India faces structural growth challenges and the AI transition – BNP Paribas

The IMF’s upgrade to India’s medium-term growth forecast to 6.8% per year underpins the favourable outlook highlighted by BNP Paribas, although the bank emphasises substantial structural constraints. A limited middle class, a sizeable informal economy, an underdeveloped industrial base and labour market rigidities are among the obstacles identified in the report. Unless reforms to support AI adaptation and industrial development gather pace, it warns, India risks falling short in its transition to a higher-value, more inclusive economy.

Deep structural barriers challenge strong growth

"In October 2026, the IMF revised upward India’s medium-term growth forecast from 6.5% to 6.8% per year. Nonetheless, to achieve such strong growth performance, India will have to adapt to the challenges posed by artificial intelligence (AI), while its infrastructure and education system are not prepared for it."

"India faces two key structural challenges: i) adapting the services sector to AI and ii) accelerating industrial development. Even with progress in sectors such as smartphones and pharmaceuticals, India’s industrial base remains too small to absorb its vast labour force."

"India may fail in completing its transition to a higher-value, more industrialised and inclusive economy if reforms do not accelerate significantly. Structural changes could lag behind pressures from its rapidly growing population and fast global technological advances."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)