Don't miss the Bimstec bus

More intensive economic integration with countries in the seven-member bloc will enable India to cash in on the abundantly available opportunities

The swearing-in of the Narendra Modi government for its second term had a distinctive guest list comprising leaders from Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (Bimstec). Bimstec, which comprises Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand, is a bridge between South Asia and Southeast Asia. Looking beyond the South Asian Association for Regional Cooperation (Saarc) and engaging with Bimstec has been a cornerstone of India’s policy shift.

The two Southeast Asian countries in Bimstec, Myanmar and Thailand, have a crucial place in India’s ambitious connectivity plans for the north-eastern region. An India-Myanmar-Thailand highway — the Asian highway — is the hallmark of the government’s Act East (earlier Look East) policy. With the India-Pakistan bickering persisting and affecting Saarc, Bimstec is poised to overcome the failings of Saarc and advance India’s regional cooperation.

Mr Modi’s invitation to Bimstec leaders was a bid to reach out to neighbours. Beyond geopolitics, what does this outreach mean from an economic standpoint, specifically from the perspective of trade? Export promotion is a focal strategy for the Modi government, the downslide in exports in recent quarters notwithstanding. The former commerce minister, Mr Suresh Prabhu, emphasised strategic regional partnerships where Bimstec also figured. In 2016, the bloc’s total trade stood at $1.1 trillion; India's share was a mere 2.4 per cent. With a GDP at least five times larger than that of Thailand (which has the second-largest GDP in the grouping), India has not capitalised on the Bimstec market.

Here, as a first cut, we look only at the agriculture sector, where new export markets are the need of the hour. Could Bimstec be the answer? In 2016, the agriculture trade comprised 15 per cent of the bloc's total trade. Free trade in agricultural commodities ensures availability, accessibility and stability of food supplies, which can address chronic hunger and malnutrition in the Bimstec nations. Therefore, given geographical proximity and failure of domestic agricultural markets, enhancing agricultural trade should be a priority.

Apart from levels of trade, an important marker for the success of regional arrangements is the capacity to withstand shocks, i.e. resilience. Resilience can be measured by response to national, regional or global shocks. After the food price crisis of 2007-08, the intra-regional trade of all regional groupings (Asean, Bimstec and Saarc) decreased sharply. While intra-Bimstec trade shrank by 24 per cent, intra-Saarc trade declined by as much as 31 per cent. Interestingly, after the crisis (with the recovery period lasting from 2009 to 2011), Saarc’s agricultural trade increased by 83 per cent, while Bimstec’s increased by 108 per cent, although Saarc had already established a free trade area. This indicates the untapped potential in agricultural trade among Bimstec countries. 

To highlight the trade performance among Bimstec countries, we present the results of an IFPRI study of the Asean-Saarc agricultural trade relationship, which derives the trade potential based on empirical models of trade. It assesses trade performance relative to estimated benchmarks to determine under-trading, over-trading or normal trading. The analysis reveals that India over-exports around 56 and 14 per cent to Bhutan and Nepal, respectively. Myanmar, which mostly exports dried legumes and beans to India, over-exports around four per cent to India. Bangladesh and Thailand on the other hand under-export to India (around 0.4 per cent and one per cent, respectively). Bhutan over-exports to India by over 30 times, given that country’s economic fundamentals.  

Since trade with important Bimstec partners is lower than it could potentially be, India may benefit through a Free Trade Agreement (FTA) with the grouping. In this regard, there are lessons to learn from China, in terms of its alacrity in forging trade alliances. Also, the experience of Saarc should be a reminder of the effects of doing too little, too late. China implemented the Asean-China Free Trade Agreement (ACFTA) in 2005 after entering into the framework agreement in 2002, i.e., within three years. India also concluded the framework agreement in 2003, but the Asean-India FTA was realised only in 2010. Tardy progress towards closures creates trust deficits and sub-par returns from groupings, and Bimstec was meant to overcome these kinds of afflictions vis-à-vis Saarc in the first place.

In the case of Bimstec moving forward, there are lessons also from Asean. Agreements such as the Asean Comprehensive Investment Agreement (ACIA), which came into force on March 29, 2012, aim to facilitate greater flow of financial capital and intra-regional long-term investment between Asean member countries. Inward intra-FDI flows among Asean countries amounted to about $6.5 billion in 2006, increasing to $24 billion in 2016. If Bimstec is to deliver for India, India needs to conclude agreements expeditiously. India has often missed the bus in trading and investment. She should avoid meeting the fate of Saarc, and/or being swamped by the Chinese juggernaut. 

Sharing land and maritime borders with Bimstec countries, India should expedite growth in connectivity (through road, rail, maritime and air) within the grouping. For example, it should develop well-connected quality ports such as a deep-sea container terminal in Sri Lanka, and the India-Myanmar-Thailand Trilateral Highway.

Simultaneously, focusing on trade facilitation measures such as simplification and harmonisation of trade procedures, setting regional single windows for custom clearance, recognition of custom transit documents, and proper coordination between border authorities will facilitate expansion of trade in Bimstec. With 22 per cent of world’s population and a combined GDP of $2.7 trillion, Bimstec can become one of the strongest political and economic unions.    

Manmeet Ajmani is senior research assistant, Vishruta Choudhary is research analyst, and Devesh Roy is senior research fellow at the International Food Policy Research Institute