People in South Asia seem to be getting a break from the sanctions against Russia while the rest of the world is reeling. It trades arms and tea with Russia, but the region’s business ties to Russia aren’t as strong as those with China and the West. South Asia doesn’t get a lot of investment from Russia, so if the Russian economy goes down, the region will lose very little money in business.
The sanctions against Russia have made it so that all eight South Asian countries are net oil importers, making them more vulnerable to a significant rise in global oil prices caused by the sanctions. The pandemic-caused shocks and rising inflation will probably hurt the economies in South Asia, and governments will respond with politically practical measures that only last for a short time. This is what will happen:
2008 was a bad year for the world. Oil prices were at their highest point. After the financial crisis, the economies of South Asia bounced back quickly. In the same way as the last pandemic, regional growth has been harmed by lockdowns and supply-chain problems. Former World Bank chief economist Kaushik Basu told me this week that India’s GDP growth rate in the fiscal year 2020 was the lowest of any major country. Before the global economic crisis of 2008, there were five years of growth at an average rate of 8%.
Food prices in South Asia have already gone up recently because of a lack of fertilizer and a rise in the price of oil. Because energy-intensive fertilizer costs more to make, it could raise the cost of food and make inflation more likely, which is a concern.
South Asian governments will be under pressure from their people to develop short-term solutions that will make things worse in the long run. Voters go to the polls in most South Asian countries in the next two years, and governments have a lot of political incentives to offer new subsidies or cut prices. This could lead to a rise in inflation and debt, so it’s essential to be careful. In contrast, austerity, the best economic policy, is politically risky.
It was late last month that Pakistan’s government cut gas and electricity prices as the country was struggling with high prices. Imran Khan, the prime minister of Pakistan, will face a no-confidence vote later this month. Elections in Pakistan are set for the spring of 2023. It’s very different in Sri Lanka, where the economy is in shambles due to debt and the devastation of tourism. The government may be the next to cut prices to make people feel better about the country.
In all of this, there may be some good news. It could speed up the move to cleaner energy in South Asia if oil prices go up. The price rise might encourage governments to use more fossil fuel reserves to meet short-term energy needs.
Pranjul Bhandari, an economist, wrote a paper this week that predicted what would happen in India if oil prices kept rising for a long time. She thinks GDP will fall by about 1%, inflation will rise by 1%, and the current account deficit will grow by 1.2 % in the next year. On the other hand, the economy of India has shown signs of improvement over the last few months. It’s possible that Pakistan and Sri Lanka’s economies would be much worse off if this happened.
The Cornell economist, Basu, is pessimistic about the future. “We have no choice but to be ready,” he said. It’s possible that changes in the outside world, like less oil use in the West as the weather warms and more oil available, could eventually lower prices and give the region’s economy some much-needed relief. For the BJP, India’s most populous state, the state elections in Uttar Pradesh are transparent: The BJP will rerun the state. All but a few seats went to the party. In Uttar Pradesh, there is a lot of anti-incumbent sentiment. This is a significant victory for the BJP. When Yogi Adityanath took office on January 1, 2019, he was the first Uttar Pradesh chief minister to serve a second term in office in more than 40 years. To get Indian PM Narendra Modi reelected in 2024. He is qualified to do so for another term in office.
Besides Goa, Uttarakhand, and Manipur, there were also high expectations for the BJP to stay in power in these three other states. There were elections in Punjab, which the BJP did not control. The Aam Aadmi Party, which runs New Delhi but has never run any other state, won. It doesn’t need to be known as a “Delhi-only” event if you live in Delhi.
If the Indian National Congress party had done its best, it would have won a lot of votes in Uttar Pradesh, Punjab, and Uttarakhand, three places where the party has traditionally done well, but it didn’t get any. Indian opposition party failed to take advantage of unemployment and religious rhetoric in Muslim-majority states, even though the BJP was weak.