A newly-released World Bank report has credited India and cheaper oil with accelerating the economic growth in South Asia to a point which, in its estimation, is now the world's fastest-growing region.
India's own growth is set to rise to 7.5 per cent this fiscal and reach 8 per cent in 2017-18 on the back of significant acceleration of investment growth to 12 per cent between 2016 and 2018, says the Bank, noting the country is attempting to shift from consumption- to investment-led growth at a time when China is moving in the opposite direction.
"Driven by a strong expansion in India, coupled with favourable oil prices, economic growth in South Asia is expected to accelerate. The region is among the greatest global beneficiaries from cheap oil, as all countries in it are net oil importers. In the last quarter of 2014 South Asia was already the fastest-growing region in the world," said the Bank's South Asia Economic Focus report.
It expects the South Asia region as a whole, aided by the India weightage factor, to grow at 7 per cent this year and rising to 7.6 per cent by 2017 by maintaining strong consumption and increasing investment.
"Given India's weight in regional Gross Domestic Product, the projections reflect to a large extent India's expected growth acceleration, driven by business-oriented reforms and improved investor sentiment," the report observed.
World Bank's South Asia Chief Economist Martin Rama believes cheap oil gives an opportunity to rationalize energy prices, reducing the fiscal burden from subsidies and contributing to environmental sustainability.
India, according to the report, has already taken encouraging steps to decouple international oil prices from fiscal deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels. The challenge will be to stay the course in the event of oil price hikes - something that may well happen in the medium term.
Apart from cheaper oil, the region is witnessing favourable food prices, which have helped South Asia move from the highest inflation rate among developing regions to having the lowest in a short time. The region's Consumer Price Index that had shot up by 7.3 percent year-on-year as of March 2013 was down to an increase of just 1.4 percent in March 2015.
Capital inflows to India having gone up from 1.9 to 3.4 per cent of GDP, the report said, noting that international reserve buffers have been built across the region, including in Pakistan which is now said to be out of the danger zone.
However, the report voiced disappointment over export performance of the region which, after a promising rebound last year, is now on the decline. By end 2014, export growth was close to zero across the region.