In a globalized world order, where gaining a foothold in the international market is a major challenge, it has become imperative for countries to work out regional arrangements or joining compatible groupings to gain preferential access for their products and services in the overseas market. It is believed that initiating trade and investment cooperation within the regional grouping on preferable terms has emerged as a viable business proposition which would have trade creating and growth generating impact on members. Furthermore, in the prevailing milieu, it is widely observed that productive capacity and operational efficiency at the unit level would be optimized chiefly through trans-nationalization of business transactions by forging cross border economic integration between nations. It is in this context that the carving out of the regional grouping of South Asia assumes special importance.
Against this backdrop, the objective of forging a SAARC alliance between neighboring countries is six-fold:
(i) To develop mutual trust, understanding and appreciation.(ii) To participate in the process of globalization and integrate more efficiently with the rest of the world
(iii) Help overcome constraints posed by near saturation of individual country markets and inadequate demand.
(iv) Assist in mitigating the impact of economic imbalances caused by the inter-dependent global system
(v) To strengthen cooperation in international forums in matters of common interest.
(vi) To work towards greater collective self-reliance within the region by building complementary in areas of mutual interest within the region.
The last objective has become imperative in order to help emerging economies to circumvent the pressure applied by mainstream industrialized nations through protectionism, restrictive trade practices and inadequate resource transfers. In fact, at a time when the fragile international environment is creating uncertainty about the demand for our products in the global market, the economic interaction between industries of SAARC countries has the potential of opening new vistas for augmenting our commercial interaction from the present level.
Advantages of enhancing trade and investment flows between SAARC Countries
The world over, regional trading associations like EU, NAFTA, ASEAN, among others have been motivated by the desire to take advantage of the commonalities in trade and investment by exploiting the economies of scale through greater market penetration. Likewise, SAARC has also aimed at accelerating trade flows between participating countries for collective benefit.
It is generally recognized that developing closer ties among SAARC countries, comprising Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, would benefit member countries due to the complementary of interests which exist between industries in the participating countries. This is largely on account of the varied nature of product mix which makes it possible for industries in the region to gain from one another in commercial exchange. Some of the advantages of looking at SAARC as a preferred proposition for doing business are as under:
· The geographical proximity between trading partners, which reduces the transactions costs of doing business, would confer significant gains from trade and investment cooperation between SAARC countries.
· Its above-average growth, expanding middle-class population, and demand for global goods can prove to be an engine of growth for the region.
· The abundance of natural resources and the growing aspirations of the young people offers tremendous scope to engage in business.
· Regional cooperation between South Asian nations would help firms to integrate more efficiently with the rest of the world and take better advantage of global flows of trade and investments.
· Existing production structures in South Asia offer sufficient scope for intra-industry trade especially between India and other South Asian countries based on different processing and assembling capacities. Such complementarities could be enlarged by extending the production network to rest of the countries in the region.Hence, it is important for industry in South Asia to work collectively for consolidating their strengths in the prevailing world order.
Macroeconomic Conditions of SAARC Region
The SAARC countries comprise around 23 per cent of the world’s population and 15 per cent of arable land. The region is highly diverse in terms of country size, economic and social development, geography, political systems, topography, language and culture.In terms of GDP growth, South Asia has registered robust output over the last few years. This is borne out from the fact that the growth in GDP in South Asia is higher than the world average between the years 2000-12. This is indicated in the following table.
Average Annual Growth Output: SAARC (2000-2012))
| COUNTRY | GDP | Agriculture | Industry | Manufacturing | Service |
| Afghanistan | 9.4 | 3.0 | 9.4 | 3.9 | 13.1 |
| Bangladesh | 6.0 | 3.7 | 7.7 | 7.9 | 6.2 |
| Bhutan | 8.5 | 1.9 | 10.4 | 10.3 | 9.5 |
| India | 7.7 | 3.3 | 8.2 | 8.4 | 9.2 |
| Maldives | 7.1 | -0.1 | 8.5 | 3.5 | 7.2 |
| Nepal | 4.0 | 3.3 | 2.7 | 1.2 | 4.6 |
| Pakistan | 4.4 | 3.1 | 5.9 | 6.7 | 5.1 |
| Sri Lanka | 5.9 | 3.4 | 6.3 | 5.0 | 6.3 |
| South Asia | 7.2 | 3.3 | 7.9 | 8.1 | 8.5 |
| WORLD | 2.7 | 2.6 | 2.6 | 2.2 | 3.0 |
Source: World Bank’s, World Development Indicators, 2013
However, the high growth numbers should not detract us from the fact that we are a marginal player as far as cross border economic interaction is concerned. This is discussed in the undermentioned paragraphs.
SAARC Countries: The Current Status
While trade is construed to be an engine of growth, the SAARC countries remain at the fringe of global trading activity. Despite the fact that the SAARC countries have been associating much more with the global economy as compared to the beginning of the millennium, the region is still less open to trade relative to the economies of the East and South East Asia. This is indicated in the following table.
