SAARC and Its Future

The SAARC comprising of eight countries, India, Bangladesh, Bhutan, Sri Lanka, Maldives, Nepal, Afghanistan and Pakistan as a regional grouping has been in existence for almost 30 years ( with Afghanistan joining in 2007) and is still attempting to bring about closer integration between the member countries but without much success.

Even though the objectives of SAARC in its charter signed in Dhaka in 1985 was to accelerate economic growth in the region and build mutual trust among member states, serious problems of cohesion still remain, making the region one of the least integrated.

The 18th summit of SAARC was held in Kathmandu Nepal in November 2013 but the outcome was not exceptional in any way. It was as always full of fanfare, rhetoric, plenty of handshakes and promises. On top of the agenda were three connectivity agreements on road, rail and energy. Only one of these– on energy, was signed. The remaining two will be discussed again in three months’ time as Pakistan has not completed its ‘internal processes’ to endorse them. The lack of political will to make SAARC a dynamic grouping was evident since its inception and was again evident in Kathmandu recently.

South Asia is one of the most backward regions in the world and the need for development and a higher rate of economic growth in all the member countries is imperative. It contains 23.4 per cent of the world’s population but accounts for only 6.66 per cent of the world’s GDP (at PPP) and nearly 40 per cent of the world’s poor surviving on less than $ 1.25 a day. Poverty, illiteracy, inequality, unemployment, low productivity and malnourishment plague the population of the region. Yet the SAARC member states have not been able to strengthen their economic ties to a significant extent to work together towards the development of the region and their attempts at collaboration on developing their industrial and social sectors, better connectivity and encouraging greater amounts of investment, have remained lacklustre.

The ‘people to people’ contact essential for building greater trust among the members of SAARC has also not moved fast enough. There are visa restrictions and foreign exchange issues that hold back tourism. Also there are major problems in travelling from one country to another through road and rail.

An atmosphere of suspicion and mistrust prevails among all the members especially regarding the free movement of people and goods within the region. Greater amount of travel by citizens of the SAARC countries within the region would allow them to realize their common cultural and civilizational roots and develop a common South Asian identity, so important for any regional integration. An expansion in tourism will encourage trade and investment and strengthen cross-cultural ties.

‘People to people’ contact can influence political will also and foster political commitment for regional cooperation. It would allow a greater confluence of ideas based on diverse religious, cultural, philosophical traditions of South Asia and it could lead to a greater sharing of literature, music, films, and lifestyles. In recent years, whenever there has been ‘people to people’ contact between Indians and Pakistanis for example, there has been expressions of solidarity and appreciation of mutual traditions and cultures

In the field of economic cooperation, the problem is with Pakistan. The Most favoured Nation (MFN) clause has not been granted by Pakistan to India though Pakistan’s cabinet finally agreed to it on November 2011, 15 years after India had granted it to Pakistan. It means that Pakistan’s tariffs will continue to be charged at differential rates for Indian products, as compared to Pakistan’s other trade partners.

Pakistan’s fear comes from the fact that India as a bigger economic power will swamp its market and may contribute to the decimation of its own industries. Though Pakistan and India have not had an open war in the last 40 years, ( except for Kargil), the state of military preparedness and hostility on both sides stand in the way of deeper cooperation and trust. The progress of SAARC has not led to India-Pakistan entente cordiale.

As such the countries in the region do not have many complementarities. They have similar endowments in skills and produce the same type of products. All the countries have a strong agricultural base and similar crop patterns. Food security is a common problem in all the countries and more than 50 per cent of the population in each of the member countries is dependent on agriculture.

Cooperation in agricultural practices would be beneficial to all the countries of SAARC. India has spearheaded agricultural research and can share its research outcomes with the SAARC members. Low agricultural productivity has led to the high level of poverty in the region. Along with agricultural productivity there is need for food security. The Kathmandu declaration has noted the urgent need to establish a food and a seed bank for the region.

