IMF research suggests bright future for South Asia; proposes steps

Based on inputs by Shahid Kazi

As per the latest research by the International Monetary Fund , South Asia is moving towards becoming center of global growth and could contribute about one-third of the world’s growth by 2040, all under leadership of India

The IMF paper ‘Is South Asia Ready for take Off? A sustainable and inclusive growth agenda, that was released in New Delhi, states that under a substantial liberalisation scenario, supported by stepped-up efforts to improve infrastructure that would successfully harness South Asia’s young and large workforce, the region could contribute about one-third of global growth by 2040.

“Looking at it both from the growth trajectory that we see and the development elsewhere in Asia, we see South Asia as moving towards being much more of center of global growth,” Anne-Marie Gulde-Wolf, Deputy Director, Asia and Pacific Department, IMF told PTI .

The IMF paper says. Although policy recommendations remain country-specific, for many South Asian economies these should include: further progress in revenue mobilisation and fiscal consolidation; greater trade and foreign direct investment (FDI) liberalisation; and investment in people, the paper notes.

IMF sees India needing a multipronged approach that leverages the advantages that the country already has, she said. “The country has already an excellent tertiary education system, built a on high value-added services. So, in no way, should any strategy devalue that aspect,” she said. But it needs to be complemented with areas like manufacturing sector, wherein India is below what would one expect from a country with that level of development, she said adding that the issue is how to involve private sector to increase the manufacturing base. India, she noted, needs to create a better environment for private sector growth which looks at a product market, labour markets. Land is a particular issue and obviously some of the impetus has to come from foreign direct investment, the top IMF official said. Together with this, there is need to reduce red tape obstacles and maybe more generally the footprint of the state, including in the financial sector, Gulde-Wolf said.

Gulde-Wolf said subject to implementation of the IMF recommended reforms, India’s income level on PPP basis would be reaching about 45 per cent of the US income level and it would one third of the global growth. Observing that it is always difficult to make a long-term forecast, she said it is important to show what the potential is and what the payoff over time off reforms can be. India has a significant potential, but there is need of a significant reform, she said, adding that these reforms need to be implemented to set the trajectory. “If you lose time by delaying this reform, it will take more time to catch up to where you are. And the time window is not very big,” the IMF official said. “Reforms need to be implemented. We still see that the slow down at this stage is mainly cyclical, but the most recent numbers that have come in are lower than we have expected,” Gulde-Wolf said.

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