South Asia which comprises of eight countries, including Afghanistan, has been the food supplier to the world. According to Maddison (2003), the region used to produce one-fourth of the world’s gross domestic product (GDP) by 1700, with agriculture and manufacturing being the engine of growth then. However, due to political instability and limited technological development followed by deindustrialization during colonial era, region lost its economic importance. Nevertheless, over the last fifty years, South Asia registered an annual average growth rate of 5.4% and since 2014, it is the fastest growing region in the world . According to World Bank Report, it is set to grew above 6% over the next two years, 2024 and 2025.

Figure 1: GDP Growth Rate in South Asia

Source: World Development Indications, World Bank

The economy of South Asia is driven mostly by four countries, India, Pakistan, Bangladesh, and Sri Lanka. India is the largest country in the region and with the GDP of over USD 3.5 trillion. It is also the biggest economy producing more than 78% GDP of the region. The country has been under the influence of the socialist philosophy till 1980 but then gradually made progress towards economic liberalization and trade integration. The 1990 reforms carried out under the leadership of then Finance Minister, Manmohan Sigh who later on became the prime minister as well, put India on the track of high economic growth. The economy of the country expanded by nearly seven-fold whereas its GDP per capita grew more than four times to US $2239 in 2023.

Analysing the contribution of Indian economy to South Asia region specially before and after 1990’s reforms reveal some interesting insights. From 1974 – 1990, average growth rate of Indian economy was low and therefore average South Asian growth rate without India (5.1%) was better than average growth rate of the region including India (4.9%). However, after reforms, this reverses as since 1991 up to 2023 South Asia grew at an average rate of 5.7% whereas if we exclude India, the average falls to 4.7%. This positive contribution of India becomes more significant overtime as during the last decade, excluding 2020 because of COVID, South Asian Economy grew at an average of 6.7%, however, this average falls to 4.8% if we exclude India. Indian economy, during this period, grew by over 7% per annum. At present, major exports of the country include petroleum products, gems and jewellery, textiles and garments, medicines, organic and inorganic chemicals, and machinery and equipment etc. Nevertheless, the country is facing challenges from higher income inequality as the disparities between the southern and northern parts of India need immediate attention of the policy makers. Moreover, the rise in the extremism, especially over the last decade, also needs to be addressed to continue the journey of economic prosperity .

Pakistan

Pakistan, another important economy in the South Asia, shares boarder with India, China, Afghanistan and Iran. It is a country of over 224 million with over 46% of the population below the age of twenty-four years. The share of Pakistan in South Asian economy was 14% in 1974 and reached to as high as 17.4 % by 1992. However, afterwards its share continues to decline reaching 9.8% in 2023. Economic growth in Pakistan is characterized primarily by private and government consumption, with little and declining support from investments and exports.

The country has a long history of repeated balance of payment crisis and for that it has secured eleven IMF programs since 1990. The economy continues to be in the trap of low productivity, inadequate investment, narrow export basket, high fiscal deficit and unbearable debt burden. Much-needed structural reforms that facilitate the flow of funds to more productive sectors of the economy have been delayed due to political instability, higher footprint of the government in the economy and pressure from the powerful lobbies who are the beneficiaries of the status quo .

Figure 2: GDP Per Capita of Leading South Asian Economies

Source: World Development Indicators, World Bank

Bangladesh

earlier known as East Pakistan, gained independence from Pakistan in 1971 and has shown remarkable economic growth especially over the last two decades. The country has successfully built resilience against climate challenges, especially floods and can serve as an example in this regard for the other economies in this region. The social sector organizations have played a key role in the economic development through active role in supporting women empowerment, skill development, population control and disbursement of microfinance to support micro entrepreneurships. Today, Bangladesh is a leading manufacturer of textile products which, along with, healthy flow of workers’ remittances and infrastructure development, has put the country on the path of rapid economic growth. Alongside, agriculture, pharmaceutical and health services and IT sector are also playing crucial role in the growth of Bangladesh economy.

The economy of Bangladesh has also benefitted from the reduced tariffs in Europe on the imports from low income developing countries. However, as the per capita income is on the rise, the country will have to diversify its exports and make a transition from low value added to high value-added goods as the concessions are withdrawn. It has to move beyond its dependence on ready-to-wear clothing exports into other areas of manufacturing . Recent political and economic unrest also needs immediate attention.