Trade Openness (Export and Import as per cent of GDP) in SAARC Countries(per cent)
| Country | 1990 | 2000 | 2007 | 2013 |
| Afghanistan | – | – | 76 | 53 |
| Bangladesh | 20 | 33 | 46 | 54 |
| Bhutan | 57 | 82 | 112 | 103 |
| India | 15 | 26 | 45 | 53 |
| Maldives | 168 | 161 | 223 | – |
| Nepal | 32 | 56 | 45 | 46 |
| Pakistan | 39 | 28 | 33 | 32 |
| Sri Lanka | 68 | 89 | 69 | 54 |
Source: World Development Indicators, World BankThe table shows that the proportion of trade in GDP in SAARC countries has shown a marked rise over the last two decades. However, when compared to the countries of East and South East Asia in 2013, countries like Hong Kongwith trade to GDP ratio of 458%, Singapore(358%), Vietnam(154%) and Malaysia(177%), our region is far behind. We have also to recognize the grim reality that despite the geographical proximity among the SAARC nations, the gains from trade have so far been negligible.The fact remains that we have neither been able to fully leverage our close proximity nor the vast potential of economic cooperation for our mutual benefit. For instance, trade among SAARC countries is around 5% of the region’s total trade with the rest of the world. This is far below what it should be. Other regional blocs are doing much better. For instance, intra-regional trade of the European Union is around 67 percent, the North American Free Trade Agreement (NAFTA)is at 62% and the Association of Southeast Asian Nations (ASEAN) has 26% of its trade with regional countries.
Besides, the region relies heavily on the more industrialised economies for both imports and exports. Around 90 per cent of the requirements of major SAARC countries are met from outside the region. Not surprisingly, intra-SAARC exports as a percentage of South Asia’s exports to the world have been low.
It is also recognized that the countries of the region are predominantly agricultural in their outlook. The industrial sector is at the nascent stage of development, the exceptions being India and to some extent Pakistan, Hence, there is a high commodity concentration of trade within the region. In fact, trade among SAARC countries is confined to a few products of mutual interest. For instance, the share of ten major items of India’s exports to SAARC countries is around 60 per cent of total trade as is shown in the following table.
Table 1 Commodity Wise 10 Major Exports of India to SAARC Countries(2013-14)
| S. No | Commodity | Exports(US$ Million) | % of Total Exports |
| 1 | MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS SUBSTANCES; MINERAL WAXES. | 2141.64 | 12.2 |
| 2 | COTTON. | 2321.6 | 13.3 |
| 3 | CEREALS. | 1203.47 | 6.88 |
| 4 | ORGANIC CHEMICALS | 457.13 | 2.61 |
| 5 | VEHICLES OTHER THAN RAILWAY OR TRAMWAY ROLLING STOCK, AND PARTS AND ACCESSORIES THEREOF. | 1210.48 | 6.91 |
| 6 | SUGARS AND SUGAR CONFECTIONERY. | 164.31 | 0.009 |
| 7 | IRON AND STEEL | 858.67 | 4.90 |
| 8 | RESIDUES AND WASTE FROM THE FOOD INDUSTRIES; PREPARED ANIMAL FODER. | 692.94 | 3.96 |
| 9 | NUCLEAR REACTORS, BOILERS, MACHINERY AND MECHANICAL APPLIANCES; PARTS THEREOF. | 634.36 | 3.62 |
| 10 | EDIBLE VEGETABLES AND CERTAIN ROOTS AND TUBERS. | 520.54 | 2.97 |
| 11 | Others | 7298.7 | 41.7 |
| 12 | Total Exports to SAARC Countries | 17,503.84 | 100 |
Similarly, the commodity concentration of India’s imports from the region is also high. This is borne out from the fact that the share of ten major items of India’s imports from SAARC countries is close to 50%.
TABLE – 2 Commodity Wise 10 Major Imports of India from SAARC Countries
| S. No | Commodity | Imports (US$ Million) | % of Total Imports |
| 1 | IRON AND STEEL | 177.23 | 7.2 |
| 2 | EDIBLE FRUIT AND NUTS; PEEL OR CITRUS FRUIT OR MELONS. | 351.62 | 14.2 |
| 3 | COTTON | 63.24 | 2.6 |
| 4 | COPPER AND ARTICLES THEREOF. | 51.82 | 2.1 |
| 5 | EDIBLE FRUIT AND NUTS; PEEL OR CITRUS FRUIT OR MELONS. | 27.17 | 1.1 |
| 6 | COFFEE, TEA, MATE AND SPICE | 164.3 | 6.6 |
| 7 | MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS SUBSTANCES; MINERAL WAXES. | 173.67 | 7.1 |
| 8 | PLASTIC AND ARTICLES THEREOF. | 95.81 | 3.9 |
| 9 | SALT; SULPHUR; EARTHS AND STONE; PLASTERING MATERIALS, LIME AND CEMENT. | 40.72 | 1.6 |
| 10 | ELECTRICAL MACHINERY AND EQUIPMENT AND PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND RECORDERS AND REPRODUCERS,AND PARTS. | 48.12 | 1.9 |
| 11 | Others | 1279.28 | 51.7 |
| 12 | Total Imports from SAARC Countries | 2472.98 | 100 |
No doubt, India’s trade, both exports and imports, with SAARC countries has gone up significantly over the last few years and there is a diversification of product mix. Yet this is certainly not enough and our share in each other’s trade continues to be low.Similarly, the share of FDI in South Asia at 2.5%of world FDI inflows in 2013is miniscule.The inflow of FDI in the South Asian region was just US$36 billion whereas the same was US$ 778 billion for developing countries and US$ 1452 for the world in the year 2013.Source: World Investment Report 2014
The region is a major importer of POL as well as machinery and transport equipment and exports mainly primary items, textiles and certain labour intensive manufactures.
