India is projected to maintain its position as the leading economy in South Asia, despite ongoing global uncertainties impacting the region. The World Bank has increased its growth forecast for India in 2026-27 to 6.6 percent, up from the previous estimate of 6.3 percent, indicating a vote of confidence in India’s resilience amidst external challenges.
This updated outlook comes as South Asia faces mounting pressures from geopolitical tensions and fluctuating energy markets. While overall growth in the region is decelerating, India stands out as a key driver, providing a sense of stability in an otherwise unpredictable economic environment.
The World Bank’s latest South Asia Economic Update reveals that the region’s growth is expected to moderate to 6.3 percent in 2026, down from 7.0 percent in 2025. This slowdown is largely linked to the ongoing conflict in the Middle East and the volatile global energy markets, which are exerting additional strain on economies reliant on imports.
Nevertheless, India seems to be holding steady. The economy is anticipated to expand by 7.6 percent in 2025-26 before slightly easing to 6.6 percent in 2026-27. The upward revision suggests that robust domestic demand is helping mitigate the impact of global uncertainties affecting the broader region.
“Despite facing a challenging global landscape, the growth prospects for South Asia remain robust,” remarked Johannes Zutt, World Bank Vice President for South Asia, as cited by Reuters. The World Bank has cautioned that various risks could derail South Asia’s growth trajectory, particularly the region’s heavy dependence on imported energy, making it susceptible to fluctuations in global oil prices. Any escalation in the Middle East conflict could lead to increased inflation, necessitate central banks to tighten monetary policy, and weaken remittance inflows crucial for many economies.
World Bank President Ajay Banga has warned that the conflict is likely to impede global growth and sustain elevated inflation levels, irrespective of its duration. These pressures are anticipated to spill over into emerging markets, including South Asia, exacerbating existing economic strains. The report also highlights deeper structural challenges such as climate-related shocks and financial instability, which could further delay recovery and render growth less stable.
While India continues to play a pivotal role in the region, the performance of other economies varies. Bangladesh is projected to grow by 3.9 percent in 2025-26 as it rebounds from political turmoil, while Bhutan is set to expand by 7.1 percent, supported by hydropower initiatives. Sri Lanka’s growth is expected to decelerate to 3.6 percent in 2026 due to higher energy expenses. The Maldives could experience a significant slowdown to 0.7 percent as tourism, fuel costs, and financing conditions tighten. Nepal is forecasted to grow by 2.3 percent, with a gradual improvement expected as domestic disruptions subside.
South Asian nations have intensified their industrial policy efforts at a faster pace compared to many other emerging markets. However, the outcomes have been mixed, with measures aimed at curbing imports leading to reduced inflows, while initiatives to boost exports have not yielded substantial gains thus far.