourcing—continues to be a major engine for job creation. Even though artificial intelligence may provide prospects in higher-value segments, the World Bank cautioned that it may also jeopardize India’s services exports, a major advantage.

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.​

Targeted interventions can still foster growth, according to World Bank Chief Economist for South Asia, Franziska Ohnsorge. “Well-calibrated industrial policies could address specific market failures, such as skill development, industrial parks, and improved export standards, while broad-based reforms remain the priority,” she stated.

According to the report, maintaining India’s growth will depend on ongoing reforms to enhance the business climate, reduce trade obstacles, and improve infrastructure. The World Bank says that India’s robust domestic demand, service exports, and trade reforms have helped counterbalance global uncertainties and maintain a higher rate of growth than the majority of developing nations.

India’s performance was a major factor in the 7% growth of South Asia in 2025. In the absence of recent disruptions in world energy markets, growth would probably have remained at similar levels in the near future.

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.India’s policy direction will continue to be decisive, according to the Bank, not just in maintaining its own growth trajectory but also in influencing the overall economic landscape of South Asia.

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.