Identifying Areas of cooperation among SAARC Countries
The progress of SAARC has, at best, been a slow and halting one. One of the reasons cited is the competitive rather than complementary nature of the product mix. Technology gaps with the developed countries, chronic balance of payments deficit, export basket consisting of raw materials rather than manufactured goods etc come in the way of economic and commercial ties between the South Asian nations.
Nevertheless, in spite of similar production bases for items like jute, cotton, tea, low technology intensive goods etc there is significant scope for forging complementarities for the exchange of products and services within the region.
Complementarities in trade
The complementarities in trade among the SAARC countries relate to areas such as traditional medicine, drugs and pharmaceuticals, agro-based industry including food processing, textiles and clothing etc. The details are mentioned here under:
(i)Traditional Medicine and Pharmaceuticals: The South Asian countries possess a comparative advantage in herbal, Auyurvedic and Unani medicines. There is considerable potential to further expand the market as well as the market share of South Asia in this area. Among the South Asian countries, India has emerged as a leading producer of pharmaceutical products on account of low manufacturing costs and R&D expertise. The progress of the Indian pharmaceutical sector is a positive reflection on South Asia as a whole and other countries can gain substantially by this.
(ii) Agro-based Industry including Food Processing: Agro-food processing is one of the priorities of most of the South Asian countries. However, food processing as a business concept is yet to gain ground in the region as a miniscule amount of agriculture produce gets processed.India has also made considerable progress in food processing as compared to its neighbors. Pakistan is doing well in fresh and dry fruits trade and has made considerable advances in food processing.
In Sri Lanka most of the food processing comes under the SME category, especially those making RTS beverages, squash, jam, chutney, pickles and sauce. The industry by and large is into processing fruits and vegetables, cereals, milk, confectionery, oilseeds (coconut) and spices. Other countries of the region also engage in the business of processing their agro-produce. Thus, as a whole, South Asia has immense business potential in this sector.
There is considerable scope for facilitating regional cooperation in the area of agricultural commodities among SAARC countries. This can help mitigate food shortage in specific areas. For instance, Pakistan supplied chickpeas, pulses, grains and sugar when these were in short supply in India. Similarly, India has supplied onions, potatoes, pulses and other food items to Pakistan to meet the deficiency in demand.
iii)Textiles and Clothing (T&C): Although the South Asian countries compete with each other in the developed country markets for T&C (textile and clothing) exports, there is a potential to establish the region as the global hub for the T&C trade through regional cooperation in trade, investment and skill development.
However, according to reports, trade barriers erected by South Asian countries against each other are among the main obstacles which come in the way of the creation of a South Asian textile and apparel hub. These trade barriers inhibit industrial growth in the region by obstructing the exchange of raw materials in the garment trade. It is important to explore the possibility of creating regional vertical integration, to ensure a certain degree of specialization in countries within the region.
To form a hub, all the countries in the region should remove tariff barriers on raw materials. There is also a need for reducing documentation and procedures for imports and exports. SAARC countries should also adopt more favorable policies on investment towards each other and create an enabling environment for transfer of technology and skills.
Areas of Comparative Advantage in Services
In the services sector, the returns on investment can be maximized by cooperation in infrastructure such as energy, transport, railways (services, management of rolling stock), port management, telecommunications, banking and non-banking financial institutions, design and consultancy, computer software, research and development and construction.
(i) Tourism:South Asia’s diversity in offerings of tourism products is well known. The main tourism activities in this region involve pleasure/sight-seeing, trekking, mountaineering, rafting, wildlife and culture tourism. However, due to indifferent policy initiatives, the real potential is not realized in this sector. Each country is trying to carve out a niche without really taking advantage of synergies that may arise. Infrastructure connectivity, internal conflicts and other bottlenecks continue to affect this region and prevent the countries from attracting high profile tourists.
The cultural diversity of the SAARC region is unique, and the combination of scenic landscapes, natural beauty, and ethnic multiplicity add to its international appeal.All these facts unite to make the SAARC region a great tourist attraction. In fact, most SAARC nations have already realized this potential at the individual level but with concerted efforts in this direction, the success culminated would be many folds.
(ii) Information & Communication Technology (ICT): In a digital age, where the velocity of business depends on the digital infrastructure, it is important that the region’s collective strengths are harnessed to bridge the digital divide and improve connectivity in the region. Regional cooperation in ICT can help countries to develop the necessary legal and regulatory framework to promote e-commerce, prevent cyber-crime and address issues of governance, community empowerment and economic growth.There is immense potential for cooperation in information and communication technology (ICT). India has a strong competitive advantage in knowledge based industries of which ICT is a major segment. This could be leveraged for collective benefit. It also proposed that regulations, including tariffs, be simplified. The region should also address core issues of developing ICT infrastructure, improving connectivity and supporting ICT education and financing.
