Take the initiative

Broadening economic flows within South Asia can yield significant gains for India


Ensuring a stable, peaceful and prosperous South Asia must be one of the highest policy priorities for India. Even our objective of reducing poverty will be better served if India adopted an even more active and coordinated South Asia policy because a large proportion of India’s poorest, who live in the lagging border regions, are also prone to ethnic and extremist activities. Moreover, the fact that today China has a larger trade volume with all South Asian economies compared with India should give us something to seriously ponder about.

South Asia’s intra-regional trade, which was 19 per cent of the region’s total trade in 1950, has come down to 5.6 per cent in 2007. A once deeply integrated and connected regional economy has been allowed to get increasingly fragmented and the investment climate for cross-border investment allowed it to deteriorate to the point that there is hardly any capital flow at all across borders in South Asia except between India and Nepal.

The central question is what can India do to promote regional cooperation and make this process less vulnerable to political and other shocks? The basic premise in answering this question must be that India has to be the lead player in promoting this process. The stakes are just too high. Deepening of economic ties can be an effective tool against a deterioration of political conditions. It can also be an antidote to rising extremist tendencies of various shades in the region.

There are, however, still some people in Indian policy-making circles who believe that India should simply stop wasting time and effort promoting SAARC (South Asian Association for Regional Cooperation) or the narrower agenda of economic cooperation as enshrined under SAFTA (South Asian Free Trade Area). This argument for giving SAARC little more than lip service (keep the shop going without expecting it to ever make real progress) has several well-nuanced and seductive aspects:

First, India is just too big for the region, with about 80 per cent of the region’s economic output. The huge asymmetry does not lend itself to cooperation, as the others will be in constant fear of the ‘big brother’ taking over. Second, India’s legitimate global aspirations will be compromised if we get ensnared in this thankless circle of regional issues. Third, regional cooperation will be a by-product of sustaining a high economic growth momentum in India as this will force our neighbours to recognise that India can in any case go alone and moreover give them greater incentive to cooperate and take advantage of a rapidly expanding Indian domestic market.

Finally, given our size and the leverage that it provides us, we are better off dealing with our neighbours bilaterally and a regional arrangement may compromise our national interests vis-a-vis these countries.

In the present globalised world, any country, howsoever small, can successfully thwart bilateral pressure. Our past insistence on bilateralism only exacerbated the ‘fear of the big brother’ in our neighbours who justifiably resented and resisted this. It also encourages our neighbours to look for support and succour from China, which it of course gives with thanks. This makes South Asia a more intensively contested space than warranted by the region’s historical and geographic contiguity and the shared culture, language, religion and other social traits.

Thankfully, the Indian policy stance towards SAARC has shifted decisively: from seeing it as an attempt by smaller neighbouring countries ‘to gang up against us’ to a more benevolent view that sees it as deepening and broadening economic flows in the region that will yield significant gains for us as well. This needs to be reinforced, by more proactively facilitating regional and sub-regional infrastructure investments and improving trade facilitation and connectivity.

The issue of India’s ‘bigness’ can be addressed to a large extent by India further reinforcing its stance of unilateral concessions and initiatives to reflect its cognisance of the existing asymmetry.

The next steps, after having already offered duty and quota-free imports from our least developed neighbours, could be to unilaterally liberalise our visa regime with Pakistan and announce a substantial and unconditional grant right away for developing Nepal’s hydro-electric potential. This will generate similar benefits to both partners (as have been accrued from projects in Bhutan) and will be the best start for our relations with the newly constituted Republic of Nepal. India must be now be seen as an active promoter of South Asian regional cooperation for it to be able to play its due role in the global arena.

The writer is Director, Indian Council of Research in International Economic Relations (ICRIER).