The World Bank has raised its 2026 growth forecast for South Asia to 6.9%, citing stronger-than-expected domestic demand and India’s resilience in the face of high energy prices and persistent global uncertainty.
The revised projection is 0.6 percentage points above the World Bank’s previous estimate of 6.3%. South Asia is expected to remain the fastest-growing region among emerging and developing economies, although growth is forecast to ease slightly to 6.7% in both 2027 and 2028.
India accounts for most of the upgrade. The World Bank now expects the Indian economy to expand by 7.1% during the 2026-27 financial year, up from its June forecast of 6.6%. The revision follows an estimated 7.8% expansion in 2025-26 under the Bank’s latest calculation.
Strong household consumption, government measures cushioning consumers from fuel-price increases and continued investment have helped India absorb an energy shock that was initially expected to cause a much sharper slowdown.
The latest projection also places the World Bank broadly in line with other institutions that have recently upgraded India. Moody’s raised its FY27 growth forecast to 7%, while Indian manufacturing has gained momentum, with industrial output increasing by 8% in August.
India’s revenue performance has also remained strong. Net direct-tax collections rose 13% to ₹12.1 lakh crore, giving the government greater room to maintain infrastructure expenditure and targeted support without relying entirely on additional borrowing.
The regional headline, however, conceals a striking imbalance. South Asia excluding India is forecast to grow by only 3.6% in 2026, down from the World Bank’s previous estimate of 4.1%. The gap shows how heavily the region’s overall performance depends on the Indian economy.
Bangladesh received one of the largest downward revisions. Its economy is expected to grow by 3.4% in both 2025-26 and 2026-27, with the latter forecast cut by 1.2 percentage points. The country continues to face weak investment, financial-sector stress and the economic consequences of recent political disruption.
Sri Lanka is projected to grow by 4.4% in 2026 as its recovery from the debt crisis continues. That estimate is 0.8 percentage points above the previous forecast. The Maldives is expected to grow by 2.2%, while Bhutan is forecast to expand by 7.3% in 2025-26 and Nepal by 3.9%.
The World Bank’s current South Asia classification includes India, Bangladesh, Bhutan, Maldives, Nepal and Sri Lanka. Pakistan and Afghanistan have been placed within the institution’s expanded Middle East, North Africa, Afghanistan and Pakistan region since July 2025 and are therefore not included in the 6.9% South Asian figure.
South Asia is a major net importer of oil, leaving its economies vulnerable to prolonged supply disruptions and elevated prices. Governments have so far softened the impact through fuel subsidies, tax reductions and measures intended to reduce demand.
These interventions have prevented the full increase in international energy costs from immediately reaching consumers. However, they can also place pressure on government budgets. If high prices persist, authorities may eventually have to choose between expanding subsidies, raising taxes, allowing domestic fuel prices to increase or reducing spending elsewhere.
Inflation is consequently expected to remain elevated into 2027. In India, the Reserve Bank expects average inflation of about 5% during the current financial year. Higher food and energy prices could weaken household purchasing power and eventually slow the consumption that has supported growth.
The World Bank’s October South Asia Economic Update identifies a severe El Niño as another major threat. A strong weather event could disrupt monsoon patterns, damage harvests, raise food prices and weaken rural demand across agriculture-dependent economies.
Global financial-market instability presents an additional risk. A sharp correction in technology shares or weaker investment in artificial intelligence could tighten international financial conditions, reduce capital flows and place pressure on regional currencies.
The report nevertheless sees AI as an important source of future productivity and better-paid employment. Around 23% of Indian companies report using artificial intelligence, compared with 43% of American firms.
The 6.9% projection therefore reflects both South Asia’s resilience and its dependence on India. Domestic demand has kept the region growing through an energy shock, but the weaker outlook outside India, persistent inflation and exposure to oil and weather disruptions leave little room for complacency.