(iii) Energy: There exists a wide gap in demand and supply of energy in South Asia, which is primarily due to the shortfall in its power generation capacity. The low growth experienced in the region can be attributed to the low per capita energy consumption resulting from persistent shortage of energy, lack of energy related infrastructure and uneven distribution of the available energy, both within and across the region.
Cooperation in the energy sector has remained one of the key priorities of SAARC. There is need to address regional and global energy issues to facilitate energy trade within the SAARC region and to enhance more efficient use of energy within the region. For example, Nepal and Bhutan have huge potential in hydropower, while Bangladesh and India have energy deficiency. If Nepal and Bhutan can generate hydropower, Bangladesh and India can be good customers of that energy. In fact, Bhutan has managed to balance its trade with India with large exports of hydro-electric power, and similar potential exists for Bangladesh and Nepal.
There is energy deficiency in some countries of South Asia, but there is also huge potential for hydropower in some countries, which can help meet the demands if the potential can be tapped. Indeed,availability of power at cost effective rates would help SMEs to reduce their operating costs and enhance the efficiency of production.
An integration of electricity grids across South Asia will reduce power costs and enhance manufacturing competitiveness for all members, and should be given ahigh priority. Huge hydro-electric potential exists in Nepal, Bhutan, Afghanistan and India, which could be tapped for intra-regional power trade.
(iv)Logistics and Connectivity: The development of logistical hubs that facilitate the flow of trade across the region would greatly reduce the costs of doing business. Such hubs should be multi-modal, incorporating containerised and non-containerised cargo and moving via rail, road, air and shipping links. These logistical hubs would connect critical regional corridors, especially with countries having no common borders.
(v)Finance: The SAARC countries suffer from paucity of capital to fulfil their priorities of development. Access to finance is required not only for funding the massive infrastructure projects which require easy availability of finance at cost effective rates but also for SMEs, social projects and for fulfilling the requirements of financial inclusion. Hence, SAARC should integrate its financial system with effective linkages among financial institutions and financial markets. In this context, the proposal of constituting a SAARC Development Bank by the Commerce Ministers of the regional grouping is timely. Such a bank would help to meet the funding gap in infrastructure in the region’s least developing countries and provide them finance at affordable rates and thereby help enhance connectivity in the region. Besides, the bank would help raise funds for economic and social needs.
The member countries of SAARC should provide prospective regional investor full access to their respective money markets. Encouragement should be given for opening branches of commercial banks of member countries.
There is a need for more extensive work towards harmonizing banking legislation and practices, training of banking staff, working towards an efficient payments mechanism and greater monetary and exchange rate co-ordination. The latter would also involve, wherever feasible, joint strategies, plan and common approaches in international fora for mutual benefit particularly in the context of liberalization of financial services.
Investment Opportunities in SAARC Region
It is well known that joint ventures are an effective way of expanding and diversifying the production base and trade structure of the economy. Indeed, joint ventures facilitate vertical specialization which allows the countries to reap economies of scale by concentrating on a specific production process in the value addition chain. A good example of vertical integration between business entities in South Asia could be a joint venture between business enterprises in India and Bangladesh in the jute industry wherein Bangladesh produced jute and West Bengal has processing mills.
Setting up of joint production capacities within SAARC countries can also be contemplated in food, pharmaceuticals, textiles, rubber, leather, tea blending and harnessing of natural resources for energy generation.
At the bilateral level, India’s large diversified industrial base can be of considerable use for firms in the region. India’s skilled and comparatively cheap manpower resources and its bank of diversified technologies and resources can be effectively brought together in a winning combination for projects in our countries or even in third countries.
Cooperation for Promoting Inclusive Growth Ensuring Food Security: it is well known that in a region where more than 60 per cent of the population is dependent on agriculture, enhancing the productivity of the sector is not merely a matter of commerce but a means of livelihood and a pattern of rural life as well. At present this sector is suffering from declining agriculture investments, inadequate infrastructure, high pre- harvest and post-harvest losses, land degradation, absence of bio-security measures, paucity of inadequate managerial skills and credit, limitation of technology, among others. This leads to stagnation in farm production which not only affects the overall growth of the economy but also impacts food security and the welfare of majority of the populace dependent on agriculture.
In order to achieve food security in South Asia it is imperative to have a balanced policy on price incentives, technology changes and institutional support for accelerated agricultural growth. There is room for more sophisticated versions of technology to improve soil and water management which would help to secure higher yields. Moreover, the region could work towards pooling together scientific and natural resources for bringing about a second green revolution, perhaps including genetic modification of important cereal crops to improve crop production and nutrition in the region. China has already shown the way for introducing and popularizing hybrid rice variety. SAARC should not lag behind in such endeavors to improve its productivity from agriculture.
The proposal to create a food bank, which was mooted during the SAARC Summit in 2007 and which proposed to keep a stock of rice and wheat to be used during shortages and emergencies in the region, should be activated and ratified by all member countries. Similarly, the creation of a Regional Food Security Fund for use during exigencies should also be major step forward in the direction of food security.
