South Asia, now the fastest-growing region in the world, could take greater advantage of cheap oil to reform energy pricing

http://www.worldbank.org/en/news/press-release/2015/04/13/south-asia-cheap-oil-reform-energy-pricing

Economic growth expected to accelerate to 7.4 percent in 2016

WASHINGTON, April 13, 2015 – Driven by a strong expansion in India, coupled with favorable oil prices, economic growth in South Asia is expected to accelerate. The region is among the greatest global beneficiaries from cheap oil, as all countries in it are net oil importers. In the last quarter of 2014 South Asia was already the fastest-growing region in the world, a World Bank report said.

According to the twice-a-year South Asia Economic Focus report, regional growth is projected to steadily increase from 7 percent in 2015 to 7.6 percent by 2017 through maintaining strong consumption and increasing investment. Given India’s weight in regional Gross Domestic Product (GDP), the projections reflect to a large extent India’s expected growth acceleration, driven by business-oriented reforms and improved investor sentiment.

The decline in oil prices has been reflected in the domestic prices of oil products to different extents across the region. The pass-through exceeded 50 percent for most oil products in Pakistan, but was nil in Bangladesh.

Together with favorable food prices, cheaper oil has contributed to a rapid deceleration of inflation. South Asia went from having the highest inflation rate among developing regions to having the lowest in barely one year. In March 2013, the Consumer Price Index (CPI) of the region had increased by 7.3 percent year-on-year, compared to 1.4 percent in March 2015.

External vulnerabilities have receded, the report shows. Current account balances are strong in most countries. Capital inflows to India have increased from 1.9 to 3.4 percent of GDP, although more volatile portfolio investments account now for a greater share of the total. International reserve buffers have been built across the region, including in Pakistan which is now out of the danger zone.

However, the export performance of the region has disappointed. After a promising rebound last year, exports are now slowing down. By end 2014, export growth was close to zero across the region.

“The biggest oil price dividend to be cashed in by South Asia is one yet to be earned, but it is not one that will automatically transit through government or consumer accounts” said World Bank South Asia Chief Economist Martin Rama. “Cheap oil gives the opportunity to rationalize energy prices, reducing the fiscal burden from subsidies and contributing to environmental sustainability”, he added.

The report notes that India has already taken encouraging steps to decouple international oil prices from fiscal deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels. The challenge will be to stay the course in the event of oil price hikes – something that may well happen in the medium term.

“Savings from reduced subsidy bills could be used to address the crying needs of the region in terms of infrastructure, basic services and targeted support for the poor”, said World Bank Vice President for South Asia Annette Dixon. The report shows that households in the region stand to gain from lower oil prices, both directly through lower energy spending and indirectly through faster growth. But except for kerosene, richer households spend more in oil products, and stand to gain more.

The main counties thriving with activity are India, Pakistan, Bangladesh and Sri Lanka. There are other countries in SA but not significantly important by way of contribution to the economy pool.

The vastness and complexities of India territory, population and demography apart from the many two score States with its intrinsic political ideologies and leanings make this country one giant animal that is not flexible.

They had all the ideals for economic progress but now the disunity between its own States and politics are brining this country down fast apart from the ever growing population. My personal opinion is that living conditions in India will deteriorate very fast overtaking the troubles that China is also facing at the moment with regard to the environmental concerns and industrial pollution topping the list.

Bangladesh can be seen as the next fast growing economy compared to India, Pakistan and Sri Lanka.
BD has everything that is ideal for investment and ecomonic development. There the issue is again political and culture pulling it down and restraining its progress.

Our little Island is a wonderful country and I am proud of this nation not only because of the fact that I belong here.

Senior citizen

Yes there are environmental issues and social issues. We cannot judge a development by seeing huge buildings. The gap between the poor and the rich is growing in the Asia-Pacific region. We can clearly see income inequality in many major economies including India, China and Indonesia. There was a report published by UN-ESCAP. There is real estate bubble, massive manufacturing overcapacity in China and lack of new growth engines. However, there are some opportunities in consumer sector. China's population increases each year by approximately 12-13 million people. They have to feed their burgeoning population in good time and bad time.