South Asia - Potential and Prospects

Feature

Social indicators of development in the dynamic South Asian region are not always promising. However, the South Asian economy is resilient as are its people, and can do well with sustained international focus in lending and knowledge investment to supplement efforts of local governments.

South Asia comprises seven countries: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, representing the largest concentration of the world’s poor and also of the highest number of the conflict-afflicted. Over-population, environmental issues and bad governance feature high on development challenges, as do internal and external conflict.

 Nepal’s stability is affected by decades of Maoist insurgency. Sri Lanka has struggled through years of ethnic conflict. India has had to deal with major internal insurgencies and the political and military challenges with neighboring countries. The arms race in the region between the two largest countries of the region, India and Pakistan, which started in the 80s and grew to include nuclear capability, continues to challenge relations between them. Also, the power politics of major world players over the years, the US and the former USSR, has caused huge instability in the region and Pakistan battles serious repercussions in the form of drugs and terrorism, and the fallout of War on Terror in neighboring Afghanistan.

Not surprisingly, South Asian countries have extensive areas of inequality and extreme poverty directly connected to the conflict areas. The inclusivity of development logically depends on reducing this inequality. Since conflict is a major deterrent to political stability, no sustained growth policies have been successfully applied over the decades. However, domestic reforms and external assistance has helped provide some relief in phases.

A brief overview of the economic outlook of South Asian countries is as follows:

Bangladesh is an agricultural country, and one of the world’s most densely populated nations (164 million). A wide majority works in agriculture, though service industries contribute over half of GDP. Bangladesh has a flourishing garment industry. However, weak institutions, poverty, frequent cyclones and floods and corruption (CPI 2009: 139^th/180) undermine economic development and increase unrest despite reasonable inflow of aid from international donor, including around $100 million a year from the United States. Unemployment rate is currently closer to 5.1% and inflation 6.0% (CIA Fact Book 2011).  Still, from the '90s to 2010 industrial production increased to 30% from 20%. The increase in demand for power and other infrastructure has not been successfully met with and the country's industries and manufacturing sector have suffered greatly.

Bhutan is ranked among the top 10 happiest countries of the world. This has been achieved due to its unique five-year national development plan series based on ‘Gross National Happiness’. Bhutan is well into achieving its objective to reduce poverty to 15% by 2012-13 in its Tenth Five-Year Plan (2008-2013). Bhutan has not only been successful at most of the original MDGs but in some cases, it is going beyond the MDGs. However, trade and finance need some policy planning to facilitate more foreign investment. Regionally, the economy is closely aligned with India’s and hydropower exports to India have boosted Bhutan’s overall growth. The World Bank has been assisting Bhutan since the early 80s and projects worth US$73 million focused on education, health, private sector, and rural development and infrastructure are underway. The Global Fund is also committed to programs to fight AIDS, Tuberculosis and Malaria. The per capita income has exceeded US$2000, making Bhutan third only to the Maldives and Sri Lanka in South Asia. (WB, 2011)

          India inherited 90% of the industry in the sub-continent at partition. Due to land reforms introduced shortly after partition, the Indian economy continues to move in the right direction. With an average growth rate of 8% in the last three years, it is recognized as one of the world's fastest developing economies. However, the CIA Fact Book’s figures challenge the inclusivity of India’s economic policies as people living below poverty line remains at 41.6%, and India’s levels of child under-nutrition are double that of Sub-Saharan Africa. (WB, 2007). Despite government’s extensive welfare policies, social progress has also been hampered by Hindu caste system and anti-Muslim sentiment. The Industrial activity in India has, however, helped accelerate economic growth in the urban areas, creating jobs and increasing exports significantly. The revenue generated through tax collection has also helped create increased public spending on education, health care and various social programs to fight poverty.

