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India leads S Asian growth path: WB

Globalisation could spur faster growth in average incomes in the next 25 years than during 1980-2005, says the World Bank.

india Updated: Dec 16, 2006 16:22 IST

Globalisation could spur faster growth in average incomes in the next 25 years than during 1980-2005, with developing countries playing a central role and India leading the way in South Asia, says the World Bank.

However, unless managed carefully, it could be accompanied by growing income inequality and potentially severe environmental pressures, said the report on "Global Economic Prospects 2007: Managing the Next Wave of Globalisation".

Growth in developing countries will reach a near record 7 percent this year. In 2007 and 2008, growth will be probably slow but still likely to exceed 6 per cent, over twice the rate in high income countries that is expected to be 2.6 per cent.

GDP in South Asia is estimated to have expanded at a very rapid 8.2 per cent in 2006. India led the way an estimated 8.7 per cent, backed by non-agricultural growth in excess of 10 percent.

Output in Pakistan is estimated to have slowed from 7.8 to 6.6 percent, following a return to more normal agricultural production in the wake of a bumper harvest in 2005.

In Bangladesh, growth rebounded to 6.7 per cent owing to stronger remittance inflows, vibrant services and manufacturing sector output and the waning impact on agricultural output of last year's floods.

Economic activity in Nepal slowed to 1.9 per cent because of the intensified conflict, a weather-related decline in agricultural production, and a decline in clothing exports.

In Sri Lanka, growth picked up to an estimated seven per cent, thanks to a good harvest, and post-tsunami recovery and reconstruction activity.

"This strong growth in the region is fuelled by economic reforms that have promoted private sector-led growth, sound macro management and greater integration with the global economy," said Shantayanan Devarajan, the World Bank chief economist for South Asia region.

"But the region faces several risks. Unless policymakers act early and decisively to control rising macroeconomic imbalances, inflation outturns will be higher, current account deficits larger, and the subsequent slowdown more pronounced," he said.

Devarajan also said that widening inequality in the region would not only make growth less potent at reducing poverty but it might lead to new social conflicts or exacerbate existing ones.

GDP in South Asia is projected to slow gradually to a still robust 7.5 in 2007 and 7 per cent in 2008. Weaker external demand, reflecting slower growth in the US in 2007, tighter domestic monetary and fiscal policies, and tighter international monetary conditions are all factors contributing to the expected slowdown.

The report predicts that globalization will expand the global economy from $35 trillion in 2005 to $72 trillion in 2030.

"While this outcome represent only a slight acceleration of global growth compared to the past 25 years, it is driven more than ever before by strong performance in developing countries," said Richard Newfarmer, the report's lead author and Economic Advisor in the Trade Department.

"And while exact numbers will undoubtedly turn out to be different, the underlying trends are relatively impervious to all but the most severe or disruptive shocks."

Globalisation is likely to bring benefits to many. By 2030, 1.2 billion people in developing countries — 15 percent of the world population — will belong to the "global middle class", up from 400 million today.

This group will have purchasing power of between $4,000 and $17,000 per capita and will enjoy access to international travel, automobiles and other advanced consumer durables, attain international levels of education, and play a major role in shaping policies and institutions in their own countries and the world economy.

The authors conclude that the challenges of rapid globalisation put new burdens on both national policymakers and international officials.

Nationally, governments need to ensure that the poor are incorporated into the growth process through pro-poor investments in education, infrastructure, and support mechanisms for dislocated workers. They need to support and invest in workers - all the while promoting rather than resisting change.

Internationally, the report calls for stronger institutions for tackling threats to the global commons. It also seeks more and better development assistance. Reducing barriers to trade is vital as well as it can create new opportunities for poor countries and poor people.