By Dr. Gyan Pathak
South Asia still needs to prepare for the worst since there are increasing signs of geo-economic fragmentations. Expenditure needs to meet the Sustainable Development Goals; equity needs to be improved through labour market and social protection reforms as well as gender policies, appropriate measures needed to mitigate and adapt to climate change; and prudent macro-financial management through sound monetary policy framework, financial, development, and better public financial management to improve the scale and quality of infrastructure investment.
This is what emerged in the IMF’s conference on South Asia’s Path to Resilient Growth justheld in New Delhi., coinciding with the book launch on the same subject edited by Ranil Salgado and Rahul Anand. As the global economy has been emerging from the COVID-19 pandemic, the world has been confronting with new shocks and pronounced uncertainties, the conference has a special significance for South Asia in General and India in particular.
Over the past two decades, extreme poverty in Bangladesh, Bhutan, India, the Maldives, and Sri Lanka has declined from 500 million to fewer than 250 million, per capita income doubled helping to deliver improved health care, education, and infrastructure as well as better access to financial services, the internet, and mobile technology to millions, but poverty reduction cannot be taken for granted, warned Deputy Managing Director Antoinette Sayeh of IMF at the conference. “And identifying the right policies matters not just for the pace of growth but also for ensuring that growth is sustainable, inclusive and benefits all,” she emphasized.
The IMF book draws attention to the right policies that have become even more important as the effect of climate change are increasingly visible in South Asia. “If left unaddressed, they could erase much of the progress on growth and poverty reduction,” the book underscored.
Three broader issues have been identified in the book and discussed in the seminar. First was policies that can make growth inclusive, sustainable and resilient. It has been emphasised that the region needs to increase expenditure to meet the goals. Labour market needs greater social protection reforms. Gender gaps need to be bridged, and to meet climate change crisis there is a greater need for appropriate mitigation and adoption measures.
The role of trade in the regional development was the second broader issue. It was acknowledged that trade liberalisation and the resulting diversification have helped South Asia narrow the income gap vis a vis other regions. It was also noted that a large potential for further income gains is left unharnessed, highlighting the need for a renewed reform momentum and a better integration into Asian and global value chains.
“But unfortunately”, Ms Antoinette Sayeh warned in her keynote address, “there are increasing signs of geo-economic fragmentation. We see the number of trade restrictions rising and the sectoral composition of trade restrictions has been shifting. Asia has gained a lot from openness and integration, and we hope for strong international cooperation to avoid fragmentation. That said, South Asia still needs to prepare for the worst.”
There are disruptions to the key industries in the rest of Asia, and as the global value chains realign, there would be great opportunities for South Asia. However, South Asia can derive benefit only if it puts in place necessary structural conditions through further liberalisation and regulatory reforms.
For its part, according to Antoinette Sayeh, India needs to leverage its existing strength in services exports and extend it to job-rich manufacturing exports by deepening its global value chain participation and complementary structural reforms that can boost productivity, formal employment, and exports. Doing so would create a virtuous cycle of productivity growth and strong export performance. Trade and investment reforms, by reducing tariffs and non-tariff barriers, for both goods and in particular high value services such as professional services, will be pivotal in raising competitiveness and establishing regional supply chains to benefit South Asia.
The book brought the role of macro-financial management as the third broad issue needing urgent attention. The general opinion was that macro-financial management should be improved through sound monetary policy frameworks, financial development, and better public financial management to improve the scale and quality of infrastructure investment.
Credible strategy for fiscal consolidation was found to be critical to keep inflation expectations in the region anchored. Though there is limited fiscal space, region’s large infrastructure needs must be met, and that could be done through a combination of enhanced but prudent quality of public investment, and alternative financing strategies. “And efforts must continue to strengthen the effectiveness of monetary policy frameworks,” IMF Deputy Managing Director Antoinette Sayeh said.
South Asia region has been visualised a “powerhouse of the global economy” but that could be possible only if there would be continued poverty reduction and rapid economic development. “Unlocking this potential, however, requires bold reforms, said Ms Antoinette Sayeh.
It should be noted that the recent IMF report on India after Article IV consultations has said that India is a relatively bright spot in the world economy today, and is growing at rates significantly above its peer average, but is facing new headwinds. Further structural reforms are needed, including to address the adverse impact of climate change, to secure strong and sustainable growth.
Governor, Reserve Bank of India, Shaktikanta Das, identified six policy priorities for the region in his keynote address – Taming Inflation, Containing External Debt Vulnerabilities, Raising Productivity, Strengthening Cooperation for Energy Security, Cooperation for Greener Economy in the Region, and Promoting Tourism. He said that greater intraregional trade can enhance opportunities for growth and employment, and at the central bank level, a key dimension of cooperation has been learning from common goals and challenges, such as in infrastructure financing, digital financial inclusion, reducing the cost of cross-border remittances by linking with UPI system, and unconventional monetary policy. Rupee settlement of cross border trade and Central Bank Digital Currency (CBDC) where the RBI has already started moving forward, can also be areas of greater cooperation. (IPA Service)
