The opportunity for creating a truly meaningful South Asian economic community seems apt at present owing to developments across the subcontinent in the last few months.
The most important development is the democratic process in Pakistan that has led to the return of Nawaz Sharif as the nation's next possible prime minister. Sharif is a businessman-turned-politician who can understand the need for building a strong economic base to take Pakistan out of the current economic morass, where growth is hovering at two per cent per annum.
An important requisite for a stronger South Asian economic community would be greater ties between India and Pakistan. Pakistan today accounts for a miniscule part of India's global trade. According to statistics available with the department of commerce, Government of India, Pakistan's share in India's global exports and imports were 2.2 per cent and 1.1 per cent, respectively, in 1951-52, which fell to 0.7 per cent and 0.13 per cent in 2005-06. According to the latest data available, Pakistan's share in India's global exports stood at 0.5 per cent, while corresponding figures for imports were at 0.08 per cent in 2011-12.
Total trade between the two neighbours now stands at about $2 billion, which is far below the potential. Despite years of promise, Islamabad has not yet provided the Most Favoured Nation status to India, which will help spur trade. The first-ever civilian transfer of power in Pakistan through a democratic process can provide the much-needed impetus to building closer India-Pakistan relations that now needs to be investment-led for sustainability.
India's eastern neighbour Bangladesh, too, can benefit immensely through greater ties across South Asia, especially India, to overcome the crisis faced by "Brand Bangladesh", following a series of disasters that have hit the apparel sector in the country. Several leading western apparel brands, which had used Bangladesh as a base, are now said to be looking for options to relocate their business, including to Cambodia and Vietnam. Dhaka has a crisis at hand to stem any outflow of foreign investment from an export-led sector that has been a huge employment provider and foreign exchange earner for the country. A strong economic linkage across South Asia can provide the necessary balance for Dhaka in its bid for economic growth.
Given the current situation in Afghanistan, a strong economic community across South Asia can be beneficial for Kabul, too. Sri Lanka and Maldives also stand to gain immensely from a strong regional economic community. Ditto for Nepal and Bhutan.
For India, a unified South Asian economic community can help in various ways. One, it will boost its position as a lynchpin for promoting greater cooperation across the subcontinent. Second, it will help build greater trade linkages with Bangladesh, Sri Lanka and Nepal, where it has provided non-reciprocal benefits under bilateral trade agreements. Third, a strong South Asia will help boost growth that has been stressed owing to crisis in traditional markets of Europe and America.
The best way to move forward would be to build value chains across the South Asian countries. There are enough sectors where synergies exist. There is a need to build these collaborations among companies across borders. Investment across borders can help sustain ties, and will benefit the small and medium sector that forms the backbone of manufacturing in all countries across the region.
To begin with, the South Asian countries need to look at non-tariff barriers and policy issues that stop cross-border investments. There is also a need for greater access for services sectors so that further synergies can be built across nations.
Generating and sustaining high growth is not an option but a necessity for the region that houses a large number of the world's poor. The countries need to quickly sit across the table and identify specifics, which can be achieved at the earliest to forge partnerships. It will be good if industry across borders takes the initiative.
Industry in India and Pakistan should look at taking the first step towards creating the right environment for greater investment flows and identifying ways and means for building synergies across sectors.
The writer is Principal Adviser at APJ-SLG Law Offices
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
