South Asia well positioned to take advantage of new trade trends, AI: WB development update

By R Anil Kumar

• Region needs more infrastructure and skill development

• Only 15% of workers employed in modern sector

• Out of 16mn that apply for jobs each year, only 10mn find employment

Bengaluru, December 1, 2025. South Asia is well positioned to take advantage of the new patterns of global trade and new technologies like artificial intelligence (AI), the World Bank’s latest development update for the region revealed.

It also revealed that out the 16 million people that enter the South Asian job market annually, only about 10 million can find work.

The report also called for reforms that allow firms to grow into new markets using new technologies that can boost job creation, investments and sustained growth.

While most people still work in the more dominant but less productive, traditional sector, according to World Bank Vice President, South Asia Region Johannes C.M. Zutt, South Asia will see more benefits through greater investments in the more dynamic modern sector.

Greater public and private investment can build transportation, energy and telecommunications infrastructure that are needed to improve trade and AI use, the report elaborated.

“Firms and workers made more productive by AI and inexpensive foreign inputs can pay taxes that sustain continued public investment and strong social welfare systems,” Zutt said in the report.

Moreover, 15 percent of South Asian workers in the modern economy are likely to see significant gains in productivity through AI adoption, as they have jobs that can be complemented by AI, remarked Zutt.

However, at the moment, South Asia is facing a lack of skills and infrastructure needed to take advantage of AI.

Moreover, according to Zutt, the resources needed to fuel the growth of the modern sector are locked within the traditional one, making it difficult for people to move into the sectors, firms and locations where they are best suited.

“Improving infrastructure and facilitating labour mobility can help maximise AI’s benefits while minimising labour market disruptions. Pursued in tandem, policy reforms to expand trade and to increase labour market flexibility could be transformative, channelling resources toward successful, productive sectors,” Zutt stressed.

He also stated that lowering tariffs can also help South Asian workers to break into the modern economy.

“South Asia’s high tariffs have handicapped manufacturing. The sector faces average tariffs on intermediate inputs that are more than twice those in other emerging market and developing economies,” Zutt remarked.

He revealed that one-third of jobs in sectors with the lowest tariffs, such as services exports, accounted for three-quarters of job growth from 2013 to 2023.

The workers in these jobs have received significantly higher salaries and are younger, higher-skilled workers.

As such, Zutt called for carefully sequenced tariff cuts, starting with imported inputs, as these could help South Asia’s manufacturing sector and its labour markets.

“The highest tariffs that protect a large share of the workforce could be lowered gradually, by legislating a multi-year glide toward a low final level. This would give affected workers, firms and regions time to adjust in response to other opportunities arising elsewhere,” he said.