A period of strong growth boosted the economies of many South Asian countries, leading to significant improvements in health, education, and living standards. A series of setbacks plunged this region of the world into economic stagnation. Russia’s invasion of Ukraine, flooding in Pakistan, the economic crisis in Sri Lanka, and the lingering effects of the COVID-19 pandemic have affected the region.
Important points
South Asia is a subcontinent that includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. The new growth was driven in part by India’s rapid expansion and prominence in global markets. All economies have slowed down due to several factors, including: political instability, inflation, and the coronavirus pandemic.
South Asia: Overview
South Asia is a subregion of Asia. Centered on the Indian subcontinent, it includes India, Pakistan, Bangladesh, Sri Lanka, Nepal, Maldives, and Bhutan. In some cases, Afghanistan is also considered part of this region.
Much of the region’s economy is driven by India, thanks to a rising middle class and a booming technology sector. India has become a major source of labor as technology companies such as LinkedIn and Google set up offices there. This goes hand in hand with the rise of various domestic industries such as agriculture and textile manufacturing.
Many of these countries account for a significant portion of their export earnings. Countries like Bangladesh are textile exporters and benefit from low cotton prices. Domestic markets have historically made these economies less susceptible to external vulnerabilities and global financial turmoil. Most countries are net importers of goods and are capable of producing finished goods for export.
Afghanistan
Afghanistan has one of the lowest growth rates among South Asian countries. This is due to security risks, political tensions and Taliban control. Post-Cold War foreign aid made it possible to build some infrastructure.
Afghanistan’s financial sector is in trouble and the country’s economy is showing signs of contraction. After the political change in August 2021, the economy contracted by 25% in two years and remains fragile and highly dependent on external support.
bangladesh
Bangladesh gained independence from Pakistan in 1971 and has developed significantly since then. The country is primarily known as a major manufacturer of textile products and has experienced rapid economic growth. This is due to large remittances and commitment to poverty reduction and infrastructure development.
Several challenges could hinder the country’s economic potential, including rising commodity prices and inflation. Job creation is necessary for Bangladesh to achieve upper-middle income status by the 2031 target. This will require several efforts, including educating the workforce and restructuring the business environment. Another key is to move beyond reliance on exports of ready-made clothing to other areas of manufacturing.
bhutan
Bhutan is a small landlocked country located in the Himalayas between China and India. The country’s monarch, King Jigme Singye Wangchuck, coined the term gross national happiness in 1972. Due to the country’s water resources, there is an untapped potential for hydropower generation. Much of the surplus hydropower is sold to neighboring India.
The economy is highly dependent on tourism. Efforts are being made to fight poverty, promote gender equality and improve education. The economy was affected by a series of external shocks from the COVID-19 pandemic and the global impact of Russia’s invasion of Ukraine. The economic growth rate in 2023 was 4.6%, supported by the reopening of tourism borders in 2022.
India
India is considered a bellwether in South Asia and is the world’s largest democracy. The country has successfully diversified its manufacturing product base and strengthened its production capacity. It is also considered one of the world’s largest technology hubs. India has successfully attracted foreign investment, liberalized foreign direct investment (FDI) in key sectors such as defence, real estate, railways and insurance, and made progress in energy efficiency.
Aggressive reductions in subsidies in India have freed up funds for development needs, and a growing number of ventures in public-private partnerships, such as renewable energy, are gaining momentum. A well-crafted Make in India campaign supports local manufacturers and attracts multinational companies.
According to the Center for Economics and Business Research, India “could become the world’s third-largest economy after 2030.” The think tank also suggested that India and Brazil could replace France and Italy as members of the Group of Eight (G8) within the next 15 years.
Over 90 million people
Number of people who migrated from extreme poverty in India between 2011 and 2015.
maldives
The Maldives consists of approximately 1,200 coral islands in the Indian Ocean, with an average size of approximately 1 to 2 square kilometers. The country’s inhabitants are spread over only 185 of its regions. The country’s gross domestic product (GDP) growth is primarily driven by strong tourism, particularly from Europe, China, and India.
This makes them particularly vulnerable to economic shocks during crises. Strong growth is expected in the Maldives, despite slow progress on public infrastructure projects and dwindling foreign exchange reserves.As a highly import-dependent economy, the Maldives will be one of the world’s first tier economies in 2023. We are facing significant external and inflationary pressures due to soaring commodity prices.
Nepal
Nepal is mainly located in the Himalayas between China and India. The country was ruled by a monarchy until a referendum in 2008 abolished the 240-year-old ruling class and established a democratic republic.
