WIDER ANGLE. Galvanise trade within South Asia

Try to imagine this scenario: the entire South Asian region stretching from Afghanistan down to Sri Lanka and the Maldives is a free-trade zone with only marginal controls and a few items that can’t be traded. Indian automobiles made in Bangladesh are being imported back into West Bengal, Assam and other markets in eastern India.

Looking westward, textiles and auto components are arriving in India from Pakistan. And there are frequent daily flights touching down in New Delhi, Mumbai and other smaller Indian cities from Dhaka, Kathmandu, Colombo and, yes, even Lahore and Karachi.

Now, snap back to reality. Intra-regional trade in South Asia is negligible — a mere 5 per cent of the region’s total trade, according to a recent World Bank study ‘A Glass Half Full’.

That makes South Asia, in trading terms, one of the world’s most disconnected regions. It even comes in behind Sub-Saharan Africa. Don’t even bother to compare it with the EU, the US-Mexico-Canada free-trade zone or the Asean region.

But intra-regional trade could be an idea whose time has come. India’s always been the out-sized giant of South Asia and assumed it was the sub-continent’s regional power, challenged only by Pakistan. Today, this comfortable notion of being the regional top dog is being aggressively challenged by the Chinese who possess vast foreign exchange resources we can’t possibly match and top-notch infrastructure-building skills. India can’t even start to compete with China’s gargantuan Belt and Road Initiative.

Is there a way to counter the Chinese? One possible solution is to encourage trade and industry between South Asia’s nations. We already have Safta (the South Asia Free Trade Area), but that’s been a flop because each country, including India, has a long list of trading restrictions.

In fact, in South Asia, protection is greater in the case of imports from within the region than from the rest of the world. The question is how much can India look at lifting these curbs and galvanising intra-regional trade?

There has been some glacial movement showing just what might be possible.

Bangladesh booming

For instance, the Bangladesh economy has been booming in recent years and is transforming into a market well worth looking at for Indian manufacturers. India’s already selling power to Bangladesh and building a railway line through the country that will cut the distance to our north-eastern States. We also sell them large quantities of pharmaceuticals. And local border markets, encouraged by India and Bangladesh, are bolstering cross-border trade between communities and spurring mutual trust.

Tata Motors has just launched its Nexon SUV in Bangladesh and also has a joint venture to assemble pick-up trucks. It aims to start manufacturing the pick-ups in Bangladesh by 2020 and, to meet that target, 25 per cent of the components must be made locally. The Tatas already control a sizeable chunk of the Bangladesh commercial vehicle market.

Ashok Leyland, too, has an assembly unit in Bangladesh. It’s a similar success story for two-wheelers with Hero MotoCorp and Bajaj Auto out in front on Bangladesh roads. Two-wheeler sales have soared by almost 50 per cent to 360,000 vehicles in 2017 from a year earlier and Hero has put up a manufacturing unit in Jessore with a capacity of 150,000.

Shifting south to Sri Lanka, the great success story is aviation and tourism. The Sri Lankans smartly offered Indian visitors visas on arrival and that’s had a huge impact on the island nation’s tourism industry. Some years ago, Indians were ninth on the list of tourist arrivals but they zoomed rapidly to the top.

Sri Lanka wisely did not demand reciprocal visa on entry rights, which a more security-conscious India might have been reluctant to grant. According to the World Bank study, both sides operated 147 flights a week to 11 Indian destinations in 2017. That compared to only 67 from Bangladesh. And now, Sri Lanka’s said to be considering visa-free entry for Indians and Chinese in the near future.

Tourism, in fact, is a hot growth area within the South Asian region in contrast to past decades when it was scant. Now, 25 per cent of all tourists to India come from other South Asian countries. Large numbers of medical tourists also arrive here from Bangladesh and play a role in keeping the hospitals full. Bangladeshis account for a large chunk of medical revenues, especially in Kolkata.

At another level, we’re buying hydroelectric power from Bhutan and looking at similar arrangements with Nepal, which, as an added benefit, could allow us to substitute more fossil fuels with cleaner hydro-power. India-Nepal relationship has always been fairly open, but in the last three years it has soured. Interestingly, more Indian tourists go to Sri Lanka than to Nepal. But overall, connectivity among South Asian countries, even for capital cities, remains very limited and this deters trade.

And Pakistan is, of course, the wild-card in the pack for India. The World Bank study puts India-Pakistan trade at a paltry $2 billion, but says it could be $37 billion without artificial barriers. Small quantities of cement and agri-products already cross the border into India. The Pakistanis make tractors and also have a large two-wheeler and auto-components market.

But India, which has a highly developed auto-components industry, contends Pakistani auto-components are of inferior quality and shouldn't be allowed in for now. Tariffs would, of course, need to be harmonised for large-scale trade to take place and there would be strong lobbies against that.

Political climate

The troubled political climate in the region also deters Indian investors from looking closely at our neighbours. Says one trade expert: “Investment decisions are not easy to make. You’re raising a stake in a foreign territory.” Also, in Bangladesh, for instance, there are other foreign rivals. Indian auto manufacturers face competition from the Japanese who sell refurbished vehicles in the country.

For all our neighbours, though, the big underlying worry is India’s vast size and industrial base. They fret we’d always be running a trade surplus and would have little to purchase from them in exchange. On the other hand, the advantage of India’s size is that if countries like Bangladesh and even Pakistan were able to export to us, they wouldn’t need much else by way of trade.

Says another trade expert: “We’ll always have to look beyond South Asia. But if these countries had good access to the Indian market they wouldn’t have to look anywhere else.”

Bottomline, there’s no question India will have to build up its defences if it wants to hang on to its premier regional position. Trade could be a key way forward if we just seize the possibilities. But we better move quickly.

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