In trade, the first bold step towards freer trade was taken with the establishment of South Asian Preferential Trading Arrangement ( SAPTA) which was signed in 1993 and came into force in 1995. It was considered to be the main stepping stone towards higher level of intra regional trade liberalization and economic cooperation. It was negotiated on product by product basis but the stringent ‘rules of origin’ clause was difficult to implement and was responsible for its failure.

SAFTA came into existence on January 6th 2004. It aimed at the reduction of customs duties on all traded goods to zero by 2016. But the sensitive lists of all the members for which there would be no tariff reduction has remained long. SAFTA however has aimed at shortening of the sensitive lists, reduction of non tariff barriers (NTBs) and para tariff barriers and tackling the rules of origin issue.

Cooperation in reducing NTBs and dealing with SPS (Sanitary Phyto-Sanitary) measures imposed by the member countries of SAARC on each other’s products, will lead to higher trade volume. Modernizing customs check posts and stations and installing testing labs in the vicinity would help in expediting the flow of goods between the neighbours.

Bilateral trade agreements between members have been undertaken even though today regional trading agreements are the order of the day and changing the world economic landscape. More than one third of global trade takes place among countries that have some form of mutual regional trade agreements. Even after nearly 10 years of SAFTA and steep reduction in tariffs at least by India, trade among SAARC countries has not reached 5 per cent of their total trade so far.

All SAARC members have small and medium scale industries that need restructuring and made more competitive. As small and medium scale enterprises are very important segment of manufacturing sector in the region, cooperation in technology up-gradation and marketing of products would increase competitiveness and reduce costs. South Asia has to move up the value chain by progressively diversifying its export structure in favour of more rapidly growing and high value added goods and services. Thus the issue of building competitive production capacities in MSMEs becomes a key issue. Building regionally integrated value chains will enable South Asian countries to enhance efficiency of sourcing by reducing costs and lead times. Cooperation between the members of SAARC in small and medium enterprises would lead to higher productivity and incomes.

 

There can be cooperation in non conventional sources of energy and finding alternative to fossil fuels. Possibilities of energy cooperation are likely to go forward in the future. Already energy deals between India and Bangladesh have been signed in energy and also with India and Nepal. India signed a deal to build 960 megawatts Arun III dam in Eastern Nepal. Most of the electricity generated will be exported to India. India has agreed to supply 600 MW of electric power from the grid at Palatana ( Tripura) to Bangladesh. The region is one of the most energy deficient regions in the world. In Bangladesh only 47 per cent have access to electricity. Alternate sources of energy would give power to the region such as wind, water, and nuclear and further industrialization.

 

Connectivity is extremely important for the region’s prosperity and getting linked with ASEAN, Central Asia and Europe. The revival of the Silk Route is an important development which India and its neighbours cannot miss. Recently, Pakistan’s reluctance to come on board on the connectivity agreement seems to be in response to India breaking away from its promised bilateral talks over Kashmir after Pakistan refused to stop talking to Kashmiri separatists. It has also shown resistance in India’s request for transit for goods and passenger by road through Pakistani territory to Afghanistan. Clearly this move is not going to increase connectivity in the region.

The region needs foreign direct investment for its infrastructure development. In encouraging investment from within the region, there are many problems and first and foremost is the lack of multilateral investment guarantee in the region. Various bilateral investment guarantee agreements have been signed between members for securing investment. Within the region, small and medium businesses experience hurdles in transferring money back from the host countries to their home countries. This is especially true for India and Bangladesh investment ventures. Even between Sri Lanka and India , there are immense possibilities but again there are problems which need to be addressed. As Prime Minister Modi said at the Kathmandu Summit “ Indian companies are investing billions abroad but less than 1 per cent flows into our region.”

There is an urgent need to collaborate on climate change because the region is likely to experience the impact of climate change most severely and many parts of the region could get submerged in water leading to mass migration within the region.

