FDI holds key to India's growth, says WB

Pitching for an early South Asian trading block, the World Bank today said the region, especially India, can grow by 8-9 per cent in the coming years with higher regional trade, better investment climate and infrastructure.

However, the bank's Chief Economist for South Asia Shantayanan Devarajan listed spiralling oil prices, high fiscal deficits, regional conflicts and natural disasters as the major "risk factors" for the region to sustain a higher growth.

Devarajan said, "South Asia is poised for an accelerated growth path. The region can increase the economic growth from the present 5.5 per cent to 8-9 per cent."

For South Asia to sustain high growth, he said, India should accelerate its growth as the country contributes close to 80 per cent of the region's production.

"Such high growth is possible if India improves its infrastructure, reduce trade barriers and the time for starting a business," he said.

High oil prices pose a risk for the growth prospects of the entire Saarc region, he said but added, "It is not the price that is important but how a country adjusts to it.

"Some countries are not passing the price impact on consumers. This means they have to provide higher subsidies, which in turn increases their fiscal deficits," he said.

Although subsidies are a "political issue", the World Bank economist said, "It will be difficult for India to cut its fiscal deficit without a move to cut subsidies."