ECONOMIC HIGHLIGHTS

New Delhi, 16 November 2005

Towards Common Market

Cooperation within SAARC Countries

By Dr. Vinod Mehta

The 13^th South Asian Association for Regional Cooperation (SAARC) Summit ended on a positive note in Dhaka. The leaders agreed not only to curb terrorism but also to increase economic cooperation among themselves and fight poverty in the region. Hopefully the SAFTA (South Asia Free Trade Area) would now take off, which is in the interest of all the member-countries.

Narasimha Rao’s Congress Government initiated the move, called Look-East policy but it was mainly confined to South-East Asian countries, especially the ASEAN. Now that India has established good relations with ASEAN it is high time that we also look at our neighborhood and try to work for a common market in the coming years.

The relations between India and Pakistan appear to be improving and hopefully would not come in the way of trade and economic relations between India and other SAARC countries. The potential of trade and economic links with Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives are very high. It has been stated in this column on two occasions just before the Agra Summit that both India and Pakistan stand to gain immensely from trade and so also other countries. Together these countries constitute a vast market to tap and there is a demand for each others’ products.

Let us not become hyper-sensitive on being labeled as ‘big brother’ by some quarters in these countries. Both territory-wise as well as population-wise India is relatively much bigger than all the SAARC countries taken together. In economic terms also, India is very large; it is one huge market perhaps of the size of EEC. Its GDP is much higher than those of its neighbours and at the moment it is enjoying a very large and comfortable volume of foreign exchange reserves that it had not seen in the last 50 years. The Indian economy is by and large growing at an average rate of 6 to 7% per annum, which may not be good but is also not bad. Therefore, at this stage India can afford to be more liberal towards its neighbors than what it had been.

Apart from economic gains India is looking for, it should also aim at earning the goodwill of the people of these nations by being more accommodative to them. At this stage of our economic development, we can also afford to allow duty free imports of certain selected items from some of them. In fact, I had argued on similar lines more than a decade ago in this column. At the moment, Bangladesh is having adverse trade balance with India. Whether this measure will help reduce the adverse trade balance of Bangladesh vis-à-vis India has yet to be seen, but it will have good impact on the relations between two countries.

One would like to say that India should show similar gesture to other neighbouring countries, especially Nepal, Bhutan, Sri Lanka and Maldives, and allow their products to have an access to Indian markets in a big way. Let’s not get paranoid by the fact that the goods from these countries would flood the Indian market. 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, after liberalization many Indian companies have shifted  their production bases to some of these countries.

At the moment, India’s external trade is mainly oriented towards OECD countries and some West Asian countries. ASEAN  countries would come second. The trade turnover between India and the individual SAARC countries is so small that it does not attract attention even in our annual Economic Surveys.

 A few years ago it was said that the cheap Chinese goods would swamp the Indian market when India would open up its economy. The Chinese goods entered the Indian market in a big way but had to beat a retreat as the quality of Chinese goods was low that the Indian consumer did not accept it 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 several additional opportunities to expand cooperation with the SAARC nations. For instance, the tourist sector within the SAARC region has been neglected for a very long time. Tourism sector has low capital investment but relatively high earning potential. At one point of time there was an idea to start daily air services to link the capitals of all the SAARC countries. That the idea has been revived is welcome. We can learn from the ASEAN experience. All the ASEAN capitals are linked by air and they have special low fares for travel within ASEAN countries. In fact India is prepared to have open sky policy with SAARC countries provided they also reciprocate.

Apart from this wherever possible rail, road and sea links must be strengthened among the SAARC countries. With Nepal and Bangladesh we can develop world class road and rail links for speedy movement of goods and people, extending beyond their borders to China, Myanmar and Thailand. With Sri Lanka, Maldives and with Bangladesh we can develop sea links

India has also taken a lead in admitting more members.  The Dhaka Summit has admitted Afghanistan as a new member. We should work to admit China and Central Asian countries as dialogue partners. It is India which can again take the initiative in this direction by lobbying with SAARC countries. Even if it calls for amending the original SAARC Charter, India should be able to carry the other members along with it on this issue.

Afghanistan at the moment is engaged in reconstructing its economy. It not only needs humanitarian aid but also trade to put its economy on a strong footing in the long run. Now it would be more easier for countries like Nepal, Bhutan, Bangladesh and India to send goods to Afghanistan  by road through Pakistan.  It would then be difficult for Pakistan to block transit facilities to Afghanistan.

As for the land, locked Central Asian nations like Uzbekistan, Tajikististan, Kyrghistan and Kazakhstan, they are also looking for trade opportunities through land routes with India. If they become dialogue partners or associate members of the SAARC, then Pakistan will find it profitable to allow the movement of Central Asian goods to India, Nepal and Bangladesh through its territory and vice-versa.