South Asia to the Fore

Over the past few decades, East Asia has emerged, first as the region with the world’s fastest growing economy and now as the region that contributes the most to the overall rate of global economic growth.  However, the key driver of growth in East Asia, China, is in the midst of an economic slowdown that appears set to continue for the foreseeable future as the Chinese economy undergoes a major rebalancing.  This has opened the door for India to emerge as the world’s fastest growing large economy and to develop into a key driver of global economic growth.  Moreover, India’s rise is presenting a major opportunity for its South Asian neighbors, who hope to see their economic growth rates boosted by rising levels of trade and investment in India.  However, in order for South Asia to emulate the performance of East Asia, the region will have to overcome some major obstacles that may prove to be quite intractable. 

With more than three-quarters of the region’s population and more than 80% of its economic output, India dominates South Asia far more than almost any other country dominates its region.  Moreover, India’s economy has expanded by an average of 7.7% since 2003, allowing it to outpace all other countries in South Asia in terms of economic growth.  As the rate of economic growth in India has accelerated in recent years, India is in a strong position to further cement its dominant position in the region.  Furthermore, India’s emergence as the world’s fastest growing large economy is leading to a surge of trade and investment into India as exporters and investors search for markets to offset the slowdown in growth in other large emerging markets such as China, Brazil and Russia.  As these economies are forecast to continue to struggle in the coming years, India’s robust growth will certainly attract the attention of even more exporters and investors in the coming years.

This expected surge in trade and investment in India also presents significant growth opportunities for India’s neighbors in South Asia.  In fact, annual economic growth rates in the Bangladesh and Sri Lanka are forecast to average 6.8% and 5.8% respectively over the next five years, making them two of the fastest growing emerging markets over this period.  In Bangladesh, economic growth has continued at a high rate despite the high level of political tensions in that country, thanks largely to the expansion of the country’s textile industry and its service sector.  Sri Lanka too has had to overcome political unrest in order to experience strong rates of growth in recent years, driven by strong growth in that country’s tourism and agricultural sectors, both of which benefit from a stronger Indian economy.  Elsewhere in South Asia, Pakistan will realize higher rates of economic growth in the coming years, but the extreme level of political unrest in that country will prevent growth from reaching India-like levels, whereas Nepal will continue to suffer from the impact of last year’s devastating earthquakes.

Overall, South Asia will emerge as the region with the fastest growing economy in the coming years, although there will be many challenges to face.  Much of the region’s growth will be driven by demographics, as South Asia is today home to 1.7 billion people, a number that is forecast to rise to 2.3 billion by the year 2050.  Moreover, as the region’s population will be among the youngest in the world, its working-age and consuming-age population will come to dwarf that of many other key economic centers.  Initially, service industries will continue to drive much of the growth in this region, but for the region to truly emerge as a key center of the global economy, it will have to take advantage of its vast low-cost labor force in order to develop manufacturing industries that can export their products around the world.  To do this, the region will need massive investments designed to improve its inadequate transport infrastructure in order to boost the region’s export competitiveness.  In addition, all countries in South Asia will have to take major steps to improve their internal and external political stability.  Finally, South Asia is facing severe shortages of water, land and natural resources and these shortages will worsen as the region’s population rises to 2.3 billion by 2050.  Therefore, while the potential economic rewards in South Asia are great, so too are the risks facing exporters and investors in this pivotal region.