Maldives comprises 1191 islands in the Indian Ocean of which almost 200 are inhabited. Tourism is its main industry, contributing almost 20% to the GDP. The Maldives economy is growing at an average of over 10% since the past two decades, although the 2005 tsunami caused a temporary setback. In 2009, the global financial crisis also caused decline of tourist arrivals and investment. However, the thorough policy planning of government, aided by International financial institutions like World Bank, continues to draw substantial investment through economy-friendly incentives. Over the longer term though, a bigger threat to Maldivian economy is seen to be the impact of erosion and global warming as 80% of the area lies 1 meter or less above sea level. Bhutan has urged the developed countries to help by reducing their carbon emissions.

Nepal is among the least developed countries in the world, and was ranked 29th on the Global Hunger Index 2010. It is a landlocked state bordered by China and India. Nepal's GDP for 2008 was estimated at over $12 billion making it the 115th-largest economy in the world. Agriculture accounts for about 40% of GDP, services comprise 41% and industry 22%. Nepal has considerable potential in hydropower, but political instability has hampered foreign investment. Civil strife and labor unrest, and its susceptibility to natural disaster continue to be a challenge. Nepal meets its energy demands through India and is contracted to import all its petroleum products through the Indian Oil Corporation (IOC), which also means paying extra duties and taxes. Foreign aid accounts for more than half of the development budget. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. The export-oriented carpet and garment industries together now account for approximately 70% of merchandise exports. A positive note from World Economic Outlook 2010 reported Nepal’s inflation at 6.8% in 2010-1.

Pakistan's economy is predominantly based on agriculture, and has seen growth since the early 1950s despite internal strife, external conflict, sanctions, global recession, and natural disasters (2005 earthquake, 2010 floods). It is the 27^th largest economy in the world. 17.2% population lives below poverty-line (WB 2011). The tax collection in Pakistan remains at less than 10% of GDP and the lack of revenue restricts Pakistan’s spending on development programs. Textiles account for most of Pakistan's export earnings, but the government’s failure to address power issues and hence expand a viable export base has left the country’s economy vulnerable. However, in 2005, Pakistan was named the top reformer in its region and in the top 10 reformers globally (WB), and included by the Goldman Sachs Global Economics Group as one of the “Next Eleven” (N-11), a group of countries with sizeable economic potential for global impact. Unfortunately, the internal strife and fallout of War on Terror and global financial crisis has forced massive capital flight from Pakistan. Still, Pakistan was ranked 83 among 181 countries around the globe in Ease of Doing Business Index 2011, much higher regionally than countries doing better in other areas; Bangladesh is ranked 107, Bhutan 142, India 134, Nepal 116 and Sri Lanka is 102.

Sri Lanka has an economy of $56 billion (IMF, 2011) and GDP of about US$7000. Sri Lanka has shown strong growth rates in recent years, and is far ahead of Bangladesh, India and Pakistan. Its main economic sectors are tourism, and agricultural products. Overseas employment also contributes highly in foreign exchange. Since 2009, Sri Lanka is among the world's fastest growing economies after its civil war against the Tamil Tigers ended. In 2010, Sri Lanka's GDP was estimated at 8% and is expected to grow by another 8.5% in 2011. Improvements in security and infrastructure projects have lead to a return of foreign investment. For many years, the United States has been Sri Lanka's biggest market for garments, taking more than 63% of the country's total garment exports, and China has invested in multi-billion dollar infrastructure projects. International investors in the tourism and hospitality industry have also shown interest to invest in Sri Lanka due to its obvious tourism potential.

In conclusion, given the scale of South Asian development issues, development planners and practitioners need to take various approaches to help the regional economy find a solid footing in the global market. However, economic strategies must balance security solutions, and work through welfare programs to reduce poverty, strengthening local government, civil administration, improving health and education infrastructure, and providing incentives for international funding sources. To ease the burden of this deprived but dynamic region, the international community needs to continue its support for development projects through its funding and knowledge assistance and help them move into a new era of sustained growth.

