Economic Highlights
New Delhi, 29 April 2008
Elusive SAFTA
OPEN MARKET TO SAARC NATIONS
By Dr. Vinod Mehta
(Former Research Director, ICSSR)
Fourteen SAARC Summits have been
held till date, but the South Asia Free Trade Area (SAFTA) is yet to take off! While ASEAN and EU are reaping the benefits
of a common market, South Asian countries continue to lag behind. Since the start
of our liberal economic policies we have been opening up our market to foreign
goods and investments, such as China
and South East Asia. While we have signed FTA
with Thailand,
SAFTA is still elusive.
This raises the question: what
should India
do? With Pakistan unwilling to extend the MFN (Most Favoured Nation) status, should
we keep waiting for it to act, or considering that India is a large country,
should it unilaterally become more liberal towards imports and investments from
small neighboring countries?
The relatively strained relations with
Pakistan, which are showing
signs of thawing, should not come in the way of trade and economic relations
between India
and other SAARC countries. Note that there is a huge potential for trade and
economic links with Nepal, Bhutan, Bangladesh,
Sri Lanka and Maldives. With its
elections over, Nepal
is likely to concentrate a lot more on its economy to fight the widespread
poverty and unemployment. As for Pakistan,
with the new civilian coalition government in saddle, its attitude towards India may too
change.
What about us? Well, at this stage
we can afford to be a bit more generous with our smaller neighbours. We need not become hyper-sensitive to being
labeled as ‘big brother’ by some quarters in these countries. Both territory
and population-wise, India
is relatively much bigger than all SAARC countries put together. In economic
terms too, India
is large -- one huge market perhaps the size of EEC.
Besides, its GDP is much higher than
its neighbours and at the moment India is enjoying a large and
comfortable volume of foreign exchange reserves that it hadn’t seen in the past
five decades. The Indian economy is growing at an average rate of 9 to 10 per
cent per annum, which is a reasonable rate of growth. Reasons enough for us to be
more liberal than what we had been in the past.
Apart from economic gains, India should
also aim to earn the goodwill of the people of these countries by being more
accommodative towards them. At the moment, Bangladesh
is having adverse trade balance with India. There should be no problem
for India
to allow duty free import of certain Bangladeshi products like jamdani sarees and hilsa fish. Already some retail outlets in Delhi
are selling biscuits from Bangladesh
which are as good as any Indian manufactured ones and have not posed any threat
to our producers.
In fact, India
could make similar gestures to other neighbouring countries especially Nepal, Bhutan,
Sri Lanka and Maldives and
allow their products to have an access to the Indian market in a big way. We
have no reason to get paranoid that the neighbours’ goods would flood our
markets. Their production bases are so small that it will call for huge
investment before they can produce goods on a scale, which can flood the Indian
market. In fact, following liberalization many Indian companies have shifted
their production base to some of these countries.
India’s external trade is today mainly
oriented towards the US.
The EEC and a few West Asian countries, and ASEAN would come second. As for
SAARC, the trade turnover between India and its member countries is
so small that it does not even attract attention in our annual Economic
Surveys.
A few years ago when we opened up
our economy, it was feared that cheap Chinese goods would flood the Indian
market. While this did happen in a big way, the Chinese had to beat a hasty retreat
as their quality was sub-standard. The Indian consumer refused to accept these even
though they were relatively cheaper. Compared to China,
our South Asian neighbours are small in every respect and unlike China would not
be able to dump their goods on the Indian market.
There are also many additional opportunities to expand
cooperation with the SAARC nations. For instance, the tourist sector within this
region has been neglected for long.
While tourism has a low capital investment, it is relatively a high-earning
potential. At one point of time, daily air services to link the capitals of all
the SAARC countries was under consideration. This idea could be revived. We should
learn from the ASEAN experience, wherein its capitals are linked by air and
they have special low airfares for travel within the countries.
This apart, wherever possible rail, road and sea links must
be strengthened among the SAARC countries. With Pakistan,
Nepal and Bangladesh we
can develop world-class road and rail links for speedy movement of both goods
and people. With Sri Lanka, Maldives and Bangladesh we can develop sea links.
India must also take a lead in admitting
more members. It may be a good idea to
allow other countries like Afghanistan
and Burma
to become full members, while Central Asian countries could be admitted as
dialogue partners. It is India,
which can take the initiative by lobbying with SAARC nations. And, if it calls
for amending the original SAARC charter, India should be able to carry other
members along with it.
Let’s take the example of Afghanistan. It is engaged in
reconstructing its economy and not only needs humanitarian aid but also trade. If
Afghanistan is admitted as a
member of SAARC it would be easier for countries like Nepal, Bhutan,
Bangladesh and India to send goods by road through Pakistan as the latter would find it difficult to
block transit facilities to Kabul.
Yet again, land-locked Central Asian nations like Uzbekistan, Tajikististan, Kyrghistan and Kazakhstan, too are looking for trade
opportunities through land routes with India. If they become dialogue
partners or associate members of the SAARC, it would again be difficult for Pakistan to stop the movement of Central Asian
goods to India, Nepal and Bangladesh through its territory and
vice-versa.
It is time India
becomes active in SAARC by winning over its small neighbours. Allow them some duty
free goods to India
which are of importance to them. Let these nations also share India’s higher
growth rate. For, India
will benefit by large trade turnover within the region in the long run. ---INFA
(Copyright,
India News and Feature Alliance)
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