The World Bank has shared an update about the economies of South Asia, including India and China. The world Bank thinks India and China will grow faster in the year 2026 than it had earlier expected. However, for India in 2027, the World Bank expects slower growth than before.
In the short term (for the year ending March 2026, or FY26), India’s economy is still expected to grow well, about 6.5%, slightly higher than earlier predictions. This is thanks to strong government spending on things like roads and infrastructure, and people in India spending more (strong domestic demand).
But for the following year (FY27, or year ending March 2027), growth is expected to slow down to 6.3%. That’s because exports will be hit by the US tariffs, and this will make things harder for India and other nearby countries like Nepal and the Maldives. Overall, South Asia’s growth will likely fall from 6.6% in FY26 to 5.8% in FY27.
The US government (under President Trump) has put very high tariffs (extra taxes) on Indian goods like clothes, jewelry, and seafood. to 50% (from the expected 25%). This affects about $50 billion worth of Indian exports. Because of this, it’s going to be harder for Indian businesses to sell these goods in the US, one of their biggest markets. About 20% of India’s exports go to the US, which equals 2% of India’s GDP — so this hit matters.
The World Bank also increased China’s growth forecast for FY26 to 4.8%, up from 4%. China is doing better than expected, helped by government policies and steady demand inside the country, even though the global trade environment is uncertain.
The US is taxing Indian exports heavily, which will slow South Asia’s growth in the future, but India and China are still holding up for now thanks to strong domestic policies. Growth in the short term is looking strong because of good consumption (people buying things) and investment. Reforms like simplifying the GST tax system (fewer tax brackets, easier compliance) will help the economy grow. Good rural income and strong farm output also helped.
What is India doing to fight against the slowdown?
To fight back against the slowdown, the Indian government has:
-
Cut taxes on many products, especially consumer goods and cars.
-
Continued to spend heavily on building infrastructure.
-
These steps are similar in scale to the big GST reform India did in 2017.
Challenges India has to face ahead
-
The biggest risk is a global slowdown. If the world economy weakens, India will also feel the effects.
-
Foreign investments dropped recently due to global uncertainty and rate cuts.
- India’s economy is growing strongly now, but faces challenges from US tariffs and global risks—future growth will depend on how well India reforms and adapts, especially with AI and global trade changes.
- AI may boost productivity for professionals in roles that need judgment and human interaction (like doctors or lawyers). Not many Indian workers are exposed to AI risks, because many still work in farming or manual jobs.
India needs to reform its labor laws to make it easier for workers to change jobs. Improve skills training to help people adjust to changing job markets.
.