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South Asia (SAARC) – amidst the changing geo political landscape

, March 21, 2013, 0 Comments

News reports would like us to believe that peacekeeping forces are preparing to leave Afghanistan in 2014. If that is so the dynamics of South Asia are set to change, and at a rapid pace. For the countries of the region, especially SAARC, it presents a wonderful opportunity not only to strengthen but also consolidate their respective economies in such times of the inevitable re-alignments on all fronts.

South Asia constitutes nearly one-fifth of the entire population of the world with more than 10 percent of its populace living on less than USD$2 a day. Most of it has less than inadequate access to health and sanitation facilities. Notwithstanding this evident state of affairs, the evidence in hand indicates that the political will to foster economic integration in the region has been if anything but erratic and even then limited to regional summits like SAARC. Existence of nearly three decades has clearly not been enough for SAARC.

The member states of SAARC have been inexplicably slow to recognize the undeniable benefits of regional integration. From a triumphant high of 19 percent trade in 1948, the trade has within the region dropped to 2 percent in recent times. In absolute terms, the figure of cumulative value of exports crossed US$ 2 billion in 2012 but it remains far below its potential. It is estimated in most quarters that more than 50 per cent of intra–regional trade potential remains unexploited in and for SAARC. Not surprisingly projections by United Nations’ regional development arm for the Asia-Pacific region, ESCAP using a gravity model (based on ‘natural trading partner hypotheses’) estimates that the sub region’s trade should grow to $ 4.5 trillion by 2017.

In order to realize the deserving potential benefits of economic integration, the economies in this region need to engage in constructive dialogue and allow the latent economic forces to play their roles to hilt. Significantly, research shows that SAARC countries are potential to be huge lucrative export markets interse each other. The question therefore remains when and why not.

The region has even traditionally enjoyed high trade complementarities. Trade complementarities reflect how well a country’s export basket match with its partners’ import basket. The value of Trade Complementarity Index (TCI) for intra regional trade within SAARC is 37 as compared to the maximum value of 64 for intra – region complementarity vis a vis the obviously larger Asia- Pacific region. Despite such remarkable high trade complementarities, trade interse the SAARC countries continues to be at very low levels so as to be a determining factor either in the region or for that matter in the global context.

The usual suspects i.e. structural barriers like high transport costs, high trade costs, tariffs, and non-tariff issues continue to lead to low trade in the region. Also, the trade statistics declared by some official sources seem to suggest that an enormous volume of informal trade in the region regularly goes unreported and unaccounted for. Informal trade in 2011, for example, show that exports from Bangladesh, Nepal, Pakistan and Sri Lanka to India may have been underestimated by nearly 8 billion dollars and their imports from India by 3.8 billion dollars.

Moreover the issue of granting MFN (Most Favoured Nation) status between members still remain incomplete. It is noteworthy that granting this non-discrimatory trade status is an important step for any regional economic integration to function effectively. India and Pakistan–-the two major consituents of SAARC are yet to complete this important requirement. Pakistan has delayed granting MFN status to India under the WTO. It is hoped that the delay is only technical and does not hit a road block in the larger interest of SAARC.

The geopolitical compulsions and opportunites like economies of scale, increased inflows of FDI by 30 percent and formation of regional production networks, will undeniably strengthen the overall economic competitiveness of SAARC nations which will and must undoubtedly be responsibly led by India, the giant in the pack.

In this context, there is an urgent need to strengthen infrastructure in the region given the geographical proximity of the SAARC countries. India’s proposed announcement for a railway link connecting Kabul in Afghanistan and Chittagong in Bangladesh is an important step in this direction. Significantly, this announcement comes after the recent incursions on the Line of Control which has heightened tensions between India and Pakistan.

With Indian purchase of the right to mine iron ore at Hajigak,in Bamyan province in Afghanistan, the economic incentive for developing transport links to allow transit trade between Afghanistan, Pakistan and India have increased manifold. Till the time of writing of this piece, there was no news, regarding the Afghanistan cabinet clearance being awarded to the concession deal with SAIL led consortium and Afghanistan governemnt, regarding the iron ore mining in Bamyan. Afghanistan Mining minister very recently on  5th December 2012 had said that 90 percent of the issues in the Bamyan iron ore mining project have been settled and by January 2013 a deal will be signed. One can only hope that this deal fructifies for the betterment of SAARC.

With Afghanistan, India, Bangladesh, Maldives, Nepal and Pakistan set to go to polls in the next one year or so, one hopes that political and diplomatic expediencies notwithstanding the fludity of the events in the region especially in light of Mr. Hagel’s recent anti-India comments on India’s role in Afghanistan would not derail the agenda for economic revitalization of South Asia, a region so full with promise.


South and South – West Asia Development Report 2012-13