India is poised to remain the leading force driving the economy in South Asia amid ongoing global uncertainties. The World Bank has raised its growth projection for India in 2026-27 to 6.6 percent, up from the previous estimate of 6.3 percent, indicating a vote of confidence in the country’s resilience despite external challenges.
This upgraded forecast comes at a time when South Asia is grappling with mounting pressures stemming from geopolitical tensions and volatile energy markets. While the region’s overall growth is decelerating, India continues to shine as a key growth engine, providing a sense of stability in an otherwise unpredictable economic environment.
The latest South Asia Economic Update from the World Bank 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 attributed to the ongoing conflict in the Middle East and the instability in global energy markets, which are exerting additional strain on economies reliant on imports.
Nevertheless, India appears to be holding steady. The economy is projected to expand by 7.6 percent in 2025-26 before easing slightly to 6.6 percent in 2026-27. The upward adjustment indicates that robust domestic demand is helping offset the impact of global uncertainties affecting the broader region.
“Despite a challenging global environment, South Asia’s growth prospects remain robust,” noted 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 progress. A major concern is the region’s heavy dependence on imported energy, leaving it susceptible to fluctuations in global oil prices. Any escalation in the Middle East conflict could drive up inflation, prompt central banks to tighten monetary policies, and weaken the remittance flows that many economies rely on.
World Bank President Ajay Banga has warned that the conflict is likely to dampen global growth and keep inflation elevated, regardless of its duration. These pressures are anticipated to spill over into emerging markets, including South Asia, compounding existing economic strains. The report also highlights deeper structural challenges, such as climate-related shocks and financial instability, which could further impede recovery and make growth less steady.
While India continues to anchor 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 unrest, while Bhutan is expected to expand by 7.1 percent, supported by hydropower initiatives.
Sri Lanka is likely to experience a growth slowdown to 3.6 percent in 2026, down from 5.0 percent in 2025, primarily due to escalating energy expenses. The Maldives could witness a sharp deceleration to 0.7 percent as tourism, fuel costs, and financing conditions tighten. Nepal is forecasted to grow by 2.3 percent, with a gradual uptick anticipated as domestic disruptions ease.
South Asian nations have accelerated their industrial policy efforts at a faster pace compared to many other emerging markets. However, the outcomes have been mixed. While measures aimed at curbing imports have led to reduced inflows, endeavors to boost exports have not yielded substantial gains thus far.