SAARC and India - Why India needs a strong SAARC March 2018 issue

Apart from tariff rates and market access, trade facilitation measures should be carried out across the SAARC bloc for improving trade ties

SAARC and India - Why India needs a strong SAARC

If charity begins at home, then foreign trade should definitely begin with neighbours. Unfortunately, the total value of India’s trade with all the other SAARC members, put together, is less than a third of its total trade with just China. And while Prime Minister Narendra Modi seems to have realised this anomaly, a meaningful cooperation can materialise only when there is mutual trust and willingness among member countries to resolve and overcome bilateral differences and apprehensions for the greater good of their own people

Dr. A.K. Sengupta | @TheDollarBiz

The-idea-of-regional,-political-and-economic-cooperation-The Dollar Business
The idea of regional, political and economic cooperation in South Asia was first raised in 1980 and the organisation was set up in 1985

 

Prime Minister Narendra Modi recently said that all eight members of SAARC (South Asian Association for Regional Cooperation), led by India, can draw up a common plan to eliminate poverty from the region and make South Asia a global power.

Hitting the ground running
Even before becoming the Prime Minister, Narendra Modi had hinted that his foreign policy will actively focus on improving ties with India’s immediate neighbours. He started well by inviting all heads of governments of South Asian countries for his oath-taking ceremony, and on the second day in office held bilateral talks with all of them individually, which was dubbed as a ‘mini summit’ by the media. Later, during a launch event at ISRO (Indian Space Research Organisation), he asked Indian scientists to develop a dedicated SAARC satellite in order to share the fruits of technology like tele-medicine, e-learning etc., with people across South Asia and complement the currently operational Indian Technical and Economic Cooperation programme in the region.

India trade with other SAARC nations-The Dollar BusinessThat Modi had invited leaders of all other SAARC countries to his swearing-in ceremony, had made it clear that he wanted to engage with the countries in the region on a priority basis. He has put new life into SAARC by conveying the message that all SAARC nations need to develop, survive and prosper together. The PM plans to forge stronger economic cooperation and increase intra-South Asian trade by removing bottlenecks. He is also likely to focus on improving and expanding connectivity in the region that would lead to better economic partnership. He has also emphasised on energy cooperation, on the lines of power generation and trade with Bhutan and Nepal. He also plans to set up a SAARC Bank, on the lines of the BRICS Bank, to take forward his South Asia initiative. This effort is expected go a long way in facilitating regional economic development through financing of infrastructure for trade in goods and services and increase investment in the region. That Modi’s proposal for an International Yoga day in the UN General Assembly was supported by most of the heads of SAARC nations, augurs well for future of his initiatives. They are also looking forward to the progress in the SAARC satellite mission as proposed by Modi. 

From potential to performance

SAARC, as a regional forum, has great potential, but this potential of regional cooperation cannot be realised without strong bilateral linkages. Given the asymmetry inherent in the geographical, economic and strategic dimensions of the eight member countries, meaningful cooperation can materialise only when there is mutual trust and willingness among member countries to resolve and overcome bilateral differences and apprehensions for the greater good of their own people. India has a major responsibility in this respect on account of several factors. The most important factor is that India is the only country, which shares borders with all the SAARC countries, barring Maldives and Afghanistan. The implication of this geographical reality is that India has to facilitate the establishment of strong economical linkages with the neighbouring countries. More importantly, India should take initiatives to solve the difficulties, which the partner countries have been experiencing in trade with India on matters relating to border trade and transit facilities. While preferential trading arrangements, like SAPTA, would work out to be mutually beneficial for all the partners, it should be realised that India can also derive a lot of benefits through strengthening bilateral relations.

Currently, India runs a huge $15 billion trade surplus with other SAARC countries, with exports worth $17.5 billion and imports of just $2.5 billion. The idea is to correct this skewed figure in a way so that Indian businesses can source more from other SAARC countries and build better value chains. For this, India has to invest more in the region by taking advantage of the arbitrage in wage and electricity rates. From Maldives in the south of India to Bhutan in the north, several SAARC countries are keen to seek Indian investment and expertise. It is estimated that 55% of intra-regional trade potential in South Asia remains untapped. 

One by one

Bhutan is keen to seek Indian investments in four to five sectors, including power, tourism, construction and industry. In the future, there will be openings for smaller power projects for private sector companies to consider. These projects will be of less than 500 MW capacities. The country is also inviting investment from India in the proposed education city project. In Maldives, Indian investors can look at tourism, hotels, ports, airports and fisheries. It is for the Indian business community to explore the potential in the Maldives. Sri Lanka, too, is keen to see investments from India touch the $1 billion level in the next three years from the current level of about $200 million.

Modi also wants trade to be a key element in improving ties with Pakistan. He, at several occasions, has pointed out that this is what he and Pakistan’s PM Nawaz Sharif had decided during their May 27 meeting. Following the meeting, Pakistan was supposed to allow trade via Wagah-Attari border, on the lines of bilateral trade via Karachi. Unfortunately, Pakistan is yet to make efforts to facilitate this.

 

“Almost 55% of intra-regional trade potential in the region still remains untapped”

 

Never too late

Even after 29 years of existence SAARC members have failed to integrate properly and take advantage of existing opportunities. The main reason for the slow progress of SAARC integration is the low level of trade between the two largest partners – India and Pakistan. The immediate concern for the success of SAARC should be to remove the irritants between the two. Equally important is the development of supply chains. Apart from tariff rates and market access, trade facilitation measures should be carried out across SAARC for improving trade ties. Also, South Asian countries should abolish non-tariff barriers (NTBs) so that free flow of trade happens unhindered. Cooperation in the area of customs procedures and other regulations would certainly help to achieve the objectives of expansion of regional trade, investment and supply chain development.

For better people-to-people ties, there is a proposal to set up a SAARC visa regime envisaging liberal multi-entry visas like the European Union’s Schengen visa system to ensure that all citizens of SAARC member countries can move freely in South Asia.

Modi desires to leverage all of India’s strengths to take SAARC nations together. Whether it is space technology, agriculture, IT, education or health, the war on poverty can be successfully waged only on these terms.

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