The World Bank has upgraded its projection for India’s economic growth in FY27 to 7.1 per cent, up from its earlier estimate of 6.6 per cent, as stronger
domestic consumption and resilient exports provide momentum to the economy. In its latest India Development Update, released on Tuesday, the World Bank said India’s medium-term outlook remains favourable even as the global economic environment continues to pose challenges. The higher growth estimate reflects better-than-anticipated economic performance and the continued strength of domestic demand. However, the multilateral lender warned that several external and financial risks could affect the outlook. These include a potential increase in global oil prices, El Niño-related disruptions and corrections in equity markets, which could lead to greater volatility in capital flows. The revised projection keeps India among the world’s fastest-growing major economies and underlines the resilience of its economy amid global uncertainty. Domestic Demand, Exports To Support Growth The World Bank expects domestic demand to remain a crucial driver of India’s economic expansion. Strong consumer activity, alongside healthy export performance, is likely to provide continued support to growth. At the same time, the report highlighted the importance of managing external risks. A sustained rise in international crude prices could put pressure on inflation and the external sector, while weather-related disruptions linked to El Niño could create additional economic challenges. The World Bank also pointed to the possibility of stock market corrections. A sharp decline in asset prices could increase volatility in capital flows and create financial-market pressures. AI Emerges As New Growth Opportunity Artificial intelligence has also emerged as a potentially significant contributor to India’s future productivity and development, according to the World Bank. The report noted that private investment in AI in India more than tripled, rising from USD 1.2 billion in 2024 to USD 4.1 billion in 2025. The country’s Global Capability Centre ecosystem has also expanded. Employment in GCCs increased from 1.9 million professionals in 2024 to 2.36 million in 2025, highlighting India’s growing role in technology-enabled global business operations. "India is one of the top 10 leading emerging-market performers on AI readiness," said Paul Procee, World Bank Acting Country Director for India. "Harnessing AI as a development tool - not just a technology - could be one of the most powerful levers India has to boost productivity and improve public services," Procee said. Policy Support Needed To Maximise AI Benefits While AI could create significant opportunities, the World Bank said India would need targeted policy interventions to ensure the technology delivers broad-based economic benefits. The report called for stronger AI-enabling infrastructure, a more supportive business environment and wider access to AI tools. It also stressed the need to build labour capacity so workers can adapt to changes brought about by the technology. The economic and employment consequences of AI over the longer term remain uncertain, the World Bank cautioned. Policymakers will therefore need to help workers navigate the transition while simultaneously creating conditions that encourage businesses to adopt AI. South Asia To Remain World’s Fastest-Growing Region The report also offered an optimistic assessment of the broader South Asian region. The World Bank expects South Asia to expand by 6.9 per cent in 2026, keeping it ahead of other regions in terms of growth. However, unlocking the full economic potential of AI across South Asia will require governments to address barriers that prevent smaller businesses from adopting the technology. The World Bank highlighted the importance of encouraging local innovation and developing regulatory frameworks that provide businesses with greater clarity. At the same time, such frameworks would need to safeguard data security and privacy. For India, the combination of robust domestic demand, export strength and rising AI investment could provide fresh avenues for growth. But the World Bank’s warnings on oil prices, weather risks and financial-market volatility underline the challenges that could influence the trajectory ahead. (With Agency Inputs)
