Aakar Patel | Has South Asia hobbled itself? Can we turn into Korea, Taiwan?

Last week, I wrote about South Asia remaining poor compared to many nations in Asia, which have done something different from us. The task is to figure out what we are doing wrong or differently and what is undeniably different about us and them. It cannot only be, as is argued, that it is the form of economic system that is to blame.

We have tried managing the economy through central planning (India in 1950s and 1960s), through “licence raj” (India till the 1980s), through “liberalisation” (Pakistan from the 1960s and India from 1991). We have returned to the same things we were doing before (import substitution in India in the 1970s and today). We had some success and created sectors where we are leaders (India for a quarter century or so in information technology-enabled services and Bangladesh today in garments).

It cannot be that we do not have, or have not tried to have, hard power. We have developed nuclear weapons and we have spent large sums on our militaries. Pakistan sends 17 per cent of all government spending to the Army, India and Bangladesh send nine per cent. We have tried to be strong — the misguided word used here is “muscular”, and run large parts of the subcontinent with the military (Kashmir and the Northeast in India, Balochistan in Pakistan).

We have tried to remain defiant. We have joined Western alliances (Pakistan in 1960s), we have remained non-aligned (India in 1950s) and we have tried a patchwork of things in between.

But the end result is the numbers we looked at in the previous column. The world’s GDP per capita per year is an average of $12,262. China is slightly ahead of the world average, and Bangladesh, India and Pakistan are one-fifth. We were five times less than the global average in 1960 too, when the global figure was at $459 and India at $82. Note that this is per person income and of the world’s 7.7 billion people, South Asia contributes a full 23 per cent. Meaning we are a drag on the world’s economy and productivity and have been for 60 years, at more or less the same rate.

There must be something we are missing. What is it? The World Bank says that intra-regional trade between Bangladesh, India and Pakistan accounts for five per cent of our total trade, compared to Southeast Asia, where the number is five times higher. Trade annually here is $23 billion though it should really be over $100 billion. Why? The problem is purely man-made.

The World Bank says “border challenges mean it is about 20 per cent cheaper for a company in India to trade with Brazil instead of a neighbouring South Asian country”, and that the main problem is “a broad trust deficit throughout the region”.

It adds that South Asia is “one of the least integrated regions in the world in terms of trade and people-to-people contact. Putting aside traditional concerns and taking joint action can develop cross-border solutions to shared issues, strengthen regional institutions, improve infrastructure and connectivity, and advance trade policy”.
Why should it take outsiders to tell us what is obvious?

Unfortunately, it does. The World Bank adds that regional cooperation has the potential to produce significant gains across all countries of South Asia because the gap in trade is $44 billion annually. We have the space to reduce the 50 per cent higher cost for container shipments in South Asia compared to developed nations. But it can happen only if we are less hostile and more open to each other than we are and have been.

This is the one thing we have not tried. We have not opened ourselves to each other and returned to the sort of geography and economy that we had before 1947. Indeed, we have not devolved internally power from the Union to the states and further along either.

In his book The 10 Rules of Successful Nations, Ruchir Sharma writes that “among the largest emerging nations, trade amounts to 60 per cent of GDP on average, and countries well above that average tend to be major export manufacturers, led by the Czech Republic (142), Vietnam (210), Malaysia (131), and Thailand (117)”.

He adds something that won’t surprise us: “South Asia remains fenced off. Isolation, lawlessness, and the lingering bitterness produced by regional wars have made it difficult for India, Pakistan, Bangladesh and Sri Lanka to open borders, and so far, no leader has stepped forward to ease hostilities.”

India’s trade to GDP has in fact fallen from 58 per cent of GDP in 2014 to 44 per cent today, with Pakistan at 30 per cent and Bangladesh at 28 per cent.

Is it possible that we can open ourselves to each other? If so, in what realistic way, given all the difficulties and ingrained historical resistance? And if achieved, what are the effects this can have on our societies? I do not know if by doing this we can repeat what Taiwan, Japan and South Korea did, but I do know that it removes the one restraint that we have deliberately put on ourselves and can eliminate ourselves. The fact that it is not even discussed widely today in the region, despite all three states being democracies, tells us something about how blind we have become to our condition. And how satisfied and unambitious our political parties are with the way things continue to remain in South Asia as we enter the second quarter of the 21st century. Let us make an attempt, however modest, to change that.