In the neighbourhood, the estmated and projected growth rate in 2013 and 2014 in Sri Lanka are 7.1% and 7.2%, in Bangladesh are 5.9% and 6%, in Nepal 4% and 4.2%, in Pakistan 3.6% and 3.2% and in Iran -2% and 0.8%. High domestic demand buffered Bangladesh and Sri Lanka from the regional slowdown. In both countries, household consumption was the main driver of growth. This shows that the economy of Sri Lanka and Bangladesh are growing faster than India. India's economy accounts for 70% of total GDP in South Asia and slowdown in India's dragged down the region's overall economic performance to 3.9% - a fall from 4.2% in 2012.

The UN report, World Economic Situation and Prospects (WESP), released on Thursday also said that price inflation in India based on overall consumer price indicies will be 9.7% in 2013 while in 2014 it is likely to be at 9% and in 2015 at 8.1%. High price inflation in India is largely due to persistent supply bottlenecks (which should include market manipulation, cartelisation and hoarding), weakening of the Rupee, reduction in food and fuel subsidies.
Positive news is good monsoon, mild recovery in investments and stronger export growth following weaker Rupee.

In India, the unemployment rate rose from an estimated 3.8% in 2011-12 to 4.7% in 2012-13. Gender and regional disparities exist within India's unemployed population. The unemployment rate among women is estimated at 7.2%, about percentage points higher than among men.

The 181-page report made at least 86 references to India.

On fiscal deficit, the report says “the Government is unlikely to meet its target of reducing the deficit to 4.8 per cent of GDP in the current fiscal year 2013/14, since growth is below projections and the depreciation of the rupee pushes up the subsidy bill.”

Economic growth in India decelerated from 5.1% in 2012 to 4.8% in 2013. The report attributes India’s economic slowdown to weak household consumption and sluggish investment. India also experienced large capital outflows in 2013, as investors expected a reduction of the United States Federal Reserve’s bond buying programme, also known as quantitative easing. Under this policy, the Fed plans to gradually decrease its monthly purchases of long-term assets in 2014—a first move in the direction of tighter global liquidity conditions.

India’s capital outflows were also motivated by concerns over the country’s weak growth performance and its high current account deficit, which widened to almost 5% of GDP in the fiscal year 2012-13. The current account deficit mainly reflects that the value of goods and services India exports is less than the value of those that it imports.

The capital outflows resulted in a further depreciation of the Indian rupee in 2013. Internally, the weakness of the rupee contributed to upward pressures on prices of imported goods, which added to inflation. However, the report says, the depreciation has also made India’s goods and services more competitive. This has stimulated export growth and led to a considerable decline in the current account deficit in recent months.

Economic growth in India is expected to accelerate to 5.3% in 2014 as a result of a good monsoon season, a slight pick-up in investment activity, and stronger export growth supported by a cheaper national currency and improved demand for goods from the European Union and the US.

Throughout South Asia, household consumption continued to receive much needed support from workers’ remittance inflows, which are incomes earned abroad and sent back to households in the workers’ home countries. For 2013, it is estimated that remittance flows to South Asia totaled $ 115 billion, corresponding to almost 6% of the region’s aggregate GDP.

Inflation was higher in South Asia than any other region in the world. Regional inflation accelerated from 12.5% in 2012 to 13.9% in 2013, the report says. The high level of inflation is due to multiple factors, including persistent supply bottlenecks, especially in the agricultural sector, entrenched inflationary expectations, weak local currencies and attempts by some economies to reduce fuel and food subsidies.

Consumer price inflation, which is measured by the price levels of goods and services bought by households, further increased in the region due to rising inflation in the Islamic Republic of Iran. International sanctions continued to limit exports from the Islamic Republic of Iran and also led to supply shortages and a sharp devaluation of Iran’s rial. India’s consumer price inflation remained stubbornly high at nearly 10% even as the economy weakened further. Inflation slowed moderately in Bangladesh, Nepal, Pakistan and Sri Lanka. The central banks of India and Pakistan raised their benchmark interest rates in recent months in an attempt to bring down inflation.

