South Asia is one of the most economically fragmented regions in the world. Despite having democracies in place, governments in the region are unstable and fragile, giving rise to short-termism and an inability to implement long-term social policies. Governance systems are unable to sustain and implement long-term social change.
Economies in South Asia are characterised by structural distortions. For instance, highly productive sectors like service, which makes the highest contribution to GDP, employs the lowest number of people while the agriculture sector, which employs the largest percentage of people, contributes the least towards GDP. In several South Asian countries, remittances form a significant portion of GDP and youth aspirations are tied to this. This has implications for employment generation and employability.
South Asia has a large informal economy, which means that many people remain outside the formal support provided by public and private sector safety nets. Existing social protection systems are fragmented and in many cases reflect political patronage rather than the stated objective of targeting resources at the poor. A low revenue and social investment vicious cycle has led to atrophy of public services leading people to seek both healthcare and education from the private sector.
A weak judicial system combined with a limited public sector accountability is keeping the countries from harnessing the good aspects of urbanization. Ambiguity in property rights including resettlement policies means that serious barriers exist to accessing social services in peri-urban areas for population groups that are likely to contribute most to the deprivation and poverty statistics. This reflects a deeper dynamic of political change that has been stifled due to elite political capture.