The country has a rich history in agriculture, especially rice production. Nepal continues to develop industries due to increased power generation and strong consumer demand, including hydropower plants that encourage private sector investment. In 2018, a new government was inaugurated in Nepal, and historic changes occurred.
Growth is expected to pick up in FY24 and FY25, supported by the lifting of import restrictions and gradual easing of monetary policy.
Pakistan
Pakistan is bordered by India to the west, Iran to the east, and Afghanistan to the south. Although the Muslim-majority country has lagged behind India’s growth, it has made a major contribution to lifting millions of people out of poverty.
Its growth is mainly characterized by private consumption and government consumption. Although it has benefited primarily from investment and exports from China, the country has experienced a series of economic crises. Much of this is due to political instability and flooding.
The China-Pakistan Economic Corridor, a 3,000-kilometre network of roads, railways and oil and gas pipelines from Pakistan to China, is expected to strengthen Pakistan’s economy until 2030.
Sri Lanka
The island nation of the Democratic Socialist Republic of Sri Lanka is located off the southeast coast of India. The country’s economy, based on the Sri Lankan rupee, has traditionally been supported by the travel and tourism industry, exports of agricultural products such as rice and tea, and textile production.
Despite ending decades of civil war, the country remains susceptible to political tensions and fiscal imbalances. Efforts were being made to reduce poverty, expand growth, and revitalize the private sector, but these efforts were set back by problems with credit rating downgrades and central bank monetary policy easing.
south asian economy
Since 2009, South Asia’s sustained economic growth has proven to be a boon for investors who were looking for new locations to boost their investment returns. From 2010 to 2018, the subcontinent’s economy expanded at a rate faster than “the global average of 3%,” according to the Council on Foreign Relations.
This growth was mainly due to the economic situation in India. The country’s efforts to lift millions out of poverty through education and business opportunities, develop infrastructure and increase exports have made it one of the world’s fastest growing economies. Bangladesh’s position in the world market as a textile manufacturer and Chinese investments in countries such as Pakistan are contributing to the formation of Bangladesh’s economy.
Each country in the region is experiencing its own share of economic crises. For example, Sri Lanka is grappling with its balance of payments and huge debts incurred after the end of the civil war. Much of this debt is held by lenders in China, India and Japan. In 2022, the country’s economy collapsed due to years of government mismanagement and hyperinflation caused by currency devaluation.
5.5%
South Asia’s GDP growth in 2023 is projected to be positive.
political instability
There are many political problems in this region. Afghanistan is grappling with the fallout from the US troop withdrawal, with major factions in the country at risk of being taken over by the Taliban.
Continued political tensions and rivalry between Pakistan and India, as they continue to vie for control of the disputed northern state of Jammu and Kashmir, could also hinder growth. In Nepal, a Maoist insurgency against the federal government is intensifying.
climate
Both Pakistan and Nepal have suffered significant damage from natural disasters. Floods will hit Pakistan in 2022, leaving millions homeless and without adequate drinking water. Damage was estimated at more than $14.9 billion, and economic losses exceeded $15.2 billion. Experts say it will take years to recoup losses and regain some sense of normalcy.
Earthquakes occur in Nepal, but none as large as the one that occurred in 2015. The economic impact of the magnitude 7.8 earthquake, which killed more than 9,000 people, is estimated to be equivalent to half of the country’s GDP.
future predictions
The situation in South Asia remains uncertain, and although there is some improvement, growth is expected to slow. Pakistan’s efforts to recover from the 2022 floods and rising commodity prices will continue to be challenging for the region. Growth is expected to slow in 2024 and 2025 as monetary tightening, fiscal consolidation, and reduced global demand impact economic activity.
Which country is in South Asia?
The countries that make up South Asia are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.
What is the difference between emerging economies and developed countries?
Emerging economies are characterized by rapid development and growth. Although they are also called developing countries, they are not very mature and are in the process of industrialization. Developed economies are mature and developed. Their infrastructure is further developed with advanced capital markets and sustained growth. Incomes tend to be higher than in developing countries.
Is India considered an emerging economy?
Yes, India is an emerging market economy and is considered one of the fastest growing economies in the world. We have entered the global market and continue to grow. The country’s booming middle class, growing manufacturing industry, infrastructure development, and political climate position the country for strong economic growth.
conclusion
South Asia’s economy is expected to grow in 2023, but slow after that. The region, which includes Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka, is facing tightening financial conditions and a decline in global demand weighing on economic activity.
