Washington / New Delhi — The World Bank has warned that steep U.S. tariffs on Indian goods could significantly slow South Asia’s economic growth in 2026, dampening the region’s outlook despite a stronger-than-expected performance this year supported by government spending.
In its latest report released Tuesday, the World Bank projected that South Asia’s growth rate will drop to 5.8% in 2026, down from a projected 6.6% in 2025. The region’s forecast includes India, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives.
“For 2026, the forecast has been downgraded, as some of these effects unwind and India continues to face higher-than-expected tariffs on goods exports to the United States,” the World Bank said.
U.S. Tariffs Cast a Long Shadow
U.S. President Donald Trump recently imposed a 50% tariff on most Indian exports — one of the highest rates applied to any U.S. trading partner. The tariffs affect roughly $50 billion worth of goods, hitting labour-intensive sectors such as textiles, gems and jewellery, and the shrimp industry particularly hard.
About one-fifth of India’s total exports in 2024 were destined for the United States, and the new tariffs impact three-quarters of those goods, making the U.S. a critical pressure point for India’s trade outlook.
India’s Short-Term Growth Holds Steady
Despite the tariffs, the World Bank upgraded its forecast for India’s growth in the current fiscal year ending March 2026 from 6.3% to 6.5%, reflecting strong domestic spending and major infrastructure investments.
To cushion the blow from U.S. trade measures, Prime Minister Narendra Modi unveiled the largest tax overhaul since 2017 last month, cutting taxes on a wide range of goods — from shampoos to cars — in a bid to spur domestic consumption.
Regional Implications
The tariff shock to India, the region’s largest economy, is expected to ripple through neighbouring countries via trade, investment, and supply chain linkages, the World Bank cautioned. While short-term resilience is supported by fiscal measures, the longer-term impact could weigh on employment and export competitiveness across South Asia.
The World Bank’s warning comes amid rising trade tensions between Washington and New Delhi, adding uncertainty to a region that has been one of the fastest-growing in the world over the past decade.