Rebuilding a regional architecture

The much delayed South Asian Association for Regional Cooperation (SAARC) summit in Kathmandu, on November 26-27, exactly six months to the date from Prime Minister Narendra Modi’s swearing-in ceremony, affords him an opportunity to reconnect with India’s neighbours, this time inventively to revive moribund regional cooperation in South Asia. When SAARC was constituted three decades ago, India was hampered by limited resources for financing partnerships and investments in the region. This now is no longer the case.

Good relations with neighbours is a priority for India. But for this, India has to commit to and accelerate its efforts towards forging closer bilateral and regional partnerships and economic integration within the subcontinent and beyond.

India accounts for well over two-thirds of SAARC’s area, three quarters of its population, and nearly four-fifths of its GDP. More than its relative size, population and resources, it is India’s ongoing social and economic transformation that makes it the natural fulcrum of cooperation in the region.

A sombre outlook

India will have to underwrite the creation of regional public goods for South Asians to integrate. It can do so by facilitating optimal utilisation of the region’s natural resources, building regional infrastructure, creating connectivity within the region and with the world — with energy grids, cross-border transport networks, coastal shipping, air links, roads, railways and waterways, besides flood and other natural disaster mitigation and prevention measures. It can implement trade facilitation measures, thereby lowering transaction costs and generating greater regional investment and employment.

South Asian cooperation faces multiple challenges. With about a quarter of the world’s population spread over four per cent of the global surface, South Asia constitutes the world’s second least developed region after Sub-Saharan Africa. Its per capita GDP, in terms of purchasing power parity, is three times below the global average. It has more poor people than the rest of the world. There is a dramatic disproportion between its population and share in global output and trade.

While the contiguity of countries constituting SAARC is complemented by cultural commonalities and common terrain, temperament, and civilisational space, these were fractured by the borders created in 1947, and poor political relationships thereafter. The advantages of their cultural congruence and shared history and geography were soon dissipated. SAARC has remained saddled with this legacy, and India is viewed with angst by many in its neighbourhood.

Sixteen years ago, the SAARC Group of Eminent Persons had charted an ambitious, three-stage road map for South Asia: a South Asia Free Trade Area, followed by a Customs Union and a broader Economic Union by the year 2020. Mr. Atal Bihari Vajpayee lent his support for the creation of a South Asian Economic Union at the previous summit in Kathmandu in 2002. The 2004 Islamabad Summit called for South Asian energy cooperation and strengthened transportation, transit and communications links across the region. These good resolutions have not been realised. Intra-regional trade and investment remain well below double digit figures, making South Asia the least economically integrated area in the world. South Asian States are connected more to the outside world than to each other.

Why regional cooperation matters

Unhindered regional linkages can help in improving the living conditions of people, especially the most impoverished among them, which is no doubt the most important goal for all South Asian governments. The negative opportunity cost for non-integration of South Asian economies amounts to losing an estimated two per cent of additional GDP growth annually. Integration and connectivity, by permitting economies of scale, have attendant social benefits by promoting growth, and improving public health and environment management. Per capita incomes rise in all integrating regional groupings and SAARC should not have a dissimilar experience.

Regional cooperation can also attenuate inter-state conflicts and raise the threshold below which bilateral relations will not fall. Increasing integration, entailing interweaving interactions and interdependence, based on mutual benefit, will reduce regional tensions, augment India’s leverage vis-à-vis the great powers, and stabilise the region by raising the costs of non-cooperative behaviour.

Initially, SAARC had lukewarm political support and lacked dynamic leadership. Notwithstanding its positive vision, India remained timid in the scope of its ambition and commitments. Progress was achieved in fits and starts, not dissimilar to other similar bodies, in part because regional cooperation, inherently, is a difficult exercise.

The single market in the European Union (EU), was created after a 30-year effort in 1992, when internal barriers to the movement of goods were dismantled and external tariffs were harmonised. The EU is still working on a single market for services and energy, and labour mobility and social welfare payouts for non-nationals are becoming contentious. Within SAARC, the South Asia Free Trade Agreement has an accord on tariffs but the negative lists cover almost half the goods of export interest. Its march towards a customs union might be even more grudging.

The absence of connectivity is another impediment. India and Bangladesh share a land boundary over 4,000 kilometres long, but their trade is mainly conducted by sea. South Asia has no regional production chains, as logistics related trade costs are inordinately high.

The leaders of SAARC must concentrate their efforts on its strategic priorities, instead of spreading cooperation across every aspect of South Asian culture, society and economy. Without losing sight of the longer term goal of achieving a South Asian Union, their focus should be on selecting activities that have the most optimal results in terms of readily accruable mutual benefits. The two core objectives, with significant synergy between them, are promoting freer and more trade and investment, and building connectivity and infrastructure.

What India must do

India must invest in SAARC as Germany did in the EU, through structural funding for infrastructure, and social investment through the Cohesion Fund in order to reduce regional disparities. The distributive element, entailing a larger, immediate pay-off for the weaker economies, would speed integration, in turn adding to regional growth, inward investments and rising incomes and welfare.

Besides these, India-led unilateral, bilateral and sub-regional initiatives could significantly spur regional cooperation. The illustrative examples below could easily be multiplied:

Mr. Modi could build on his resolve, articulated during his last visit to Nepal, to turn the border into a bridge, not a barrier. India could speed initiatives to build gateways for freer movement of goods and peoples.

On hydropower, Nepal declared in 1983 that water resources in the Himalayan watershed “represents one of the world’s last great frontiers of development.” India could take the lead in developing South Asian power trade, which could alter the social and fiscal dynamics of Nepal and contribute to the region’s welfare, besides helping reduce greenhouse gases emissions damaging the Himalayan ecosystem.

If Nepal were to build the Kosi high dam ensuring availability of navigable waters in the channels connecting Nepal to India, India could help unlock Nepal from its landlocked status by gaining access to the Bay of Bengal through India’s national waterway on the Ganga.

India and Bangladesh have agreed already on further measures to facilitate bilateral and third country trade between Bangladesh and Nepal and Bhutan, respectively. India will have to hasten infrastructure building in Bangladesh, focussing on improved energy and transportation connectivity with India.

Afghanistan joined SAARC in 2007 in the hope of becoming a land bridge between Central Asia, South Asia, and the Middle East and a trade, transportation, energy and minerals hub in the region. This idea must be pursued, howsoever difficult it might appear at present.

The shared inheritance of South Asia provides an instinct for comfort and ease of interaction, important but not sufficient factors for promoting regional cooperation. Positive relationships among States require trade and investment, educational, scientific and cultural exchanges, and people-to-people contacts. Since politics cannot really be taken out of any venture between States, they also need an innovative use of diplomacy and statecraft.

India must lift its game for SAARC’s rescue and resuscitation. It must lead by example, building trust with its neighbours, showing solidarity, and forging with them a habit of cooperation. India has the strength to shape regional partnerships that lift neighbouring economies along with its own, not as a symbol of Indian altruism but of its enlightened self-interest. It must help build a regional architecture that creates a congenial space for all its members.

Such a transformation cannot come quickly. It will be conditioned by India’s own growth prospects, and unpredictable circumstances can derail the momentum. It is time, however, for India to take the first determined steps in Kathmandu in the next few days.