It is also found that highly protective trade policy in agriculture, particularly in India, Pakistan and Bangladesh is a deterrent in unleashing the potential of agricultural growth in the region. Hence, tariff on agriculture should be rationalized. There should be a common approach and strategy in supporting the farmers and producers in the region and inter-dependency should be promoted in order to ensure the supply of food and agricultural goods in a predictable and equitable manner.
Ensuring Energy Security: Alongside food security, another priority of development within the region is to achieve energy security. There is need for enhancing cooperation among members to meet the fast growing energy deficit in SAARC member countries due to projected high economic growth rates in the region and improve energy availability and efficiency.
The SAARC member countries have substantial energy resources which need to be economically exploited not only for accelerating economic growth as also for ensuring economic prosperity and welfare of the people. For example, all members have large hydro-electric potential, of which only a fraction has so far been exploited. Similarly, Pakistan and India have large coal reserves and India has 9000 mw of wind energy which is the second largest in the world. Similarly,Bangladesh has large reserves of gas. The use of technology for harnessing the same within the region should be looked into.
Feasibility studies on benefits and constraints of energy trade; establishing transnational energy lines of electricity, gas and oil; imports through third countries via pipelines; sharing of information, know-how and expertise; promoting cooperation in CNG use in transport as also the development of a regional fund for commercial exploitation of available resources and accessing non-traditional energy sources should also be contemplated to ensure energy security in South Asia.
Governments of South Asia need to build necessary infrastructure, lessen regulatory mechanism and encourage public-private- partnerships to foster cooperation in energy and to make SAARC Energy Grid workable. A common SAARC Energy policy is needed for trans-border transmission and trade in energy.
Effective Disaster Management:With natural disasters arising from geo-climatic conditions such as earth quakes, floods, famines etc striking South Asian nations with regular frequency causing damage to the economy and bringing misery to the populace, it was considered of utmost importance to put in place a mechanism an institution for effective disaster management.Against this backdrop, the SAARC Disaster Management Centre (SDMC) was set up in 2006 at New Delhi to coordinate the collective response to natural disasters. The aim was to provide policy advice and facilitate capacity building services including strategic learning, research, training, system development and exchange of information for effective disaster risk reduction and management in South Asia.
At present, the SAARC Disaster Management Centre, seems to be mainly focused on research and training activities. There is need to make the Center more effective and active to minimize the impact of natural calamities and climate change by ensuring that mechanisms are in place for ‘early warning’ of potential disasters and efficient response to the catastrophe.
Suggestions for Raising Trade and Economic Cooperation among SAARC Countries
It is generally believed that trade and economic cooperation between SAARC countries have yet to measure up to its full potential even though there are significant avenues for enhancing commercial transactions in areas of mutual advantage thereby paving the way for inclusive economic growth in the region. It is believed that mutual animosities at the political level together with the non-availability of a conducive environment for doing business is coming in the way of augmenting trade and investment ties between SAARC countries.In the absence of redressal of trade issues, informal trade is reportedly taking place in the region, particularly between India and Pakistan. The following paragraphs highlight the constraints and offer suggestions on take economic cooperation between SAARC countries to a new level.
Addressing Infrastructure Deficiency: One of the reasons for the slow pace of regional cooperation has been the poor state of infrastructure. Surveys of the investment climate repeatedly show that inadequacy of proper infrastructure is perceived as a major constraint to trade.Some of the areas where our weak infrastructure facilities come in the way of business within the region relates to areas such as transport, communications, energy and airport and port facilities also partly explain the low utilization of the potential for higher trade between SAARC countries. Here, it is instructive to note that no SAARC country has a common border other than India and intra-regional transportation and communication links remain weak. For example, in the absence of road connectivity between Nepal-India-Bangladesh, Nepal cannot access ports in Bangladesh. Likewise, India cannot use Bangladesh roads to access its North-Eastern states, thereby resulting in increase in transportation costs. No container trains are running between India and Pakistan and similarly between India and Bangladesh, though passenger trains are running among these countries. The lack of road connectivity and transport linkages between trading partners raises the transactions cost of doing business.
There is need for an uninterrupted transportation network in South Asia which would pave the way for faster movement of goods and services thereby saving ‘time value of goods and services’, on one hand,and assuring ‘Just-in-Time’ delivery, on the other. Hence, priority should be given to strengthen cross-border transport linkages between members through mutual cooperation.
There is a strong case for implementing SAARC common transport policy to facilitate barrier-free movement of goods across the regional borders. This would improve physical connectivity by road, railways, inland waterways, shipping and air-links to exploit the advantages of geographical proximity.Besides, finalization and expeditiously implementation of Regional Motor Vehicle Transport Agreement including Road, Rail and Shipping protocol and introduction of SAARC flag carriers, ensuring clearance of SAARC vessels should be done on priority basis. The SAARC governments should also come together to implement Open Sky policy in the region – linking not only directs flights between capitals but to all other major cities of South Asia.
