Regional Economy

IPCS Forecast: South Asian Regional Integration

12 Jan, 2015    ·   4803

Prof Amita Batra says 2015 is an opportune time to set the processes for South Asian regional integration in motion

Amita Batra
Amita Batra
Professor of Economics, Centre for South Asian Studies, Jawaharlal Nehru University
In May 2014, when India made the unprecedented gesture of inviting the heads of all SAARC member-countries for the oath taking ceremony of its new Prime Minister, hopes were raised that a new beginning for regional cooperation in South Asia was now in the offing. A few months later, both days of the 18th SAARC Summit were spent speculating about the possibility of a breakthrough in the cold vibes shared by the heads of India and Pakistan. While the Summit was rescued with a last-minute agreement on energy cooperation, two other agreements, on road and rail connectivity were left languishing.

The much-expected revival of SAARC did not happen; but there was a hint among SAARC members of moving ahead with interested partners. The first month of 2015 has seen interesting developments with the West Bengal Chief Minister accepting Bangladesh’s invitation for a visit and a surprise outcome of presidential elections in Sri Lanka. What do these three developments mean for South Asia?  

South Asia: Open and Differentiated Regionalism
First, it is time to reformulate the idea of regional cooperation in South Asia as open and differentiated regionalism. Member-countries should come together in smaller sub-regional groups with a focussed agenda comprising both common challenges and aspirations that are cross-border in nature. Once they are successful in attaining the limited agenda, the aims and objectives can expand and so can the membership as non-members would begin incurring the costs of non-accession. In due course, sub-regionalism would serve as a preparatory ground for merging into larger groupings as it would be indicative of the members’ willingness to act in a cooperative framework with their neighbours and a readiness to join larger groupings in the region that go beyond these members.

Within South Asia, sub-regional groups already exist. Membership in some of these sub-regional groupings extends beyond South Asia to Southeast Asian/East Asian countries. These include the BBIN with Bangladesh Bhutan, India and Nepal as members; the BCIM with Bangladesh, China, India and Myanmar; and the BIMSTEC with Bangladesh, Bhutan, India, Nepal, Myanmar, Sri Lanka and Thailand, as member economies.

Instead of the existing overlapping and all-encompassing objectives of these sub-groupings, it would be better to delineate a workable agenda based on an area of comparative advantage for each and adopt a focussed approach towards its achievement. Issues of hydropower, movements of peoples, transit rights etc. could be primary areas for the BBIN; connectivity and economic corridors for the BCIM; and supply chains in textiles and clothing and gas pipelines could constitute the working agenda for the BIMSTEC.

The resource and expertise-constrained South Asian economies may then be able to contribute to and benefit from these groupings in accordance with their potential. A necessary prior requirement in this context would be the establishment of an institutional mechanism that includes a secretariat, working groups with requisite expertise, regular meetings, coordination and periodic exchange of information and reports. Over time, a merger or expansion of the sub-regional groupings could shape into regional formulation.

Accessing India's Northeast through Bangladesh
Second, apart from the Teesta water sharing arrangement and the land boundary agreement – two significant issues that might see a resolution during the West Bengal chief minister’s February 2015 visit to Bangladesh – the two countries may also like to consider the issue of full transit to India’s Northeast via Bangladesh. Preliminary action on this front was evident in 2014 when Bangladesh, under a special transit arrangement, allowed transport of food grains to Tripura through its territory. The certainty of a full transit agreement will facilitate connectivity of the Northeast Indian states with the rest of India and as a consequence, allow them to take advantage of the Indian economic dynamism.

India, Sri Lanka and CEPA
Third, the political change that Sri Lanka recently saw augurs well for the India- Sri Lanka Comprehensive Economic Partnership Agreement (CEPA) negotiations for which, beginning 2005, led to a framework agreement scheduled to be signed in 2008. Reservations regarding the services sector liberalisation, particularly mode 4 related movement of professionals, investment and non- tariff barriers (NTBs) coupled with lack of political will have prevented the CEPA from being signed and operationalised. In order for this to happen, the CEPA must uphold the same principles of non-reciprocity and differential treatment as was the case in the India-Sri Lanka Free Trade Agreement (FTA).

The India-Sri Lanka FTA is an example of a south-south trade agreement that has taken into account the asymmetry of the two economies in its provisions and yet been successful in generating a positive outcome of increased trade for both economies. Deeper integration via the CEPA may be particularly opportune when India is attempting to revive its manufacturing sector; and fears with regard to NTBs and services liberalisation may be better combated with more rational assessments of alternative liberalisation scenarios.

Strengthening developing country linkages is an imperative in the post-global financial crisis period when several traditional Western markets are unable to generate sufficient growth and hence demand for exports of these economies. Regionalism is being actively pursued by the rest of the world. South Asia must therefore make best of the available opportunities in this direction in 2015.