Social indicators of development in the dynamic South Asian region are not always promising. However, the South Asian economy is resilient as are its people, and can do well with sustained international focus in lending and knowledge investment to supplement efforts of local governments.

South Asia comprises seven countries: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, representing the largest concentration of the world’s poor and also of the highest number of the conflict-afflicted. Over-population, environmental issues and bad governance feature high on development challenges, as do internal and external conflict.

 Nepal’s stability is affected by decades of Maoist insurgency. Sri Lanka has struggled through years of ethnic conflict. India has had to deal with major internal insurgencies and the political and military challenges with neighboring countries. The arms race in the region between the two largest countries of the region, India and Pakistan, which started in the 80s and grew to include nuclear capability, continues to challenge relations between them. Also, the power politics of major world players over the years, the US and the former USSR, has caused huge instability in the region and Pakistan battles serious repercussions in the form of drugs and terrorism, and the fallout of War on Terror in neighboring Afghanistan.

Not surprisingly, South Asian countries have extensive areas of inequality and extreme poverty directly connected to the conflict areas. The inclusivity of development logically depends on reducing this inequality. Since conflict is a major deterrent to political stability, no sustained growth policies have been successfully applied over the decades. However, domestic reforms and external assistance has helped provide some relief in phases.

A brief overview of the economic outlook of South Asian countries is as follows:

Bangladesh is an agricultural country, and one of the world’s most densely populated nations (164 million). A wide majority works in agriculture, though service industries contribute over half of GDP. Bangladesh has a flourishing garment industry. However, weak institutions, poverty, frequent cyclones and floods and corruption (CPI 2009: 139^th/180) undermine economic development and increase unrest despite reasonable inflow of aid from international donor, including around $100 million a year from the United States. Unemployment rate is currently closer to 5.1% and inflation 6.0% (CIA Fact Book 2011).  Still, from the '90s to 2010 industrial production increased to 30% from 20%. The increase in demand for power and other infrastructure has not been successfully met with and the country's industries and manufacturing sector have suffered greatly.

Bhutan is ranked among the top 10 happiest countries of the world. This has been achieved due to its unique five-year national development plan series based on ‘Gross National Happiness’. Bhutan is well into achieving its objective to reduce poverty to 15% by 2012-13 in its Tenth Five-Year Plan (2008-2013). Bhutan has not only been successful at most of the original MDGs but in some cases, it is going beyond the MDGs. However, trade and finance need some policy planning to facilitate more foreign investment. Regionally, the economy is closely aligned with India’s and hydropower exports to India have boosted Bhutan’s overall growth. The World Bank has been assisting Bhutan since the early 80s and projects worth US$73 million focused on education, health, private sector, and rural development and infrastructure are underway. The Global Fund is also committed to programs to fight AIDS, Tuberculosis and Malaria. The per capita income has exceeded US$2000, making Bhutan third only to the Maldives and Sri Lanka in South Asia. (WB, 2011)

          India inherited 90% of the industry in the sub-continent at partition. Due to land reforms introduced shortly after partition, the Indian economy continues to move in the right direction. With an average growth rate of 8% in the last three years, it is recognized as one of the world's fastest developing economies. However, the CIA Fact Book’s figures challenge the inclusivity of India’s economic policies as people living below poverty line remains at 41.6%, and India’s levels of child under-nutrition are double that of Sub-Saharan Africa. (WB, 2007). Despite government’s extensive welfare policies, social progress has also been hampered by Hindu caste system and anti-Muslim sentiment. The Industrial activity in India has, however, helped accelerate economic growth in the urban areas, creating jobs and increasing exports significantly. The revenue generated through tax collection has also helped create increased public spending on education, health care and various social programs to fight poverty.