There is also a need to work towards the transport corridors such as road and rail corridors along the Nepal-India-Bangladesh circuit and air connectivity to Male and Islamabad. Similarly, a rail corridor could be set up between Chennai and Colombo along with a ferry service linking Colombo and Cochin. The Afghanistan-Pakistan-India-Bangladesh-Myanmar (APIBM)Transport Corridor could also be revived for facilitating regional trade. Other such projects on which work could be expedited are as under:
Bhutan• Link between Phuentsholing and Hashimara
• Procurement of customs related equipment for faster clearance of cargo.India
• Birgunj-Katihar-Singhabad-Rohanpur-Chittagong road links to Jogbani, Biratnagar and Agartala
• Kathmandu-Birgunj-Kolkata/Haldia road link
• Agartala-Akhaura-Chittagong road link
• Air-connectivity: Malé-New Delhi and Islamabad-New DelhiSri Lanka
• Rail corridor between Colombo and Chennai
• Ferry service between Colombo and Cochin
• Colombo and Tuticorin as two pilot projects
The SAARC Development Fund, whose utilization has been slow, could be effectively used to catalyze one or two projects for infrastructure development to intensify economic cooperation at a regional or sub-regional level, for instance development of some of the missing transport links for regional connectivity. This would provide a tangible manifestation of the benefits that SAARC can provide.
The Governments of SAARC countries should also take steps to facilitate greater private sector involvement in infrastructure through innovative private-public partnerships with supportive legal and operating frameworks. The private sector would assist in provision of good quality road and telecommunication network, efficient port operations, quick custom clearance at the port which in turn are vital for business facilitation and ensure access to uninterrupted power supply at competitive rates.
Similarly, the region is deficient in power supply which makes it costly to do business in the region. Due to 8-12 hours power cuts in Bangladesh, Nepal and Pakistan, the commercial business has to pay 35% extra by using diesel and oil generators, thus adding to their operational expenses. More firms in South Asia rely on generators than do their competitors in China and South East Asia. Hence, there is need to draw a road-map for establishing a SAARC Energy Grid, wherein surplus energy would be pooled and transmitted to the country requiring electricity supply. The South Asian Nations need to exhibit greater will for providing enabling environment to encourage production, trade and distribution of electricity through an efficient and fair mechanism.
Since the Private Sector is the most important stakeholder of Energy production, its involvement through Public-Private- Partnership (PPP) model need to be encouraged on policy making level to derive the full benefits of geographical proximity.
Foreign direct investment would also help in bringing infrastructure to international standards for facilitating trade flows between trading partners. International participation can help to build an enabling framework for PPP, contributing to best practice on such matters as transparency; simplified (international) tender procedures and qualifications; guidelines on operating environment.
Facilitating Ease of Doing Business: Trade between SAARC member countries is constrained by high cost of doing business across borders. Despite the signing of SAFTA, tariff and non-tariff barriers continue to remain high between member countries which are keen to protect their domestic industries in case of products such as agricultural commodities, textiles package foods etc. What is more, industry has to contend with cumbersome, time-consuming and costly trade procedures and regulations. The loss to industry and consumers on account of these barriers is considerable and is even leading to diversion of trade to illegal or informal channels.
EASE OF DOING BUSINESS(2014)
| Afghanistan | Bangladesh | Bhutan | India | Maldives | Nepal | Pakistan | Sri Lanka | |
| Ease of Doing Business* | 164 | 130 | 141 | 134 | 95 | 105 | 110 | 85 |
| Starting a Business | 24 | 74 | 86 | 179 | 71 | 97 | 105 | 54 |
| Procedures Required (Number) | 3 | 7 | 8 | 12 | 5 | 7 | 10 | 6 |
| Days Required (Number) | 5 | 10.5 | 32 | 27 | 9 | 17 | 21 | 8 |
| Trading Across Borders | 184 | 130 | 172 | 132 | 138 | 177 | 91 | 51 |
| Documents to Export (Number) | 10 | 6 | 9 | 9 | 7 | 11 | 8 | 5 |
| Time to Export ( Days) | 81 | 25 | 38 | 16 | 21 | 42 | 21 | 20 |
| Cost to Export(US$ per container) | 4645 | 1075 | 2230 | 1170 | 1625 | 2295 | 660 | 595 |
| Documents to Import (Number) | 10 | 8 | 12 | 11 | 9 | 11 | 8 | 7 |
| Time to Import ( Days) | 85 | 35 | 38 | 20 | 22 | 39 | 18 | 17 |
| Cost to Import (US$ per container) | 5180 | 1470 | 2330 | 1250 | 1610 | 2400 | 725 | 775 |
Rank Out of 189 countriesSource: World BankAccording to the World Bank and the IFC Report entitled Doing Business 2014, in the overall difficulty of doing business, South Asia on an average imposes some of the highest regulatory obstacles to start and operate a company. The region ranks among the worse in the world with respect to the procedural barriers and cost of firing unproductive workers. The cost to complete the registration of the property as well as the time and cost relating to the completion of the contract enforcement is very high. The region also scores very low on account of trading across borders.The Report exhorts the governments to focus their efforts on improving labour markets flexibility, property rights, and access to credit. These problem areas need to be corrected for making the individual country systems less burdensome, less time-consuming and less costly besides contributing to make the integration process sound and sustainable.It is essential to work out harmonization arrangements in areas such as customs procedures, arbitration, double-taxation, proper channels to access market information & legal systems and electronic data exchange leading to paperless trade, which would help reduce transaction costs and make intra-SAARC trade more efficient and prosperous for business. SAFTA also needs to address non-tariff barriers. Travel and visa restrictions between the member countries should be eased so that there is freedom of mobility to facilitate increased business activity in the region.