Sri Lanka

Sri Lanka has faced a fierce civil war between the government and the Liberation Tigers of Eelam (LTTE) in the period from July 1983 to May 2009 which negatively impacted the economic growth of the country (Gamage A & Ihalanayake, 1997). Despite this, the country’s economy grew at an average of 5% over 1990 – 2018 period which is remarkable.

Sri Lankan government and policy makers focused on human capital and invested heavily in the health, education and skill development sectors. This is the reason that labour was the most productive factor in the 1980s, which benefitted various sector including manufacturing, financial services, construction, transport, and real estate and thus has contributed to GDP growth over the years (Duma, 2007). Export oriented industries and tourism provided healthy inflow of foreign exchange and created jobs for the youth and gradual shift toward trade liberalization and openness has encouraged foreign investment, boosted exports, and improved competitiveness. As a result of these factors, the per capita income in Sri Lanka increased consistently as shown in the Figure 2.

However, after COVID 19, Sri Lankan economy faced critical challenges of high debt burden and policy inaction. Between 2007 and 2019, the country issued $17 billion worth of international sovereign bonds (ISBs) at a high rate. Some bad policy measures added to the crisis because of which Sri Lanka defaulted in April 2022. As a result, its currency depreciated, inflation increased, and country faced social unrest. The highly talented and skilled persons left the country. The government and economic institutions have now embarked on the path of structural reforms and economic recovery. The government is actively negotiating with international creditors to restructure its massive debt burden. To mobilize domestic resources, the government has initiated tax reforms to broaden the tax net and improve the fiscal sustainability. Moreover, a National Productivity Commission has also been established to improve productivity, efficiency and competitiveness across all the sectors of the economy (World Bank, 2023).

Figure 3: GDP Per Capita of other Economies in South Asia

Source: World Development Indicators, World Bank

Amongst smaller economies, Maldives is a group of coral islands in the Indian Ocean. It has a richly diverse marine environment which played key role in driving the economic development and resultantly increasing per capita income at an extraordinary pace. Nature based and high-end tourism, specially from Europe, China and India, and fishing are the main drivers of economic growth and employment. However, with mounting climate change and sustainability challenges, the country needs to focus on environment and diversification along with managing its debt to continue its journey of prosperity (World Bank, 2013, 2014).

Nepal is another unique economy which was led by a monarchy until 2008 when its citizens voted to abolish the 240-year-old ruling class to establish a democratic republic. Usually countries focus on economic growth which then leads to poverty reduction, however, Nepal presents a story of modest growth but brisk poverty reduction. Despite falling behind other peer economies in per capita income, the country outperformed on poverty reduction and addressing income inequality (World Bank, 2017). The country is famous for its rich history of agriculture. Nepal’s economic growth is projected to accelerate to 5% on average, over FY25-26 period. Landlocked geography, the history of extractive political regime and challenges from climate change presents additional challenges for the growth and development of Nepal.

Among the rest of the countries, Afghanistan has one of the lowest growth rates of all South Asian countries. This is due to security risks, political tension, and the Taliban’s control. Bhutan is a small landlocked country in the Himalayas between China and India. The economy relies heavily on tourism however, the country has untapped potential for hydropower because of its water resources. The Gross National Happiness was originated from Bhutan. 

Conclusion

South Asia region has a potential to become an engine of economic growth, however, the countries need to integrate with each other and also with the world. They also need to learn from each other’s experience and collaborate to create economically benefitting partnerships for the prosperity of the inhabitants of this region. They should also join hands to respond to the climate risk which the region is facing as most of the countries lack the infrastructure and finances required for building mitigation and resilience capacities. The positive global developments, including easing energy and fertilizer prices, are opening opportunities for this region as most of the economies relay on agriculture and are net importers of energy. Similarly, easing monetary policy due to declining inflationary pressures in leading economies will also help streamline the flow of capital in this region. Given these developments, it is foreseen that the region will contribute to global economic growth. However, structural reforms in the individual economies such as Pakistan, Sri Lanka and others are the need of hour.

References

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