India remains the main driver of growth in South Asia, growing about two percentage points faster than the average emerging-market and developing economy, even as the country’s opportunity to benefit from shifting global supply chains remains uncertain, said Franziska Ohnsorge, World Bank Chief Economist for Asia, in an exclusive interview with Mint.
She added that the clearest gains from the China+1 strategy were being seen in Vietnam and Cambodia, where exports are growing rapidly to markets around the world, compared with India. The Bank had raised its forecast for India’s growth to 6.6% in June from 6.5% in January, with Ohnsorge attributing the revision to very strong incoming data, particularly the first-quarter numbers.
As per Directorate General of Foreign Trade (DGFT) data, Indian merchandise exports grew 0.86% to $441.45 billion in FY26, from $437.70 billion in FY25. The modest 0.86% growth indicates that India’s goods exports remained largely stagnant in FY26, with the $3.75-billion increase in export value pointing to limited expansion in external demand.
In contrast, Vietnam's exports rose 17% in CY2025 to $475.04 billion, while Cambodia's exports increased 14.6% to $30.43 billion in the same period.
The World Bank economist added that it was too early to determine whether the current strength in trade would persist, with a possibility of a lot of trade being brought forward, or front-loaded.
Ohnsorge said that if one of the world’s two largest economies slows, it is a slowdown, and that any growth shock in either the US or China is likely to have spillovers to the global economy.
Trade gap
Ohnsorge also pointed to South Asia’s exceptionally small within-region trade, and added that the problem was broader than intra-regional trade, with most South Asian economies ranking in the bottom quartile of emerging markets and developing economies by trade-to-GDP ratios.
The latest data point she cited was 0.7% of South Asian GDP, compared with 3% in Latin America and the Caribbean. “It’s very small. If you compare it to the next lowest, that’s Latin America and the Caribbean. It’s 3%,” she said.
“So it’s a much bigger problem than within-region trade. This region is fairly closed, or much more closed than the rest of the world and other regions,” she said.
South Asia has eight countries, which includes India, Bangladesh, Bhutan, Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan. India accounts for 80-90% of South Asia’s population and GDP, while the rest of the region is growing broadly in line with the average emerging-market and developing economy, Ohnsorge said.
AI advantage
On AI, Ohnsorge said that it could significantly benefit India, as AI is already helping at the grassroots level, including through applications used by villagers and small enterprises for weather prediction, fertilizer pricing, business decisions and access to finance.
The broader impact of AI on South Asia could also be more favourable than in other emerging markets. About 22% of jobs in South Asia are exposed to AI under a standard classification, although Ohnsorge cautioned that the classification may overestimate the number. Of these, 15% are exposed in a complementary way, while 7% are exposed in a substitutable way. The comparable share of jobs exposed to substitution in other emerging markets is 15%, Ohnsorge said.
“On balance, South Asia should benefit tremendously from AI because the jobs that are exposed to AI are mostly complementary ones. The ones that are substitutable are fairly few,” she said.
Entrepreneurs are also using AI for business decisions, including knowing the best prices, accessing finance and seeing what options they have.
“AI is really helping at the grassroots level. We’re calling it ‘small AI’. India is going to benefit a lot,” she said.
The AI opportunity also comes with risks for parts of the labour market. Since the introduction of ChatGPT in November 2022, hiring in AI-substitutable occupations has fallen by double digits, while hiring in the BPO sector has also declined by double digits, Ohnsorge said.
However, she cautioned against attributing the entire decline to AI because the period also coincided with US Federal Reserve rate hikes and substantial labour shedding.