A V Rajwade: Asian co-prosperity sphere?

WORLD MONEY

We're miffed at being left out of the EMU-type Asean+3 grouping but they're more closely integrated.

In the context of the recent Asian Development Bank (ADB) meeting in Hyderabad, I was reminded of the "Asian Co-prosperity Sphere", a Japanese slogan before and during the Second World War. Japan's earlier colonisation of Taiwan and Korea, and its attempts to colonise China were often justified from the objective of creating an Asian co-prosperity sphere. Not many Japanese would probably like to be reminded of that expression (or era) now, but over the past four decades or so, there has been spectacular growth in Asia "" firstly the four tigers (Taiwan, South Korea, Hong Kong and Singapore), then south-east Asia, later China, India and the rest of south Asia. There is no parallel in world economic history to the sustained high growth rates, over a continent home to more than half of humanity.

If talking of the growth and competitiveness of China and India have become commonplace, one should not overlook less publicised locations like Bangladesh and Viet Nam. Asia has also been the source of the sharpest poverty reduction ever achieved: worldwide; the numbers of the poor have dropped by 10 per cent as a proportion of the world population, over the past decade. In many ways, the continent presents a fascinating mixture of corruption on the one hand, and growth on the other; old-style socialistic slogans and populism accompanied by capitalistic growth. In an entirely different facet of "The Asian Drama", Asia leads the world in the number of patents filed in nano-technology, followed by the US, both leaving Europe far behind (Financial Times May 8, 2006)!

There are big problems, of course: for those dependent on the American consumer and an overvalued dollar, the spectre of a dollar crash must surely be worrying. Again, a far bigger vulnerability is the very large number of under- and unemployed people. A recent study "Labour Markets in Asia: Issues and Perspectives" published by the Asian Development Bank, estimates that almost 2 billion Asians live on less than $2 a day. Out of a total labour force of around 1.7 billion, expected to grow to 2 billion over the next decade, at least 500 million people are unemployed or underemployed. Job creation is obviously the prime objective, even as income disparities within individual countries are growing rapidly: between those in the organised sector and the informal sector; in the tradable sector and the non-tradable sector; intra-country, between coastal and land-locked regions; between the skilled and educated on the one hand, and the unskilled on the other.

We in India are, of course, witness to all these problems. And the growing menace of Naxalite violence in an increasingly larger number of districts, is a manifestation of this "" too often, man is much more angered by income disparities than the absolute level. On the other hand, empirical evidence suggests that rapid growth is not possible without a sharp rise in income inequalities: a World Bank survey concludes that income inequality in eight east Asian economies increased by almost 50 per cent between 1990 and 2002, with Thailand the sole exception.

But coming to the ADB meeting, two points have attracted a lot of attention. The first is the proposal about an Asian currency unit. There seems to be some confusion about the issue. It seems to me that that there are two separate proposals on the table. The ADB is studying a unit which will be more like an index based on the Asian currencies, and not a traded unit of money. On the other hand, the ASEAN + 3 (China, Japan and Korea) have agreed to sponsor a study titled, "Toward greater financial stability in the Asian region: Exploring steps to create regional monetary units". India seems to be miffed at its exclusion from the grouping, but we need to appreciate that not only are these 13 economies much more closely integrated by trade and supply chains amongst themselves, but that they already have in existence central bank swap facilities, a bond fund and so on aimed at bringing their financial systems closer.

The second issue that has attracted attention is our prime minister's proposal for a free trade agreement not only with ASEAN +3, but also to include Australia and New Zealand. Sonia Gandhi, however, seems much less enthusiastic raising protectionist issues in her well-publicised missive. It was good to see the prime minister defending his proposal in the face of apparent opposition from his leader. What should be worrying both of them much more is how low India ranks in the ease of doing business worldwide: Singapore is at number 2, China at 7, Thailand at 20, Pakistan and Bangladesh in the 60s "" and India at 116 out of 155! To my mind, our biggest problems are creatures of our own bureaucratic systems and inefficiencies. Would our political masters have some time to devote to improving governance?

Email: avrajwade@gmail.com