Maldives comprises 1191 islands in the Indian Ocean of which almost 200 are inhabited. Tourism is its main industry, contributing almost 20% to the GDP. The Maldives economy is growing at an average of over 10% since the past two decades, although the 2005 tsunami caused a temporary setback. In 2009, the global financial crisis also caused decline of tourist arrivals and investment. However, the thorough policy planning of government, aided by International financial institutions like World Bank, continues to draw substantial investment through economy-friendly incentives. Over the longer term though, a bigger threat to Maldivian economy is seen to be the impact of erosion and global warming as 80% of the area lies 1 meter or less above sea level. Bhutan has urged the developed countries to help by reducing their carbon emissions.

Nepal is among the least developed countries in the world, and was ranked 29th on the Global Hunger Index 2010. It is a landlocked state bordered by China and India. Nepal's GDP for 2008 was estimated at over $12 billion making it the 115th-largest economy in the world. Agriculture accounts for about 40% of GDP, services comprise 41% and industry 22%. Nepal has considerable potential in hydropower, but political instability has hampered foreign investment. Civil strife and labor unrest, and its susceptibility to natural disaster continue to be a challenge. Nepal meets its energy demands through India and is contracted to import all its petroleum products through the Indian Oil Corporation (IOC), which also means paying extra duties and taxes. Foreign aid accounts for more than half of the development budget. Government priorities over the years have been the development of transportation and communication facilities, agriculture, and industry. The export-oriented carpet and garment industries together now account for approximately 70% of merchandise exports. A positive note from World Economic Outlook 2010 reported Nepal’s inflation at 6.8% in 2010-1.

Pakistan's economy is predominantly based on agriculture, and has seen growth since the early 1950s despite internal strife, external conflict, sanctions, global recession, and natural disasters (2005 earthquake, 2010 floods). It is the 27^th largest economy in the world. 17.2% population lives below poverty-line (WB 2011). The tax collection in Pakistan remains at less than 10% of GDP and the lack of revenue restricts Pakistan’s spending on development programs. Textiles account for most of Pakistan's export earnings, but the government’s failure to address power issues and hence expand a viable export base has left the country’s economy vulnerable. However, in 2005, Pakistan was named the top reformer in its region and in the top 10 reformers globally (WB), and included by the Goldman Sachs Global Economics Group as one of the “Next Eleven” (N-11), a group of countries with sizeable economic potential for global impact. Unfortunately, the internal strife and fallout of War on Terror and global financial crisis has forced massive capital flight from Pakistan. Still, Pakistan was ranked 83 among 181 countries around the globe in Ease of Doing Business Index 2011, much higher regionally than countries doing better in other areas; Bangladesh is ranked 107, Bhutan 142, India 134, Nepal 116 and Sri Lanka is 102.

Sri Lanka has an economy of $56 billion (IMF, 2011) and GDP of about US$7000. Sri Lanka has shown strong growth rates in recent years, and is far ahead of Bangladesh, India and Pakistan. Its main economic sectors are tourism, and agricultural products. Overseas employment also contributes highly in foreign exchange. Since 2009, Sri Lanka is among the world's fastest growing economies after its civil war against the Tamil Tigers ended. In 2010, Sri Lanka's GDP was estimated at 8% and is expected to grow by another 8.5% in 2011. Improvements in security and infrastructure projects have lead to a return of foreign investment. For many years, the United States has been Sri Lanka's biggest market for garments, taking more than 63% of the country's total garment exports, and China has invested in multi-billion dollar infrastructure projects. International investors in the tourism and hospitality industry have also shown interest to invest in Sri Lanka due to its obvious tourism potential.

In conclusion, given the scale of South Asian development issues, development planners and practitioners need to take various approaches to help the regional economy find a solid footing in the global market. However, economic strategies must balance security solutions, and work through welfare programs to reduce poverty, strengthening local government, civil administration, improving health and education infrastructure, and providing incentives for international funding sources. To ease the burden of this deprived but dynamic region, the international community needs to continue its support for development projects through its funding and knowledge assistance and help them move into a new era of sustained growth.

Published: SouthAsia Magazine, as Potential and Prospects, Sept 2011