There is need for the implementation of a doable Trade Facilitation Mechanism in true spirit. For this, the Governments of South Asian countries to implement SAARC Transit Agreement, shipment agreement, Logistics Agreements and ICT Agreement to move towards a SAARC Customs Union.
Promoting Information Exchange:The absence of information about business conditions and opportunities between the SAARC countries poses a major impediment for establishing business relations within the region. The information gap may be bridged by providing sound data base for all individual countries which could be conveniently accessed by members. . For market penetration within SAARC, it is important to have the following information about the members:
Location
Products/services offered
Local demand (Product Specific)
Capacity to supply
Current price of product
Government policy etc.
Besides, communications need to be strengthened for which contracts at the institutional level at SAARC should be initiated. A computerized business cooperation network for facilitating cooperative ventures among such countries could prove beneficial. The marketing strategy of SMEs is rather inadequate to make a dent in the target area. This makes it difficult for exporters to successfully penetrate the markets of SAARC countries especially when our goods have to compete against third country imports. Participation in trade fairs and exhibitions, bilateral business meets, trade and technology exchange programmes would also be a good source of knowing each other better and ensure better marketing of the product. Awareness campaigns could be organized to highlight business opportunities. Similarly, joint marketing of products in third country markets could be considered for maximum advantage.Regional export promotion should be guided by the consortium approach as this would help to improve our bargaining position.We also need to identify and locate the import requirement of each SAARC country and explore the possibilities of tapping supplies from within the region. For this, it is important to project our image as a reliable supplier through advertisements in trade journals, media, TV etc. and create brand publicity for our value added projects.Product diversification in non-traditional fields with potential comparative advantage has, hitherto, been limited. The need for diversification into value added products is most crucial as this would create complementarities in trade and help in identifying new areas of cooperation. A general strategy for South Asian countries should be to diversify trade in terms of sectors and markets. This is especially important for least developed economies like Bangladesh, Maldives, and Nepal, which have limited export markets. The smaller or landlocked economies could also move into niche markets, possibly with higher value added, and to use subcontracting networks in larger, closer markets such as India.
Developing Greater Political Consensus : It is believed that the general lack of political will come in the way of strengthening economic ties between South Asian countries. There is an inherent fear that harmonization of investment and production plans between countries would lead to a partial surrender of each nation’s right to pursue their sovereign economic policies. It is suggested that efforts be made at the political level to resolve contentious issues in the spirit of reciprocity and goodwill as political consensus on economic policies is vital to bolster economic bonds in South Asia.There is a greater degree of overlapping or competition among the item comprising the trade basket of SAARC countries. This causes business units at the sectoral level to protest against trading activity which is believed to be detrimental to their interests. This creates apprehensions within political parties which seek to protect the sectoral business interests of their country for short term economic gains. This should be avoided as there is long term benefit of enhancing trade and investment co-operation in South Asia.
Narrowing the Trade Deficit: One issue that has come to the forefront is that of a growing trade balance in favour of India, even though increasing imports from India are in the long term economic interest of the smaller countries of the region. This negative balance of trade, however, creates political irritation in these economies. In this context, India must take the bold step of unilaterally removing both tariff and non-tariff barriers on goods that are of export interest to neighbouring countries. In fact, India could become a hub for stimulating the growth of intra-industry trade in the region and boost the inflow of foreign investment into South Asia.
India could also consider undertaking some unilateral initiatives to narrow the trade gap. However, one must hasten to add that India’s neighbors can reduce their trade deficit only if their supply capabilities are considerably expanded for those goods and services in demand in India.
Expediting Implementation of SAFTA:The reason for low intra-regional cooperation lies in the slow and halting pace of trade liberalization under SAFTA, which is scheduled to become fully effective for all members only by 2016. The agreement has several other limitations- notable among them being limited product coverage, existence of a large negative list and restrictive rules of origin that reduce the effectiveness of the agreement. What is more, SAFTA agreement is confined only to trade in goods and excludes services from its ambit. This is a significant omission considering that South Asia is emerging as a strong exporter of commercial services. If the members are to realize the gains of a free trading zone, they should also work alongside towards abolishing barriers to trade in services such as transportation, tourism, investment, insurance, freight, energy as this would facilitate trade in goods.
Besides, the agreement is silent on cooperation in investment. The inclusion of investment and services within SAFTA framework is a necessity, if members are to exploit the full potential of regional synergies or industrial restructuring and maximize the benefits of a free trading area. Hence, concerted efforts should be made to move beyond SAFTA and establish the South Asian Economic Union, which would mean going beyond trade to include other areas of economic cooperation including investment and harmonization of customs procedures. This target needs to be achieved by 2020. Indeed, the ultimate goal should be to evolve an integrated market for freer flow of goods, capital, technology and services within the region. Besides, the negative list under SAFTA should be kept to an absolute minimum and the aim to be set at zero.
