The World Bank in its twice-a-year South Asia Economic Focus report has said that Indian economy, which accounts for 80 percent of South Asia's output, is set to grow by 6.4 percent in 2015-16 as against 5.6 percent in 2014-15. It added that over the next year or so economic growth should be supported by the recovering US economy that would provide a market for Indian merchandise and service exports.
The report said that the region's economy will expand by a real 6 percent in 2015 and by 6.4 percent in 2016 compared to 5.4 percent this year, potentially making it the second fastest growing region in the world after East Asia and the Pacific. India is benefiting from a “Modi dividend”, the report said, with economic activity buoyed by expectations from the newly elected government of Prime Minister Narendra Modi.
The global agency has further illustrated that India's long-term growth potential remains high due to favourable demographics, relatively high savings, and policies and efforts to improve skills and education, facilitate domestic market integration and incentivize manufacturing activities. Though, it said that Inflation is expected to decline with monetary policy switching to inflation targeting but cautioned that the current account deficit is expected to widen somewhat as import demand and capital inflows rise.
Reviewing the risks facing South Asia’s economies, home to a fourth of mankind, the report notes that all developing economies are vulnerable to the effects of monetary tightening in a recovering U.S. economy and of stagnation in the weaker Euro zone.
