Modi holds the answer to boosting dismal trade in South Asia

The 18th summit of the South Asian Association for Regional Cooperation (SAARC) is taking place in Nepal this week amid a familiar air of pessimism about prospects of enhanced economic integration among its eight member countries.

As a formal institution, SAARC is close to completing three decades of existence. But despite a plethora of technical committees, working groups and mechanisms, it has underachieved in its core goal of ushering in a prosperous and harmonious South Asia. Dismissed as a “magnificent paper tiger” and a perennial “white elephant”, SAARC has a ring of collective disappointment and unfulfilled potential.

Compared with counterparts across the world, SAARC presides over the least integrated region, with suffocating barriers to free movement of goods and people across borders. The United Nations Conference on Trade and Development (UNCTAD) said intra-SAARC trade comprises a paltry 5.2 per cent of the total trade that SAARC members engage with the rest of the world. Valued at merely US$17.5 billion (S$22.8 billion), intra-SAARC trade involves India exporting around US$15 billion to the other seven nations and importing only US$2.5 billion from them in return.

On the other hand, the Association of South-east Asian Nations (ASEAN) does 26.5 per cent of its total global trade among its own members. As much as 22.3 per cent of the Common Market for Eastern and Southern Africa (COMESA)’s total global trade is intramural. MERCOSUR, or the Southern Common Market, in Latin America has 20.3 per cent of its overall trade occurring inside its membership zone.

SAARC’s dismal performance in opening up trade is all the more glaring because South Asia is home to 42 per cent of Planet Earth’s poor and undernourished people. In 1993 at the 7th SAARC summit in Dhaka, member countries committed to an action plan for complete eradication of poverty by 2002. Twelve years after this forgotten goalpost has passed, a subcontinent-wide economic union that can rapidly pitchfork this populous region out of deprivation remains a pipe dream.

Unlike foreign aid or development assistance, foreign trade has a proven capacity to expand economies, create jobs with predictable wage incomes and raise the size of the middle class. SAARC’s unattainable holy grail of a region devoid of penury can only fructify if and when borders of the eight member states are loosened up for intensified movement of goods, services and personnel. The day caravans carrying exponentially enlarged amounts of merchandise and professionals crisscross SAARC borders with fewer restrictions and objections will be the starting point for a war on poverty in South Asia.

OVERCOME ECONOMIC INERTIA

This year, SAARC marks one decade since the signing of the ambitious South Asian Free Trade Area (SAFTA). For all its high-sounding slogans of forging a single market for 1.8 billion people, the speed and depth of its trade liberalisation road map have been appalling. The thousands of restricted items and sectors which member countries withhold from tariff reduction targets have made a mockery of the promise of easier intra-regional flow of goods that can combat inflation and rev up ancillary economic activities along trade routes.

Thanks to an entrenched culture of corruption, narrow nationalism and trade protectionism based on patron-client relationships between politicians and local producers, South Asian countries are saddled with domestic monopolies or oligopolies that deny consumers the best quality of goods and services at affordable prices. It is almost as if globalisation has bypassed South Asia and its residents are living in a time warp.

For clearing the hurdles and overcoming the deplorable economic inertia in SAARC, much depends on the fresh energy and ideas of Indian Prime Minister Narendra Modi. As a champion of commercial diplomacy and an ardent promoter of mutually beneficial business opportunities through foreign policy, Mr Modi has kindled universal hope among all SAARC countries. Even viscerally anti-India outfits such as the Maoists in Nepal have welcomed Mr Modi as a harbinger of a balanced approach towards smaller neighbours.

The possibility of India’s economic growth acting as a rising tide that lifts all boats in South Asia has thus far not materialised, especially as the former runs a huge trade surplus vis-a-vis other member states. Under a politically powerful and commanding leader such as Mr Modi, India should be ready to import a lot more from its neighbours and also encourage Indian capitalists to invest in productive ventures that generate jobs and export revenues in the rest of South Asia.

Outward foreign direct investment from Indian corporations spans several continents, but it is sparse in India’s own neighbourhood due to the prevalence of anti-India politics and protectionist lobbies in SAARC countries.

Mr Modi has sufficient political capital in SAARC to level the economic playing field and project India, the largest player in the region, as more magnanimous and sensitive to fears of smaller nations of being submerged or flooded by a giant.

Mr Modi’s mandate to Indian space scientists to build a “SAARC satellite”, and his determination to beef up road and rail connectivity and border infrastructure among SAARC members are sending out positive vibes that India is transcending narrow self-interest and tending to the needs of the rest of the flock in South Asia.

The asymmetry of power between India and its smaller neighbours in SAARC, which often ignites suspicions about New Delhi’s intentions and impact, can be converted from a problem into an opportunity if Mr Modi seizes the chance.

Shaken by the advancing Chinese dragon, which has made sizeable economic and military inroads into South Asia, India under Mr Modi can only exercise true leadership by acting in the general interests of all in the region. The Modi effect can transform the oft-derided “Big Brother” India into a benevolent major power whose economic dynamism has a positive spillover on the entire South Asian family.

ABOUT THE AUTHOR:

Sreeram Chaulia is a professor and dean at the Jindal School of International Affairs in Sonipat, India.