|
ECONOMIC PROSPECTS-AN OVERVIEW
South Asia consists of diverse economies both in terms of size and, to an extent, in economic characteristics. The aggregate GNP of the region is about $362 billion (at 1992 market prices) and a population of 1.2 billion. While the average per capita income as a whole is low, some estimates suggest that the region has about 250 million consumers in the "middle income group" who provide an expanding and potentially lucrative market for indigenous and imported goods. More importantly despite periodic setbacks in terms of uncertain weather conditions, political instability, natural disasters and often inappropriate economic policies, the region's average income grew rapidly in the 1980s (about 6 percent per annum), and with major economic and institutional reforms currently being undertaken, economic growth is anticipated to accelerate further in this decade.
In the past, most countries in the region adopted an inward-looking strategy of planned development involving a rigid regulatory framework that reserved a disproportionately large role for the public sector in production and distribution and permitted considerable bureaucratic discretion in economic decision making.
The embedded distortions created gross inefficiencies, rewards rent seeking and encouraged corruption. International competition was shut off by prohibitive trade restrictions while domestic competition was blunted by excessive regulations, resulting in a high cost and inefficient industrial structure. This led to slow export growth and a declining share of global trade in the region. Worse still, the system started straining the fiscal balances as governments were forced to make good the losses of inefficient public enterprises, support large bureaucracies and populist subsidisation programmes. Growth slowed down considerably below the potential of the region.
In recent years, most South Asian countries have embarked on major restructuring of their economies. The reforms are broadly aimed at restoring macroeconomic stability; liberalisation of the trade and payments regime; partial convertibility of the exchange rate; getting rid of counterproductive regulation; reducing distortion creating susidies and price controls; greater involvement of the private sector; simplifying the procedures and opening up the major sectors of the economy to foreign investment both direct and portfolio; and initial steps towards privatisation of state-owned entities.
Though reforms have made considerable headway, much still remains to be done. Even with partial reforms, the region has started displaying its underlying dynamism; foreign investors are showing more interest and there are indications that, over the medium term, the region will be more closely integrated with the global economy. It is also noteworthy that the region has an excellent track record in servicing external debt obligations; hence, multi-lateral and bi-lateral agencies have been generous in lending resources for high priority projects and programmes.With liberalisation under way, the region is expected to attract more funds from private sources.
RECENT PERFORMANCE AND PROSPECTS
Under an IMF Standby Programme aimed at restoring macroeconomic stabilisation, India recorded a GDP growth rate of about 4 percent in 1993, which was lower than the historial trend over the 80s. The deceleration in growth was due mainly to industrial recession induced by fiscal compression. However, the inflation rate declined to about 9 percent which represents a significant deceleration over recent rates.
Largely in response to the market determined exchange rate policy and rationalisation of the foreign trade regime, merchandise exports grew by
|