At Kathmandu, the SAARC leaders called for the operationalization of SATIS ( SAARC Agreement on Trade in Services) signed in Thimpu in 2010.Liberalization of the trade in services would be an incentive for attracting FDI in services in the region. The participation of the private sector is very important in the integration of the region. So far there has been a cautious approach followed by the members in the liberalization of trade in services.

The leaders also agreed to strengthen the social window of the SAARC Development Fund. There are many deep seated social sector problems in the region that need to be addressed urgently and the progress made so far has been slow. For SAARC to be successful, a lot has to be done and quickly on the social sector front. A major problem is achieving gender equality (addressed in SAARC’s social charter) and there has to be more effort made to empower South Asian women. The South Asian region is rife with gender inequality and exploitation of women especially in low paid professions. Women’s empowerment in all the countries is needed to bring about gender equality and a balanced sex ratio.

On the human development front India seems to be a laggard among members of the SAARC, with Bangladesh, Nepal and Sri Lanka ahead of India in some of the Human Development indicators. India’s own problems are huge especially in having the highest percentage of malnourished children under the age of five, in the world.

In view of the problems of SAARC as a regional entity, sub regional cooperation seems a viable option. For example the sub-region comprising of Bangladesh, Nepal, Bhutan and India’s North East , Bihar, and West Bengal could be a viable alternative. SEZs could be established in the border areas and more trade and investment cooperation could be worked out especially in food processing and small scale manufacturing. Training centres could be established in the border areas and there could be more employment opportunities.

In trade and investment, eliminating NTBs would be important especially para tariff barriers among the countries of the sub region. The North East region could experience higher rate of growth if transhipment is granted by Bangladesh for transport of Indian goods across its territory. This could lead to the creation of a ‘growth corridor’ connecting northeast of India to Bangladesh ports which would enhance economic activity leading to the creation of employment opportunities.

The sub region holds a huge potential to redefine economic geography of not just the sub region but through connectivity with East Asia, ASEAN and China with Myanmar as the node for the mutual benefit of all countries of SAARC.

In general, there are two forces at work in the South Asian region. Viewed from a gravity model perspective developed by economists and geographers, India is the most important country in the region. The size of the country, the dynamism of the economy and the close proximity of the smaller South Asian countries to India has led to the gravitational pull of the Indian economy vital in their quest for cooperation and prosperity. There is an asymmetry arising in the region from the dominant power that India occupies as well as its strategic positioning as the only country with contiguous borders exclusively with six members where none others share borders with countries other than India—with the exception of Pakistan’s border with Afghanistan.

The other economy that has the strong potential of exerting a strong gravitational pull in South Asia especially for the smaller South Asian countries is China. China’s economy has been on a high growth trajectory over two decades and the cooperation between the smaller countries in the region and China in different areas especially infrastructural building has been on the rise. The presence of a strong China which is now the biggest economy in the world in PPP terms, is very important for the region and in the Kathmandu summit, there was pressure to include China in the SAARC.

China was inducted as Observer into SAARC in 2005. The eight other observers are Australia, EU, Iran, Japan, Republic of Korea, Mauritius, Myanmar and the US. At the Kathmandu summit, Chinese Vice Foreign Minister Liu Zhenmin promised a Chinese investment of $30 billion for infrastructure in South Asian and 10,000 scholarships for young South Asians as a mark of Chinese commitment to the prosperity of the region.

According to experts, India is not prepared or willing to open its strategic space in the South Asian region for Chinese presence and influence. India is resisting pressure from SAARC members to elevate China’s observer status in the regional organization. India under the leadership of Prime Minister Modi seems to be poised for spearheading a stronger regional integration plan without taking on the Chinese challenge for the present.

Since India occupies a specially important position in SAARC in terms of geography, population ( occupying 70 per cent of the area and population) and GDP, the future of SAARC lies with India ‘s initiatives that Prime Minister Modi takes in cementing closer ties with all its members and bringing them together as a cohesive regional entity with a strong South Asian identity. Pakistan’s cooperation is vital for the future of SAARC to emerge as a strong regional entity.

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