Low levels of per capita income and low rates of economic growth characterize the economies of most South Asian countries. In the past, the average annual growth rates were only marginally higher and in some cases even lower than the population growth rates.
Economic liberalization for development has brought about increased involvement of the World Bank (WB) and International Monetary Fund (IMF) in South Asian economies. Actually, these two international institutions govern South Asian countries, which are dependent on development aid. Economic liberalization has become almost synonymous with structural adjustment policies of WB and IMF, which demand privatization of public institutions including those providing public services.
The next policy conditionality of the IMF structural adjustment programs pursued in South Asia is exchange rate devaluation. This has augmented inflation to the extent that domestic goods rely on imported inputs and hence suffer increasing cost per unit, following devaluation.
In fact, high inflation rates have great impact on the poor who have few resources to fall back as compared to the rich. Another factor accentuating disparity in income distribution following inflation is that with monopolistic market structure, manufactures can pass an increased cost of living by increasing the prices of manufactured goods.
However, poorly organized workers are unable to negotiate wage increase at the same rate as inflation. Over the years, subsidy withdrawal under IMF in South Asia has occurred. Since these goods and services constitute a relatively large proportion of expenditure by low-income groups, this has brought about a great impact on the real income of the poor compared to the rich. What is more, small and subsistence farmers, who have no marketable surplus, find their production costs increase following subsidy withdrawal on fertilizers, irrigation water and pesticides.
There is a great diversity among South Asian countries in terms of the levels of development, size and associated economic power. While such diversity shouldn''t be seen as an impediment to initiating a process of cooperation aimed at strengthening collective self-reliance in the sub-region, the existing structural inequalities among countries have to be considered in initiating nay such process.
Such disparities would result in a relationship of dominance and dependence between the strong and weak economies. Therefore, it is desirable to define the objective of economic and technical cooperation and establish a mechanism for cooperation within the division of labor and flows of trade.
The expansion and strengthening of economic links within the sub-region should be perceived chiefly as an instrument for strengthening the capacities of countries of the sub-region for accelerated economic development.
Despite some achievements in the past, South Asia continues to be home to the majority of the poor. Although a few decades of planning have resulted in some increase in national income, the creation of infrastructure and development of human capital, the bulk of the gains seem to have benefited mainly the upper social and economic classes of South Asia.
Economic analysis has made it clear that for improvement in the welfare of South Asian region, the present economic growth rate of 6 percent is inadequate.
Economists have envisaged that a sustained growth rate of 8 percent in GDP is necessary to facilitate the much-needed structural transformation to bring about desired reduction in poverty rates and to improve the standard of living of the region''s population.
The challenge of realizing and maintaining such high growth rates over a reasonable period of time are undoubtedly complicated. While the imperatives of expediting economic development are increasing, the compulsion of integration with the world economy and of facing challenges of increased competition is also increasing.
Technology and knowledge are strategic fas in influencing output growth and trade expansion. Firm level competitiveness has become an important determinant of the patterns of trade vis-a-vis an increasingly globalized competitive world. Actually, internationalization of production has become an inevitable characteristic of the global production system.
Today, the world is striving to move towards a freer trading environment with the elimination of tariff and non-tariff barriers of trade in the framework of World Trade Organization. Therefore, challenges of bridging the gap between the rich and the poor and of realizing a fairer distribution of benefits from trade have become more complicated than before. In this context, South Asia has to exploit fully all the potential opportunities of realizing high economic growth and improving the competitive strength of economic activities through well-designed programmes of action.
Capital is scarce in most South Asian countries and requires to be carefully rationed. Non-productive schemes should be cancelled and funds should be diverted to productive schemes. Without such flexibility and resilience, it is virtually impossible to improve South Asian economy. Actually, endeavors should be made to invest in those projects or programmes where the margin of benefits over cost is largest.
In most South Asian countries, there is absence of link between priorities and policies. In the past, the priorities were clear, but the instruments chosen to achieve them failed to deliver. The pattern of development and structure of social and economic relations should be so planned that they result not only in appreciable increases in national income and employment but also in equality in incomes and wealth.