The report suggests that the recent economic slowdown has taken its toll on the region’s labour markets.

Slow growth, due to weak domestic consumption and investment, continued to have a negative effect on employment in the Islamic Republic of Iran and Pakistan. The report says Pakistan faces pressures due to rapid growth in the labour force, as well as gender disparities among its unemployed population. In the second quarter of 2013, 18.7% of women living in urban areas were unemployed, compared to 6.3% of men.

Weak demand, particularly in the EU and the US, affected merchandise exports from much of South Asia; however, exports from Bangladesh and India saw some improvement in the course of 2013 as global conditions started to improve. The depreciation of the local currencies in India, Pakistan and Sri Lanka has made their export sectors more competitive. This is likely to support export growth in the coming quarters.

The report notes that the tapering of the Fed’s bond buying programme could result in significant capital outflows, requiring further monetary tightening, especially in India. This could weigh on economic growth. In addition, higher consumer price inflation, resulting for example from subsidy cuts for food and energy or from further depreciations of currencies, could slow household spending and domestic demand, while also limiting room for monetary easing.

Growth prospects among large developing countries and economies in transition are mixed. Growth in Brazil has been hampered by weak external demand, volatility in international capital flows and tightening monetary policy, but growth is expected to rebound to 3% in 2014. A slowdown in China has been stabilized and growth is expected to maintain at a pace of about 7.5% in the next few years. India experienced its lowest growth in two decades, along with large current account and government budget deficits plus high inflation, but growth is forecast to improve to above 5% in 2014. In the Russian Federation growth weakened further in 2013, as industrial output and investment faltered, and is expected to recover modestly to 2.9% in 2014.

Among developing regions, growth prospects in Africa remain relatively robust. After an estimated growth of 4.0% in 2013, GDP is projected to expand by 4.7% in 2014. The report emphasized the dependence of Africa’s growth on investment in infrastructure, trade and investment ties with emerging economies, and improvements in economic governance and management.

The report stressed that the risks associated with a possible bumpy exit from the quantitative easing programmes by the US Federal Reserve (Fed) threaten the global economy. As already seen somewhat during the summer of 2013, efforts by the Fed to pull out of quantitative easing programmes could lead to a surge in longterm interest rates in developed and developing countries. Tapering could also lead to a sell-off in global equity markets, a sharp decline of capital inflows to emerging economies and a spike in the risk premium for external financing in emerging economies. These first-round shocks in international financial markets could transmit quickly to developed and developing economies.

The report warns that as the Fed is expected to taper and eventually unwind its quantitative easing programmes, emerging economies will face more external shocks. While economic fundamentals and the policy space in many emerging economies are better than when the Asian financial crisis erupted in 1997, emerging economies with large external imbalances remain particularly vulnerable. Other uncertainties and risks include the remaining fragility in the banking system and the real economy in the euro area and the continued political wrangling in the U.S. on the debt ceiling and the budget. Beyond the economic domain, geopolitical tensions in Western Asia and elsewhere remain serious risks. These and other risk factors, unfolding unexpectedly, could derail the world economy far beyond the report’s projections.
With multiple and complex challenges facing the world economy, the report calls for strengthening international policy coordination.

“The primary focus of globally-concerted and coherent policy actions should be a stronger recovery, particularly the recovery of jobs,” said Pingfan Hong, UN team leader for the report. “We must also increase attention to reducing the spillover effects coming from the large-scale, unconventional monetary policies adopted by major developed countries on developing countries and economies in transition, particularly when major developed countries start to unwind these policies.”

International policy cooperation and coordination are also needed to advance the reforms of the international financial system. Progress in financial regulatory reform has been slow, encountering growing resistance from the financial industry. The report adds that more forceful efforts are needed to address the issues of international tax avoidance and evasion, particularly through tax havens. WESP also reiterates that international policy cooperation should ensure sufficient resources to the least developed countries.