South Asian Economy

Now, talking of the South Asian economy, we have heard of the big surge on the coming of globalization, and no matter how literally it is applied to the world of politics, it can well be said the its economic implications have been vast. It is leading to a rapid expansion in international trade – and one of the engines of growth has been the continent of Asia, with special emphasis on the regions of South, Southeast & East Asia. This has its direct effect in boosting economic growth and resulted in governments finding employment for their people, clearing the much feared job-shortage. However, the real test for this lies in, how much of human development it contributes to. Asia Pacific has been the fastest growing region, economically, over the recent decades leaving behind the EU, USA and other First World Countries, after the acceptance of Liberal economy by their respective governments since late 1989, one after another. Of these the South Asian economy has definitely fallen behind East Asia and Southeast Asia because of certain trade restrictions and barriers.

As indicated during the period 1990–2003 Gross Domestic Product (GDP) grew annually on average by more than 7 per cent. As a result of population expansion, growth of per-capita GDP was somewhat slower – around 5 per cent – but still far higher than the 3 per cent in the OECD countries. In the early 1980s, average import tariffs were around 60 percent, and were still around 47 percent by the end of the decade. But during the 1990s they fell more rapidly, and by 2000 average tariffs in South Asia had fallen to 18 per cent – with the process having gone furthest in Sri Lanka. Except for India, the tariffs are lower for primary commodities than for manufactured goods, and within manufactures these tariffs are lower for intermediate capital goods than consumer goods. The lowering of tariffs has contributed to a rapid growth in trade.Between 1990 and 2003, while East Asia and the Pacific continued to power ahead – and trade as a percentage of GDP increased from 45 to 81 per cent – the proportion of South Asia also increased, from 20 to 34 per cent which is a positive trend. These figures relate only to merchandise trade.

If earnings from remittances, tourism and outsourcing are added, the differences between the sub-regions are smaller, and the overall increase is even more impressive. South Asia is rapidly developing as the factory for the world and the region has steadily increased its exports of manufactured goods. A favourable investment climate had also encouraged substantial inflows of foreign investment. The situation South Asia.compared to its immediate Eastern and Southeastern neighbours is different Here the growth in merchandise exports has been less impressive. India, the sub-region’s largest exporter, has been slower to cut tariffs and redirect production from import substitution to export markets. Some of the smaller countries, however, have done better, notably Bangladesh and Nepal in textiles and clothing, though this was largely due to the quota regime, which has now been phased out. South Asia as a whole has also done much better on service exports, with a growth rate in the 1990s higher than that for East Asia. India is the leader here, offering outsourced services, particularly in the IT sector, to many of the OECD countries. The growth pattern has been similar for imports. Rates of importing have also been rising, partly because tariff reductions have made imports cheaper relative to home produced goods, thus displacing some import substituting industries.

But some imports are required as inputs to exports, reflecting the more integrated networks of global production, as different locations contribute different parts to the chain of value added. Exports and imports can thus be closely linked in South Asia in particular, the rising exports, by alleviating foreign exchange constraints, have enabled import liberalization. UNCTAD, for example, has studied the impact of trade liberalization on the balance of trade in 16 countries across different regions over the period 1970 to 1995, and concluded that, especially in the early stages of the process, there is a tendency for the balance of payments to deteriorate. South Asia has improved its position, even if the balance of trade remains negative – with two-thirds of the improvement coming from manufactured goods. Why has the result of liberalization been more muted here? The answer probably lies with domestic private investors, who have responded slowly to changing profitability signals. It would be fit to conclude that the region required greater investment both from the government and private end, however, environmental standards and hazards should be well measured before that.

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