14th Round RRC
Sustaining Rapid Growth in South Asia in the Face of the Current Global Financial and Economic Turmoil
DEADLINE: 31 December 2012
A key question that the South Asian policy makers face in the current national and global environments is: Can South Asia revive and sustain its growth momentum? The issue has attracted greater attention as the downside risks to the current global financial and economic turmoil have substantially increased in the last two years or so. The global economic downturn makes it even more important that South Asia strengthens economic management and undertakes appropriate reforms so as to generate inclusive and sustainable high economic growth.
It is clear that the already evident impact of the recent Euro crisis on various parts of the world (including South Asia) may well have longer-term effects on world trade and capital flows. The uncertainties arising from EU will have serious spillovers to other regions--thus the direction of contagion could be one way. The context is not narrow by any means: the share of Euro GDP in global GDP is sizeable and the trade of South Asia to the Euro zone and rest of EU, not to mention capital inflows from them, are under threat from the possible collapse of Euro and the colossal shock that would result from it. These will obviously have serious adverse impacts on South Asia and the developing world in general. It is expected that the researchers would anticipate the likely consequences of the impact of a long-term Euro zone recession through trade, FDI, financial (trade credit, aid and capital inflows) and other channels and examine whether the balance of payments and the domestic financial sector would be able to absorb the impact from the trade and financials channel and what reforms are needed to enable them to do so.
With the already evident slowdown of growth in South Asia in the face of external shocks, it is important to examine why some of the reforms initiated sometime ago are yet to be completed and what further economic reforms and economic policies are needed to raise growth. While foreign shocks obviously need to be looked at, the slowdown in South Asia has significant domestic reasons behind it as well. To the extent aggregate domestic demand collapse demonstrably contributed to the slow down, the challenge is to create more fiscal space for stimulating domestic aggregate demand if needed and to manage rising inflation, while ensuring that the exit from fiscal and monetary stimulus if any is gradual and in line with the recovery of private demand. But the solutions are also likely to be important on the supply sideâ€”in renewing agricultural growth, stepping up power and infrastructure investment, encouraging growth in the manufacturing sector and improving economic management more generally. All are interlinked to achieve faster and well-distributed growth, and more and better jobs to absorb the growing and younger labor forces in the South Asian economies.
The important issue for South Asia is to complete stalled reforms and initiate new ones where needed; reforms for redressing critical constraints on sustaining and accelerating growth, such as on power sector reforms (resources needed, exploring opportunities of going beyond reliance on public sector production, failure at regional integration of fossil and hydro energy, etc.), fiscal reforms including tax and expenditure reforms (with contrast and comparison of federal fiscal systems in India and Pakistan vs. more unitary systems in others), governance reforms and other constraints. It would be important not only to take stock of the current situation but take the analysis beyond it and discuss the types of feasible reforms the country (ies) could adopt taking into account constraints of political economy that would be difficult to remove.
Given South Asia's diversity, different countries face different priorities and challenges. One common priority is how to sustain economic growth and increase people's welfare and living standards. For South Asia, along with trade and financial integration, boosting productivity and moving to higher value production and services, while ensuring adequate employment opportunities, have been and will continue to be key challenges. Politics determines allocation of public spending in favour of subsidies and transfers as against essential public services and overwhelming proportion of subsidies and transfers are garnered by the special interest groups. Therefore, undertaking rather than merely talking about subsidy reforms will be essential to provide the appropriate social safety nets and to achieve fiscal sustainability.
The researchers are expected to:
(i) Look at the impact on the impact of global economic turmoil inclusive of that emerging from the Euro zone crisis in particular; and
(ii) Consider real and financial sector transmission channels While the focus will be on new challenges emanating from outside the borders, domestic political economy would of course still be important - in mediating the impact of global/Euro crisis and in dealing with it.
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