India: AI Transition and Structural Challenges to Growth – BNP Paribas

India’s medium-term growth prospects remain favourable in BNP Paribas’ assessment, with the IMF raising its forecast to 6.8% per year, although substantial structural constraints persist. A relatively small middle class, a sizeable informal economy, a weak industrial base and rigidities in the labour market feature among the report’s concerns. Unless reforms accelerate to support AI adaptation and industrial development, the report warns, India risks leaving its transition to a higher-value, more inclusive economy incomplete.

Can strong growth overcome deep structural hurdles?

"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.)