World Bank Raises India's FY27 GDP Growth Forecast to 7.1%

The World Bank has raised its GDP growth forecast for India for the current fiscal by half a percentage point to 7.1%, with this rapid expansion seen driving the broader South Asia region. According to the multilateral organisation’s twice-yearly South Asia Economic Update, released on Tuesday, the South Asia region’s GDP in 2026 is seen expanding by 6.9%, up from the previous forecast of 6.3%.

However, excluding India, regional growth is seen 3.6%, down from 4.1% earlier, mostly because of a large downward revision for Bangladesh. India and South Asia growth forecasts by World Bank. The World Bank expects the “strong” momentum in industry and services to continue, with the reforms that have been undertaken – consolidation of labour codes, Goods and Services Tax (GST) reforms, rationalisation of tariffs, the bankruptcy and insolvency act, and physical and digital infrastructure investments – keeping the growth potential strong. “Strength in the rest of the economy is expected to make up for agricultural weakness,” the World Bank said, adding that the sub-par monsoons will likely reduce agricultural output and rural demand while increasing food inflation.

This will add to existing pressure from higher energy prices. In 2027-28, the World Bank expects the Indian economy to grow by 7.2%. The upward revision to the growth forecast by the World Bank comes a day before the Reserve Bank of India (RBI) announces its interest rate decision, with economists widely expecting the Monetary Policy Committee (MPC) to vote in favour of a 25-basis-point increase in the repo rate to 5.5%.

Slated to be released at 10am on Wednesday, the MPC’s statement may also show the RBI having raised its own growth forecast for 2026-27 to around 7% from 6.7%. With India’s growth exceeding expectations for some time now, numerous economists and organisations have raised their forecasts in light of the rapid April-June growth rate of 7.8%.

On September 23, four international agencies – S&P Global Ratings, Fitch Ratings, the Organisation for Economic Co-operation and Development (OECD), and the Asian Development Bank (ADB) – hiked their growth forecast for the current fiscal by 40–80 bps to 6.9–7.1%. Demography, AI warnings In what will concern policymakers in South Asia, the World Bank warned that the region’s demographic tailwinds are “beginning to fade”, with growth in the working-age population seen dropping from 2.2% per year during 1960–2023 to 0.6% over the next 25 years. “South Asia’s transition to an ‘aged’ population is unusually compressed.

Most South Asian countries will complete this transition at income levels below those at which other emerging economies even began it,” the World Bank said, adding that the “best policy response is to address labour markets and aging simultaneously rather than sequentially”. The South Asia Economic Update report, titled ‘Adopting AI for Growth’, also noted that only 23% of Indian firms report using AI, almost half of US’ 43%.

But this comparison does not take into account the differences in the type of AI technology used or how well it is embedded in business operations. World Bank chart on AI. As per the World Bank’s ‘AI Adoption Index’ – which considers factors such as purchases of AI software by firms, the number of uses of advanced AI technologies, core business functions using AI, among others – the figure for India is 0.27.

This is less than a third of the US’ figure of 0.85. While Indian companies started adopting AI late, they have been catching up with their American counterparts over the past two years when it comes to basic AI adoption. Worryingly, the World Bank found that expected gains from AI are concentrated in a few Indian firms, with almost 75% expecting almost no productivity benefit at all.

In fact, 15% of firms expect faster AI development to reduce their revenue per worker by up to 10%, likely because they expect to lose market share to firms that have an advantage in deploying AI rapidly. “The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labor productivity, expanding export opportunities, and improving public service delivery.

But to reap these benefits, governments need to address the foundational gaps that hold back adoption,” said Franziska Ohnsorge, World Bank Group Chief Economist for Asia.