Thursday, January 26 2006 12:58 Hrs (IST) - World Time -

United Nations: India maintained a strong economic performance in 2005, driven largely by its manufacturing sector which was spurred by booming domestic demand for consumer goods as well as infrastructure development, a new United Nations report says.

On South Asia, the report says that while security concerns persist in the region, Indo-Pak relations appear to be thawing slowly and in case political momentum is maintained in the current year, both nations stand to gain economically through mutually beneficial trade, particularly in energy and water resources.

The South Asia as whole, the reports says, registered a GDP growth rate of about 6.5 per cent last year after recording 6.7 per cent in 2004.

However, this year a major downward risk is a further increase in international oil prices, raising fiscal and inflationary pressures as well as current-account deficit.

Moreover, if monsoon rains are insufficient, it could hurt agriculture growth and rural incomes and consumption, it said.

The report says Pakistan is expected to slow down slightly after two years high growth and Iran is likely to be hit by falling oil production owing to deterioration in production facilities.

The rest of the South Asia the report expects to post constant or accelerated GDP growth this year.

In India, the report says, there was strong response by the business community to the opportunities created by an expanding domestic market with the growth in the middle class. With the country beginning to address the infrastructure bottlenecks, the prospect for export remained positive.

The report praised the 'Building India' programme which comprises investment totalling 40 billion dollars over a four-year period, saying that it would add impetus to demand for industrial goods over medium term.

The services sector also performed well supported by the continued strong growth of Information Technology (IT) services as well as tourism and tourism-related activities.

The normal monsoon rains in most of South Asia allowed the agriculture sector to recover from lackluster 2004 while industrial and the service sector remained strong.

Price levels, the report says, were rising in all net oil importing countries as Governments allowed international oil prices to feed through to domestic fuel prices last year as subsidies became unsustainable. But the entire oil hike has not yet been passed on to the consumer and further adjustments are likely during the current year.

High growth rates in the region, it notes, were accompanied by inflation in consumer prices of up to 6.5 per cent with high food costs and increases in property values providing the fuel.

The real estate markets in India and Pakistan are overheated, the report said,

Among the important drivers of manufacturing growth and investment, the report says, are the textile and readymade garments (RMG) industry, particularly in India, Bangladesh, Pakistan and Sri Lanka.