Growth in South Asia is expected to be slower than forecast due to Russia’s war against Ukraine
Growth in South Asia is expected to be slower than forecast due to Russia’s war against Ukraine
India is expected to grow 8% in the current fiscal year (April 1 to March 31) and 7.1% in the next fiscal year (FY2023-24), the World Bank said in its semi-annual report Economic Focus South Asia Reshaping Standards: A New Way Forward, released Wednesday, ahead of the World Bank IMF Spring Meetings. According to estimates, the country grew by 8.3% in the past financial year after a decline of 6.6% in the previous year due to the COVID-19 pandemic.
The South Asia region is expected to grow 1 percentage point slower than forecast at 6.6% in 2022 and 6.3% in the next calendar year. This is due to Russia’s war against Ukraine, which has impacted the region when it was already experiencing “uneven and fragile” growth, rising commodity prices, supply shortages and vulnerabilities in the financial sector.
According to the report, the impact of the war so far has been further inflation, deteriorating current account balances and growing budget deficits.
external shocks
“Faced with these challenges, governments need to carefully plan monetary and fiscal policies to counter external shocks and protect the vulnerable, while laying the foundation for green, resilient and inclusive growth,” said Hartwig Schafer, World Bank vice president for South Asia press statement.
The scope for fiscal stimulus is limited, and supply shortages are of greater concern than insufficient effective demand, Hans Timmer, the World Bank’s chief economist for the South Asia region, told reporters at a briefing call on Wednesday.
When asked what impact sanctions on Russia would have on the South Asian region, Mr Timmer said that given the relatively small proportion of imports and exports going to and from Russia and Ukraine, the impact would be indirect rather than direct. The indirect impact was through the global impact of sanctions on commodity and financial markets.
All countries in the region will face challenges during the recovery despite “solid” GDP growth, the report said.
In the case of India, household consumption will be constrained by the incomplete recovery of the labor market and inflationary pressures.
Greener Fuels
The report suggests that countries in the region are switching to greener fuels and raw materials in response to rising fuel prices and the introduction of environmental taxes. This would also be a new source of revenue for the state.
When asked, Mr Timmer said the green tax recommendation applies to both polluting firms and energy prices Peppystores whether the World Bank advocated taxing fuel consumption when prices were already high.
“It’s really inefficient to support vulnerable households through energy subsidies,” Mr Timmer said. “The money can be put to much better use if the right price for energy is calculated and then reallocated in a way that really targets the poor households,” he said, adding that this is a gradual process and not “overnight”. could be accomplished.