Furthermore, SAFTA would be effective only when there is macro-economic coordination between countries of the region. This would mean improved coordination in interest rates, exchange rates and foreign investment policies as well as synchronization of fiscal policies of the region. In fact, this would entail a transformation of the entire approach and policies of member states towards SAARC. For this to happen it would be useful, as a first step, to set up policy coordination committees at the ministerial level to discuss the implications and the means to avoid the adverse implications of one country’s macroeconomic policies on the other’s economic profile.Get deeper integration by cutting down the number of products in the sensitive list. Even after the implementation of SAFTA, the numbers of sensitive list of some countries are hovering around 20 percent of the total products range of customs tariff classifications which is deterrent to regional integration. Every country has resorted to include most of the agricultural products in the sensitive lists. The numbers should be bought down substantially, with an approach of facilitating agricultural trade and SME products. This will help to increase agricultural trade and realizing the efficiency gain of the member countries. Along with this, there should be an effective mechanism of ensuring uninterrupted food supply to the people in all member countries that in turn will allay the fear of food insecurity, hunger, starvation and malnutrition.
Freer Movement of Personnel and facilitating Skill Development: SAARC should consider the possibility of evolving a freer flow of personnel, in particular, managerial and technical, related to economic activities. Measures should also be taken to regularize the informal labor movements in the region on the basis of identified norms. This will not only legalize the illegal labor movements but also ensure that a proper channel is utilized for repatriation of remittances.
Remove visa restrictions between member countries. To begin with, the SAARC sticker, which assures ease of getting a visa, be provided 1000 people as compared to 250 at present. Besides, the price of life membership of SAARC Chamber, which assures a SAARC sticker, should be brought down from $ 3000 to facilitate easy access to business visa.
Provision of Vocational training to foster skill development at the regional level is important for business development.To facilitate skill development and to impart job-oriented training to the workforce, there is a need of setting up a technical training institute in South Asia namely “South Asian Institution for Skills Development and Technical Manpower”. Such an institute would provide professional courses for skill development among the youth of South Asia.Provide Policy Support to SMEs: SMEs comprise more than 90 per cent of trade between SAARC nations. Hence, to augment trade in the region, it is important for the Governments to adopt policy measures to support SMEs. Policies should be put in place to increase their access to finance, to create an appropriate regulatory framework that does not overburden small businesses, and to create and maintain a competitive market environment.
Measures to support development of SMEs can include establishment of clusters and incubator facilities to stimulate broader local economic development. The private sector for its part should create more partnerships between large and small enterprises. The private sector can support development through larger companies involving SMEs in supply chains to provide access to markets, upgraded technology and improved management practices. At the same time, the business capacity, especially of small and medium-sized enterprises (SMEs), to produce time-and quality-sensitive consumer goods and services has to be raised in order to meet the specifications of the marketplace.Ensure Harmonised Trade Documentation: Lack of standardization of documentation serves to inhibit growth of trade in the region. The solution is to develop uniform/equivalent regional product standards and work towards harmonization of documentation.Dismantling Non-Tariff Barriers: Non-tariff barriers have emerged as a major impediment which comes in the way of increasing trade in the region. South Asian countries maintain various restrictions according to their national trade policy objectives that often limit the flow of trade. These among others, include; quality specifications, product standards, sanitary and phyto-sanitary Measures (SPS), technical regulations (TBT), import licensing, export price restraints, safeguards, anti-dumping and countervailing actions, minimum import price, market labeling practice, port restrictions, quantitative/ marketing restrictions, packaging requirement and so on. The SAFTA agreement requires the Contracting States to notify the SAARC Secretariat all non-tariff and para-tariff measures to their trade on an annual basis which is reviewed by the Committee of experts in its regular meetings. The way forward is to remove non-tariff barriers for trade among SAARC countries.
Harmonization of standards, upgrading of test and certification facilities, and mutual cooperation for enhancing the best production practices are some of the strategic measures to be pursued to remove all kinds of barriers to trade. The member countries should consider prohibiting the NTMs and PTMs that are not notified in WTO.Apart from encouraging barrier-free trade in goods, members should spend more energy on abolishing barriers to trade in services such as transportation, tourism, insurance, freight, energy, among others. SAFTA Dispute Settlement Mechanism: There is need to establish a SAARC Regional Forum to discuss and settle intra-regional disputes among trading partners in a peaceful manner.SAFTA provides for a detailed dispute settlement mechanism under the auspices of a Council of Experts and SAFTA Ministerial Council analogous to the Dispute Settlement Body (DSB) of the WTOin case amicable settlement could not be found between the contracting parties through the process of mutual consultation. This should be operationalised.
To conclude, it is believed that in a scenario where trading blocs are being established essentially to maximize commercial gains, the regional grouping of SAARC would be meaningful only if it contributes towards greater economic prosperity within the region. It is recognized that productive efficiency can be maximized by initiating preferential trading arrangements within the region. The signing of SAPTA has been a step in this direction. Bilateral and sub-regional trading agreements also exist between various members.We have to affirm our commitment to make SAARC a strong regional block. And in this context, the ’neighborhood first’ policy of the present government assumes special significance.