In the wake of the recent grim growth predictions for this year, the World Bank has urged India and other South Asian nations to work harder on economic reforms to raise their growth in their region where most of the world’s poor are said to live.
Releasing its South Asia Economic Focus Report, ahead of the IMF-World Bank annual meetings here this weekend, the Bank noted that India’s slowdown has significant spillover effects for the rest of South Asia, even more so after the financial crisis.
“Exuberance has given way to deep pessimism, particularly in the case of India, while the underlying potential remains somewhere in-between,” said Martin Rama, Chief Economist for the South Asia Region at the World Bank. He, however, felt that the short-term capital market turbulence is manageable and the return to sustainable growth in the developed world is a positive development for South Asia.
India, the region’s main economy accounting for about 80 per cent of South Asian GDP, is projected to grow by 4.7 per cent at factor cost in fiscal 2013/14, the Bank report said.
The IMF, in its latest World Economic Outlook, has cut India’s growth projection to as low as 3.8 per cent for 2013 - an estimate that has obviously not gone down well with the Government of India.
Economic Affairs Secretary Arvind Mayaram, now in Washington for the Fund-Bank meetings, has noted in comments to the media that India will perform much better, remarking: “India has generally surprised critics. I think at the end of the year you will see that we will surprise them again.”
“South Asia must return to the growth rates achieved before the global financial crisis of at least eight percent a year so that it can significantly reduce poverty,” said Philippe le Houérou, World Bank Vice President for the South Asia Region.
The World Bank Group says it regards South Asia as critical to its goals of ending extreme poverty and boosting shared prosperity by 2030. Given the current growth levels in the region, it believes this goal may not be attained.
South Asia was the second-fastest growing region in the world in the aftermath of the global crisis, but lately its performance “has been less stellar”. And recent global capital rebalancing, driven by fears of unwinding of easy monetary policy in the US, has highlighted structural weakness and vulnerability in South Asia.
“This provides a wake-up call for policymakers not to lose focus on tackling key economic and investment constraints,” it says, calling upon India to speed up the implementation of large infrastructure projects. Other countries across South Asia are either growing slowly or slowing down, the report notes.
Rama spoke of the need to continue with a gradual tightening of fiscal and monetary policy, macroeconomic stability and higher tax revenue in order to create fiscal space and reduce volatility. He also called for removal of supply side constraints, both regulatory and physical, to stimulate investment and growth.