Slowdown pronounced in India, Pak: World Bank

In South Asia, the economic slowdown is pronounced only in two economies -- India and Pakistan, the World Bank said on Thursday in a report.

While India is marred by weak business confidence and liquidity issues, Pakistan’s economy suffers a tight monetary policy. Bangladesh, the third-largest economy in the region fared better than India and Pakistan with growth officially estimated at 8.1% in the current year.

The Bank also cautioned that the problem with India’s non-banking finance companies was expected to linger.

“South Asia’s growth is estimated to have decelerated to 4.9% in 2019, substantially weaker than 7.1% in the previous year. The deceleration was pronounced in the two largest economies, India and Pakistan. Weak confidence, liquidity issues in the financial sector (India), and monetary tightening (Pakistan) caused a sharp slowdown in fixed investment and a considerable softening in private consumption,” the World Bank said in its Global Economic Prospects report.

Business confidence was hampered by subdued consumer demand in India. Demand also faltered amid credit tightening, reflecting structurally high non-performing assets the country and in Bangladesh and Pakistan as well.

In India, economic activity slowed substantially in 2019, with the deceleration most pronounced in the manufacturing and agriculture sectors, whereas government-related services sub-sectors received significant support from public spending, according to the WB observation. In risks for the South Asian economies, the Bank said non-performing assets in the financial sector remained high amid weakening regional growth. Further deterioration of balance sheets of banks and corporates would threaten the funding of productive investments.

It also flagged worries on joblessness saying failure to close the infrastructure gaps would hold back output and employment. However, initiatives such as the recapitalization and consolidation of public sector banks and measures to foster FDI inflows, are expected to support activity. However, “insufficient progress in implementing these reforms would be a set back to growth in the region,” it said.