Annual International Conference on "Changing Political Context in South Asia: Prospect of Regional Security and Cooperation"
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  • Rapporteur Report on Session 4

    November 6, 2008
    Prepared by S.Samuel C.Rajiv

    Chair: Rajiv Kumar, Director General, ICRIER

    Dr. Ganesh Wignaraja, Principal Economist, Office of Regional Economic Integration, Asian Development Bank, in his well-argued paper assessed the economic effects of closer integration with East Asia for countries of South Asia, particularly India. He noted that there has been a rapid growth of trade between South and East Asia. This has been due to the adoption of more market-friendly trade and investment policies followed by countries of South Asia, the emergence of East Asia as an attractive destination due to its high growth rates and flows of export-oriented FDI, the Chinese and Indian economies acting as growth poles in their respective sub-regions and the spread of free trade agreements (FTAs) involving the two sub-regions, among other factors. The author envisaged six core FTA scenarios featuring EU-India, US-India and ASEAN-India, among others. He noted that FTAs with East Asia offered larger welfare gains for India than those with the EU or US. He also brought out five key issues for fostering closer economic integration with East Asia. These included investment in infrastructure and logistics, the need to form comprehensive FTAs with simple rules of origin, implementation of structural reforms, promotion of services trade, and building firm-level capabilities and government capacity. In conclusion, Dr. Wignaraja drew four important lessons that can be distilled: the need to integrate with a large neighbouring economy, emphasis on market orientation in regional strategy, the need to tailor policy mix to national circumstances, and the involvement of private sector in developing regional strategy.

    The second speaker, Dr. Sadiq Ahmed, Chief Executive, South Asia Region, Office of Vice-President, World Bank, spoke of the need for effective regional cooperation in ensuring food security in South Asia. Despite South Asia being the second fastest growing region of the world after East Asia, some disturbing trends were evident, including growing income inequality, growing imbalance between regions within countries and among the countries themselves and macro-economic imbalances from a series of trade shocks and an emerging global financial crisis. He pointed out that income growth, poverty, lagging regions, and food security are related. Of the 400 million people in the lagging regions of South Asia, an estimated 200 million of them are poor, being involved in low-productivity agriculture and are more vulnerable to water shortages and flooding problems than other parts. Dr. Sadiq brought to the attention of the audience the tremendous development challenges for South Asian countries due to the surge in global commodity prices. While India was largely able to limit the surge in food prices through a combination of timely interventions using stock management and public food distribution, net food importing countries like Afghanistan, Sri Lanka and Bangladesh have suffered the most from the food price crisis. He pointed out that the food and fuel crisis have led to a deterioration of fiscal and external balances, had a major impact on inflationary pressures and had a net adverse effect on poverty. The speaker called on policy makers of the region to take steps to increase agriculture productivity. Dr. Sadiq urged policymakers to reduce the high transportation and trade costs and to take advantage of the interactions between geography, transportation, factor in mobility and scale economies to lift growth in lagging regions. Pointing out that the region’s poor people would benefit more from regional cooperation on issues like water and climate, Dr. Sadiq stressed that political constraints and historical conflicts need not be permanent barriers to development cooperation.

    Dr. Saman Kelegama, Executive Director, Institute for Policy Studies, pointed out the slow progress being made in regional economic integration in South Asia and in implementing policy decisions like removing non-tariff barriers and the reduction of negative lists. He called for creative solutions to overcome sensitive regional issues, including the adoption of what he called a 3+X formula regarding trade in services. This would imply that three or more countries which were willing to go ahead with liberalized services agenda should be allowed to do so and others could join later. Dr. Kelegama noted that out of the 8 SAARC member countries, five were in the category of least developed countries (LDCs). Among other issues, he highlighted the need to liberalise visa regimes, improve air connectivity, twining of SAARC cities, promotion of tour circuits, cooperation in energy and the need to create a South Asian Energy Grid and the need to clearly define the role of SAARC observers. Dr. Kelegama appreciated India’s contribution of $100 million to the SAARC Development Fund. He also urged other South Asian countries to think of creative ways to benefit from India’s growth, and the need to make economic gains overcome political difficulties of the region.

    The Expert Discussant, Prof. I.N. Mukherjee, lauded the efforts of the panelists and pointed out that most of the South Asian countries had ‘Look East’ policies. Urging Dr. Wignaraja to look at the role that BIMSTEC can play, Prof. Mukherjee noted the urgent need for road connectivity among countries of the region. This was due to the fact that transportation costs amounted to as much as a quarter of the total costs incurred in trade between countries of the region. He singled out the need to make rules of origin simpler and easily implementable. On rising food prices, the discussant noted that policy makers needed to consider the idea of a food bank more seriously. He also called on South Asian countries to safeguard the traditional knowledge of farmers. Prof. Mukherjee pointed out that a more than normal harvest during the preceding year had helped India to deal better with the increase in food prices.

    The Chair, Dr. Rajiv Kumar, in his remarks, appreciated Dr. Kelegama’s point about the need to reform the role of the SAARC Secretariat. In a quick poll undertaken by him, the majority of the audience supported the need for India to unilaterally offer zero duties and zero non-tariffs to countries of South Asia. The audience also concurred with the Chair that liberalizing visa regimes would not negatively affect the security situation.

    Discussion

    • India should offer duty-free access to imports from South Asian neighbours, just like Japan which follows a similar policy with regard to all LDCs.
    • Economic cooperation will eventually enhance regional cooperation and help resolve political problems also.
    • BIMSTEC cannot replace SAARC. There is a need to look for avenues of cooperation with India’s neighbours instead of with countries outside the region.
    • Water is an important regional public good, apart from issues like human trafficking, drugs, energy security, problems which can only be solved by effective regional cooperation.
    • The global financial crisis will in all probability hasten regional cooperation in South Asia.

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