South Asia, for long seen as a laggard region with its conflicts, catastrophes and poor governance pulling down global growth, is now being seen as the driver of global economic growth with the Indian economy, the region’s largest, outperforming its peers. 

Hamid Rashid, the chief of the Global Economic Monitoring Branch of the United Nations, said that South Asia is the region that “is becoming a major source of growth”.

“In the past, East Asia was the driver of growth, but now we see a little bit of shift towards South Asia [and] South Asia being the driver of growth going forward”, he said at a news conference on Thursday at the release of the UN’s World Economic Situation and Prospects report.

For the South Asia region in which the report includes Iran, last year’s gross domestic product (GDP) growth rate was estimated to be 5.3 per cent, which is projected go down to 5.2 per cent this year, before rising to 5.7 per cent next year.

In contrast, East Asia’s growth rate, the report estimated, was 4.9 per cent last year, and is projected to fall to 4.6 per cent this year and 4.5 per cent next year.

With a projected growth rate of 6.2 per cent for this year, “Indian economy outperformed its peers” – the world’s major economies – Rashid said.

The report put India’s gross domestic product growth in 2023 at 6.3 per cent, 0.5 per cent above the projection made in September, and projected it to be 6.2 per cent this year, 0.5 per cent less than the previous estimate.

Next year, India’s growth is expected to rise to 6.6 per cent, the report said.

The report said, “In Bangladesh, real GDP growth is expected to slow in 2024, whereas economic growth in Nepal is projected to improve. The outlook is still fragile for other countries in the region. In Sri Lanka and Pakistan, modest economic growth is expected”.

The report put Bangladesh’s growth last year at 6 per cent and said it will fall to 5.6 per cent this year and rise to 5.8 per cent next year.

Tiny Maldives with a population of only 521.000, was the region’s top performer clocking a growth of 7.6 per cent, according to the report, which will be 6.8 per cent this year and 7.1 per cent the next.

Nepal had an estimated growth of 1.9 last year, which is expected to increase to 4.5 per cent this year and 5 per cent next year.

Pakistan and Sri Lanka are pulling down South Asia’s overall performance.

Pakistan’s growth last year was 1.7 per cent, the report estimated, and it was expected to rise to 2 per cent this year and 2.4 per cent the next.

Sri Lanka, meanwhile, was estimated to have had a negative growth –  minus 3.6 per cent – last year, according to the report, which expected it to rise to1.5 per cent this year and 3.1 next year.

India’s growth pattern, the report said, will be “mainly supported by resilient private consumption and strong public investment”.

The report said that global economic growth is projected to slow from an estimated 2.7 per cent last year to 2.4 per cent this year.

The report expected the United States growth to moderate to 1.3 per cent this year from the 1.6 per cent last year before picking up to 1.7 per cent next year.

The European Union, where the growth for last year was estimated to be a dismal 0.5 per cent last, according to the report, is expected to increase to 1.2 per cent this year and 1.7 per cent next year. 

China’s growth rate is expected to come down to 4.7 per cent from last year’s 5.3 per cent and further fall to 4.5 next year, it said.

Shantanu Mukherjee, the director of the United Nations Economic Analysis and Policy Division, indicated that India was likely performing at its best without danger of its economy overheating.

Asked about factors holding India back from a faster growth, Shantanu Mukherjee said amid laughter, “I  am not sure that 7.7 per cent, 6.3 per cent, 6.2 per cent and 6.6 per cent is exactly holding something back”. 

“So in fact, I think one would, in a kind of abstract sense one would run the risk of overheating economy. If you grew at much faster rates of the size and complexity of India”, he said.

Commenting on Indian economy’s strong growth, Rashid said that although inflation was relatively high, unlike many other countries New Delhi “didn't have to raise rates as much and inflation has come down quite, quite a bit”.

“That has allowed government to sustain the fiscal support that it needed”, he said, and “we didn't see a significant fiscal adjustments or fiscal sort of retrenchment in India. In practice, the support is still pretty strong”.

Mukherjee added, “The government has also recently modernised, modified its tax collection systems and those have also certainly helped and given a more sort of stable playing field for businesses and other initiatives for progress”.

“One of the reasons that the consumer price index in India remained relatively, you know, within bounds allowing this the central bank to not raise interest rates too much was that food prices and fuel prices remained relatively stable”, he said.

Listing risk factors, the report that South Asia “is highly vulnerable to extreme weather conditions, the return of the El Niño climate phenomenon will also pose a significant risk to the economic outlook”.

There is a consensus among other international institutions around the 6.3 per cent mark for India’s growth rate in the current fiscal year.

The International Monetary Fund (IMF) and World Bank in October and the Asian Development Bank  (ADB) in September projected India’s growth rate for the 2023-24 fiscal year to be 6.3 per cent.

For the next fiscal year, ADB forecasts 6.7 per cent growth for India, while the IMF kept it at 6.3 per cent and the World Bank projected 6.4 per cent.