World Bank expects India to remain the primary engine of growth in South Asia, projecting the economy to expand 7.6% in FY26, before moderating to 6.6% in FY27, according to its latest South Asia Economic Update released on Wednesday.
The multilateral lender had earlier pegged India’s growth at 6.3% for the current financial year in its October 2025 update.
Also Read: Developing countries in Europe, Central Asia face slowdown, World Bank says
Additionally, the bank said the region’s overall growth is likely to slow to 6.3% in 2026 from 7.0% in 2025, weighed down by the ongoing conflict in the Middle East and disruptions in global energy markets.
Growth is, however, expected to recover to 6.9% in 2027, keeping South Asia the fastest-growing region among emerging market and developing economies.
The report flagged significant risks to the outlook, noting that South Asia’s heavy reliance on imported energy makes it vulnerable to external shocks. Further dislocation in energy markets could push up inflation, trigger tighter monetary policy, and dampen remittance inflows.
Inflation across most of the region remained subdued in early 2026 and was earlier expected to rise only modestly while staying close to central bank targets. However, the bank now warned that higher energy prices and continued currency depreciation could accelerate price pressures, especially if these trends persist longer than anticipated.
In India, strong domestic demand, normalising food prices and rising energy costs are expected to push inflation higher in FY26 and FY27, the report said.
Ajay Banga said earlier this week that the Middle East conflict would likely slow global growth and push up inflation regardless of how quickly it ends.
“Despite a challenging global environment, South Asia’s growth prospects remain strong,” said Johannes Zutt, adding that countries in the region need structural reforms to sustain momentum, create jobs and build resilience against external shocks.
Across the region, growth trajectories remain uneven. Bangladesh is projected to expand 3.9% in FY26 as it recovers from political unrest, while Bhutan is expected to grow 7.1%, driven by hydropower projects. Sri Lanka’s growth is seen slowing to 3.6% in 2026 from 5.0% in 2025 amid rising energy costs.
Also Read: World Bank slashes 2026 Middle East growth forecast after energy sector turmoil
The Maldives is forecast to decelerate sharply to 0.7%, reflecting pressures from tourism, fuel prices, and financing conditions, while Nepal is expected to grow 2.3% in FY26, with a recovery anticipated as domestic disruptions ease.
Pakistan and Afghanistan will be covered separately in the bank’s Middle East and North Africa update.
The World Bank added that while South Asian countries are adopting industrial policies at roughly twice the pace of other emerging economies, outcomes have been mixed. Import-restricting measures have curbed inbound shipments significantly, but export-focused interventions have yet to yield meaningful gains.
The multilateral lender had earlier pegged India’s growth at 6.3% for the current financial year in its October 2025 update.
Also Read: Developing countries in Europe, Central Asia face slowdown, World Bank says
Additionally, the bank said the region’s overall growth is likely to slow to 6.3% in 2026 from 7.0% in 2025, weighed down by the ongoing conflict in the Middle East and disruptions in global energy markets.
Growth is, however, expected to recover to 6.9% in 2027, keeping South Asia the fastest-growing region among emerging market and developing economies.
The report flagged significant risks to the outlook, noting that South Asia’s heavy reliance on imported energy makes it vulnerable to external shocks. Further dislocation in energy markets could push up inflation, trigger tighter monetary policy, and dampen remittance inflows.
Inflation across most of the region remained subdued in early 2026 and was earlier expected to rise only modestly while staying close to central bank targets. However, the bank now warned that higher energy prices and continued currency depreciation could accelerate price pressures, especially if these trends persist longer than anticipated.
In India, strong domestic demand, normalising food prices and rising energy costs are expected to push inflation higher in FY26 and FY27, the report said.
Ajay Banga said earlier this week that the Middle East conflict would likely slow global growth and push up inflation regardless of how quickly it ends.
“Despite a challenging global environment, South Asia’s growth prospects remain strong,” said Johannes Zutt, adding that countries in the region need structural reforms to sustain momentum, create jobs and build resilience against external shocks.
Across the region, growth trajectories remain uneven. Bangladesh is projected to expand 3.9% in FY26 as it recovers from political unrest, while Bhutan is expected to grow 7.1%, driven by hydropower projects. Sri Lanka’s growth is seen slowing to 3.6% in 2026 from 5.0% in 2025 amid rising energy costs.
Also Read: World Bank slashes 2026 Middle East growth forecast after energy sector turmoil
The Maldives is forecast to decelerate sharply to 0.7%, reflecting pressures from tourism, fuel prices, and financing conditions, while Nepal is expected to grow 2.3% in FY26, with a recovery anticipated as domestic disruptions ease.
Pakistan and Afghanistan will be covered separately in the bank’s Middle East and North Africa update.
The World Bank added that while South Asian countries are adopting industrial policies at roughly twice the pace of other emerging economies, outcomes have been mixed. Import-restricting measures have curbed inbound shipments significantly, but export-focused interventions have yet to yield meaningful gains.
