The world South Asia will face after this crisis is not going to be the same as in the past. The trend that is accelerating after the financial crisis is that of the “new normal”: the shift in traditional engines of growth from industrial countries to emerging markets.
The crisis is accelerating this fundamental change in economic order in which developed countries have to save more and spend less, while emerging markets, such as China, India, Indonesia, Brazil, Russia, and South Africa begin to play much bigger roles in driving the global recovery. According to our estimates, by 2020, in just ten years---Asia may see its share of world GDP (in nominal dollars) climb to over one-third, replacing North America and the European Union as the biggest region. Underlying this is an expected sharp rise in shares of China and India, and indeed, that of all emerging markets may climb to nearly one-half of global output.
The food, fuel, and financial crises during the last three years sent shockwaves throughout the world and its effects rippled across South Asia. It impacted growth, causing a reduction of growth by nearly 3% from the peak of 8.9% in 2007 to 6.3% in 2009, led to job losses, declines in stock market value, decreases in tourism, and increasing pressures on already weak fiscal, balance of payments, reserves and exchange rates.
I was based in New Delhi during the crisis, and the effects were palpable. For a moment, it looked as if confidence was ebbing---the construction cranes in Gurgaon (the fastest-growing township around Delhi) became silent, a young scholar at Delhi University ran a survey of what graduates might do as job markets became difficult, airlines ran half-empty and racked-up massive losses, jobs were lost heavily in diamond-cutting in Gujarat and IT firms stopped hiring in Bangalore, and people paused to consider the implications of such a dramatic change from the accelerating and heady growth of the previous years. But despite the circumstances, and thanks to strong and prompt government actions, confidence has swiftly returned, the region has proven to be quite resilient and a noticeable resurgence has taken hold.
The food, fuel, and financial crises during the last three years sent shockwaves throughout the world and its effects rippled across South Asia. It impacted growth, causing a reduction of growth by nearly 3% from the peak of 8.9% in 2007 to 6.3% in 2009, led to job losses, declines in stock market value, decreases in tourism, and increasing pressures on already weak fiscal, balance of payments, reserves and exchange rates.