India: Structural growth challenges and AI transition – BNP Paribas

BNP Paribas underscores India’s favourable medium-term growth outlook, with the IMF lifting forecasts to 6.8% per year, but stresses significant structural constraints. The report points to a modest middle class, large informal economy, weak industrial base and labour market rigidities. It warns that without faster reforms in AI adaptation and industrial development, India risks failing to complete its transition to a higher-value, more inclusive economy.

High growth facing 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."