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Monday, Jun 27, 2022
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Opinion

Troubled Neighbourhood

If India still wants to make a go of SAFTA, bolder, unilateral liberalisation is imperative. But the renewed turbulence in Nepal, Sri Lanka, Bangladesh, Pakistan makes the task that much more dificult

Troubled Neighbourhood
Troubled Neighbourhood
outlookindia.com
-0001-11-30T00:00:00+05:53

At a time when WTO multilateral negotiations to complete the Doha Round are missing crucial deadlines, emerging countries like India are finding that regional trading arrangements don’t offer much hope either. For instance, the seven members constituting the South Asian Association for Regional Cooperation (SAARC), notably, India, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives intend to operationalise a South Asian Free Trade Agreement (SAFTA) by mid-2006 but sub-continental politics might well subvert this objective.

India, no doubt, is the dominant economic power in the South Asian region but is out of step with the fast-paced political developments in its neighbourhood. Nepal is a case in point with India being completely out of sync with the popular upsurge for democracy in that country. Sri Lanka is experiencing a renewed flare up in its civil war with the Tamil separatist organization, the LTTE. As if all of this weren’t bad enough, Bangladesh and Pakistan -- who are rapidly becoming failed states -- resent India’s dominance and are stepping up cross-border terrorism.

Is it, then, any wonder that SAFTA might well be the casualty of politics? As is well-known, tensions between India and Pakistan have virtually put paid to cooperation, if not integration, in South Asia. What sort of trade ties is possible when Pakistan doesn’t even extend most favoured nation (MFN) status to India? "We are all committed to faster trade; We are all pledged to freer trade. We are all wedded to fairer trade. That is triple meaning of the F in SAFTA" stated Jairam Ramesh, India’s minister of state for commerce, at a SAFTA ministerial in Dhaka.

There is, of course, a fourth meaning as SAFTA indeed is a failed trade agreement till now. Even after two decades of SAARC, intra-SAARC exports work out to only 5 per cent of total exports as against the meagre share of intra-ASEAN exports of 20.4 per cent. At the 13th SAARC summit in Dhaka last year, India’s Prime Minister Manmohan Singh indicated a willingness to adopt a liberal open skies policy within the region. But physical connectivity itself remains a major problem, thanks largely to politics rather than economics driving the relevant decisions in this regard.

Afghanistan thus is being admitted as the eighth member of this regional grouping but Pakistan steadfastly refuses to allow India transit facilities to this country and Central Asia due to its tensions with India. Pakistan also refuses to import items like tea from India and instead buys it from Kenya. "The biggest obstacle to normal direct trade between our two countries is Pakistan’s positive list approach to imports from India, when India gives Pakistan MFN access to the Indian market" argued Shiv Shankar Menon, India’s High Commissioner to Pakistan.

"Even if Pakistan finds it difficult to give India MFN status, I fail to understand why Pakistan does not place on the positive list goods that she presently imports from other countries, thus introducing an element of fair competition that will benefit the Pakistani consumer and importer", added the High Commissioner in his recent address on India-Pakistan Trade and Commerce to the Sarhad Chamber of Commerce in Peshawar, Pakistan. Due to such factors, informal trade has ballooned to $2.5 billion or 3-times the current level of direct trade between the two countries.

While Indo-Pak tensions are a hardy perennial, recent political developments in the South Asian region also cast a long shadow over prospects for regional integration. There is, of course, no way of predicting their impact on intra-regional trade flows but certainly there is a lot that India as a dominant power can do to bring economics back in command through unilateral trade liberalisation. This implies ensuring greater market access for goods of failing states in SAARC so that they acquire a greater stake in India’s rise as a global economic power and benefit from it.

Unfortunately, for various reasons, this has not been happening, which has only deepened their resentment over India’s dominance. As if all of this weren’t bad enough, every one of India’s SAARC neighbours has registered massive trade deficits with India. The loudest clamour for a unilateral opening up of India’s market emanates from Bangladesh, which registered a deficit of US $1.1 billion in 2002-03, which further widened to $1.5 billion in 2004-05. Nepal’s deficit with India too has ballooned from US $68.6 million to $388 million over this period.

The combined deficit of SAARC members with India thus rose from $2.2 billion in 2002-03 to $3.4 billion in 2004-05. India must, therefore, import more from its neighbours so that they acquire a greater stake in its rise as an economic power. To be sure, measures like importing jute bags from Bangladesh, for instance, can make a difference. But this neighbour wants more bilateral issues to be granted like transit rights and has even linked such issues to the signing of a tripartite MOU for transporting gas from Myanmar to India.

India so far hasn’t given into Bangladesh’s demands and is now exploring the possibilities of transporting gas from Myanmar via the Northeast. Even though all indications point to progress in the Iran-Pakistan-India gas pipeline question, this is another issue which sees the long shadow of politics bedeviling prospects for economic integration in the region. The moral of the story is that if India still wants to make a go of SAFTA, bolder, unilateral liberalisation is imperative. Or else the prospect is of an unruly neighbourhood subverting economics.


N Chandra Mohan is a Delhi-based analyst of economic and business affairs

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