- South Asia growth to 5.8% in 2026 due to US tariffs on India.
- India FY26 forecast up to 6.5%, but FY27 down to 6.3%.
- 50% tariff hits $50B exports in textiles, gems, shrimp.
The World Bank has warned that rising US tariffs on Indian exports will choke off the economic flow in South Asia next year, despite a strong government spending program that will act as a buffer in 2025. In its latest South Asia Economic Update, the multilateral lender downgraded the regional growth forecast to 5.8% in 2026, from 6.6% expected in 2025. The forecast includes the big and small economies of India, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives.
As a result of the negative response to tariffs, India is the neighborhood where the impact will be felt the most. The World Bank has raised its estimate of the Indian economy for the current fiscal year to March 2026 from 6.3% to 6.5%.
It attributes the improvement to the continuity of infrastructure investments and fiscal initiatives. Nevertheless, the forecast for the 2026-27 fiscal year has been amended lower from 6.5% to 6.3%, with the reduction being assigned to the imposition of trade barriers that have not abated by the US.
Also Read: US to Finalize Southeast Asia Trade Deals in Coming Months
Recently, the administration of US President Donald Trump raised a 50% tariff on most goods from India, that is the highest among the major trading partners. It is reported that the tariffs affect 50 billion dollars' worth of exports annually.
Such a measure targets industries that are labor-intensive, for example, textiles, gems and jewelry, and aquaculture, especially the shrimp processing sector, which employs millions of people and supports rural livelihoods. Nearly 20% of Indian exports in 2024 were bound for the US, of which 75% of the shipments are exposed to the tariffs.
As a reply, the government of Prime Minister Narendra Modi introduced massive tax cuts last month—the largest since 2017—significantly slashing taxes on consumer goods from shampoos to cars. Besides, the accelerated public consumption in roads, railways, and urban development is part of the measures to absorb the shock and revive domestic demand. However, the World Bank cautioned that the tariffs might deepen supply chain disruptions and increase input costs, thereby slowing the export-led recovery.