End Saarc pessimism

As Prime Minister Narendra Modi embarks on a trip infused with the neighbourhood spirit this week to attend the 18th Saarc summit in Kathmandu, he may reflect on a certain irony — that while the Indian subcontinent was one of the economically most active regions of the world (Britain’s Indian possession being the “jewel in the crown” of the empire over which the sun never set) despite the fact that its GDP remained somewhat stagnant in the last four decades of colonial rule, the collection of countries of the South Asia region is economically among the most sluggish in our own day.

What was not much over half-a-century ago practically a common market in geo-economic terms (of course it was the same country), Saarc is today the world’s least integrated trade and economic bloc, although tariffs have been coming down steadily since 2006 when South Asia Free Trade Agreement (SAFTA) became a reality.

The broad idea is to have tariffs lowered to five per cent or less from their current rates. That will help, but further tariff reduction alone is not likely to appreciably push exports and imports among the eight member countries of the grouping. Much more challenging impediments — that frequently arise as a function of politics in specific cases- need to be overcome in order to get ahead. Remember the official intra-Saarc trade is only around six per cent of the overall international trade of the Saarc countries. This rises to a mere 10 per cent if the unofficial trade is taken into account.

The so-called sensitive list of items that each country arms itself with in the (usually) vain hope that such a strategm might help nurse and protect particular sub-sectors of its economy must be drastically pruned if not scrapped for trade within Saarc to move up. Even with the crippling handicap of non-tariff barriers (NTBs) that are monumentally present within Saarc as an inhibiting agent, India-Pakistan trade, for instance, can grow significantly if only the negative list were consciously emaciated. This could have an electrifying effect on the entire Saarc system since the relations between these two countries are seen as an obstacle to Saarc’s growth.

Another trade-killing factor within Saarc, without which no discussion in relation to the grouping can be meaningful, is the non-tariff barrier or non-tariff measures. Trade economists inform us that if this obstacle were removed or minimised, the trade-enhancing effect will be greater than if tariffs were brought to near-zero.

NTBs can take many forms. Their net effect is to increase the cost of trade, dispirit the trader, and not permit consumers of a particular country of a regional grouping to get the best price for a commodity from another country within that region. Red tape, irksome customs procedures, trucks waiting for a fortnight at the international border between countries, unreasonable sanitary and phyto-sanitary standards — meaning all the various reasons that the goods of one country may not become available to citizens of another even when tariffs are not the issue — are typical NTBs. They are dynamite for intra-Saarc trade.

When we speak of British India having been an active economic player, and goods moving across the subcontinent with ease, it is a fair assumption that the absence of negative lists and NTBs (much of the region was one country) would have been a trade-promoting factor in that era. Not having this cushion is a setback in our times and efforts need to be stepped up to remove the undesirable elements of the trading ecosystem.

But we need to work toward anther leap as well. Since what is now Saarc was virtually one country in the colonial period, there was no impediment to movement of either capital or labour across the vast terrain. Hindu merchant bankers from the upper Sindh and southern Punjab belt (in colonial India) lent money all the way to Kabul and sometimes went as far north as Merv, across the Oxus. It was the same currency all the way through as the Indian rupee of the day was legal tender as far afield as Aden.

With equal felicity, certain specialised branches of Pashtun or Pathan traders, who were Muslims from the Afghan area, went with their wares all the way to Bengal (both East and West). The story of one such Pathan yielded Kabuliwallah, Rabindranath Tagore’s famous short story which was captured as a popular motion picture. There was “trans-border connectivity” in those blessed times when roads didn’t exist. This writer has had the good fortune of speaking with traders in the bazaars of Kandahar not long ago who spoke of family memory of grand-uncles and grandfathers who had trading establishments in Bombay and beyond, and bemoan the Partition of India that ended a way of life.

We can’t bring back those times. There can’t even be a customs union as that would mean aligning tariffs along eight countries, many of whom are mired in mutual political mistrust. There cannot be a South Asia Community like the European Community, for a common currency is impossible to think of for now. But we can certainly think of “SAFTA plus” by thinking of cross-border linkages and connectivity, especially in the areas of transport and energy.

It is time Saarc pessimism gave way to a more positive spirit that induces action in the post-SAFTA phase. The time of cross-border connectivity and energy and transport corridors may have arrived. These will be development corridors really. All countries and regions which lie in their path will benefit from the economic bustle and buzz they are intended to create. This is the message Mr Modi is expected to unveil in Kathmandu.

At the 7th South Asia Economic Summit preceding the Saarc summit, prepared by Research and Information Systems (RIS) in New Delhi earlier this month, a leading Bangladesh Saarc veteran reminded the audience that the spectacular economic rise of China had caused the rise of its smaller neighbours as well, but this was not true of the sustained lift in India’s growth trajectory over a 15-year stretch. This seems a fair point. The lacuna in India’s case is the absence of financial and infrastructural linkages with neighbours. The survival of Saarc these 30 years is itself a testimony to its need.