World Bank sees 7.1 per cent expansion in FY27, but flags oil, El Niño and financial-market risks; policy push needed to turn AI potential into broad-based gains

 

THEBUSINESSBYTES BUREAU

NEW DELHI, OCTOBER 6, 2026

India’s economic growth is expected to remain resilient at 7.1 per cent in 2026-27, supported by firm domestic demand and strong exports, even as an uncertain global environment poses fresh risks, the World Bank said in its latest India Development Update released on Tuesday.

The projection keeps India among the world’s fastest-growing major economies and underlines its continuing contribution to global growth. However, the World Bank cautioned that external vulnerabilities remain elevated, with movements in global oil prices, the possibility of an El Niño event and corrections in stock markets posing risks to capital flows and economic activity.

Beyond the near-term growth outlook, the report has identified artificial intelligence (AI) as a potentially significant driver of productivity, exports and public-service delivery, provided India backs its technological strengths with the right policy framework.

The special focus of the report, India and Artificial Intelligence: Seizing the Development Opportunity, notes that India has several advantages in the AI race — a large technical workforce, a globally integrated information technology sector and extensive digital public infrastructure.

Private investment in AI has already expanded sharply, rising nearly three-fold from $1.2 billion in 2024 to $4.1 billion in 2025, according to the report.

India’s Global Capability Centre ecosystem is also expanding rapidly. Employment in GCCs increased from 1.9 million professionals in 2024 to 2.36 million in 2025, strengthening the country’s position as a major hub for technology-enabled global services.

Yet, the report cautions that the longer-term impact of AI on economic growth and employment remains uncertain. The challenge for policymakers, therefore, is not merely to encourage AI investment but to ensure that its productivity gains are widely distributed.

The World Bank has called for cross-cutting policy measures to deepen AI-enabling infrastructure, improve the business environment and expand access to AI technologies. Strengthening workforce capabilities will also be crucial as businesses reorganise around increasingly automated and AI-enabled processes.

 “India is one of the top 10 leading emerging-market performers on AI readiness,” said Paul Procee, World Bank Acting Country Director for India.

He said treating AI as a development tool rather than merely a technology could provide a powerful means of raising productivity and improving public services. The World Bank Group, through its AgriConnect initiative, is investing in what it describes as “small AI” — targeted, locally adapted applications intended to make the benefits of the technology accessible in settings where resources are limited.

The India update accompanies the World Bank Group’s South Asia Economic Update, which projects 6.9 per cent growth for South Asia in 2026, keeping the region the fastest-growing major region globally.

For much of South Asia, the report argues, the biggest opportunity lies not necessarily in developing frontier AI systems but in adopting existing technologies and adapting them to local needs. Small-scale AI applications could be particularly relevant in low-resource environments.

However, adoption will require complementary reforms. Lowering barriers for small businesses, encouraging local AI innovation and creating clear regulatory rules around data security and privacy will be essential to reducing uncertainty for businesses and investors.

 “The adoption of AI has the potential to transform South Asia’s development trajectory by boosting labour productivity, expanding export opportunities, and improving public service delivery,” said Franziska Ohnsorge, World Bank Group Chief Economist for Asia.

 “But to reap these benefits, governments need to address the foundational gaps that hold back adoption,” she added.

The World Bank’s recommendations point to a familiar but increasingly urgent policy agenda: better skills, a more business-friendly environment and stronger physical and digital infrastructure.

For India, the combination of robust domestic demand, expanding exports and a rapidly developing technology ecosystem provides a strong base for continued growth. But the report suggests that sustaining that momentum amid global uncertainty — and ensuring AI becomes a source of broad-based productivity gains rather than a source of disruption alone — will depend increasingly on policy choices made today.