Wednesday, May 5, 2010

An Economic Spark for SAARC

Last week, the 16th summit meeting of the eight countries of South Asia was held in Thimpu, the capital of Bhutan. While there was a lot of talk about further talks in the future, there was also a recognition that the region has performed far below its potential. In this article, "An economic spark for SAARC", published in the Wall Street Journal Asia, on 5 May 2010, I suggest that we in India need to go beyond talking, and lead the way by unilaterally opening our economy to free flow of goods and people, and contribute towards a more prosperous and peaceful South Asia.

The biggest news out of the recent gathering of South Asian leaders in Bhutan was that the prime ministers of two of the largest countries in the region, India and Pakistan, took a stroll together. The eight-member regional grouping, which has always been under the shadow of the India-Pakistan relations, pledged to have more meetings in the future, and the big two reiterated once again to resolve all outstanding issues peacefully through—that's right—more talks.
The South Asian Association for Regional Cooperation has been elegantly recycling this playbook for a quarter century now. It's time for another strategy: namely, unilateral liberalization. And India should lead the way.

The idea isn't as crazy as it sounds. In his opening address to the conference last week, Indian Prime Minister Manmohan Singh said "regional cooperation should enable freer movement of people, of goods, of services and of ideas," adding, "it should help us rediscover our shared heritage and build our common future." He noted the share of intraregional trade and investment flows in total trade and investment flows in South Asia is far below that seen in East and Southeast Asia.

There's certainly an economic case to be made for cross-border liberalization. According to a World Bank estimate, intraregional trade within Saarc could rise to more than $20 billion annually, from $5 billion today, if the gamut of trade barriers were removed. Trade between India and Pakistan alone could jump to about $9 billion from about $1 billion today. Nepal, one of the poorest countries in the world, could double its GDP if it could harness its hydroelectric potential and sell electricity to energy-starved India.

If Saarc doesn't formalize these flows by allowing trade, they'll happen in a more inefficient fashion in the underground economy. Informal trade between Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka could already be in the range of $5 billion, according to scholars who specialize in tracking the underground trade. The tiny United Arab Emirates has emerged as one of India's top five export destinations, and is believed to be a conduit for Indian goods in demand in Pakistan. Across the more porous Bangladesh-India border, almost everything from sacks of rice, live cattle, cooking gas cylinders and a whole range of other goods are routinely smuggled. Screenings of popular Indian films are prohibited or restricted in many of the countries. Yet pirated music and movies from India are in very high demand across the region.

There is already a history and culture of free trade in the region. Traditionally, India and Nepal have enjoyed an open border. Millions of Nepalis already work in India. There are perhaps a few million Bangladeshi migrants who are working "illegally" in India, defying border controls. Far from being terrorists waiting for an opportunity to strike, the fact that Muslims from a neighboring country prefer to enter India in search of a better life provides the best evidence of the success of an open and pluralistic India.

Clearly Prime Minister Singh's vision of an integrated South Asia is already taking shape, despite the many barriers. People are either expressing their choice through their wallet, or voting with their feet. By removing those barriers unilaterally, India stands to boost greatly the economic prospects for the whole region. If Indian companies have been able to successfully adapt to meet the competition from China, then competition from Saarc would pose no threat.

India's soft power would offer new opportunity to the talented, and new icons with local flavors would emerge to rub shoulders with India's own, the likes of Aamir Khan or Narayana Murthy, or Sachin Tendulkar or Lata Mangeshkar. Experiencing such possibilities would drive out the last vestiges of parochialism, as people begin to enjoy the rich diversity on hand. In such an open environment, it's unlikely that regional identities, especially in Kashmir, would pose a threat to anyone. Freedom of movement and trade will open the door to prosperity, and build a peace constituency in the region against extremism and violence.

More importantly, with an open border security agencies will be able to focus all their attention on those few who really pose a threat, rather than trying to stop the flow of a vast array of contraband goods through a closed border. Traders and travelers are among the most useful sources of information from places they visit. And information is the most powerful weapon in any effective counterterrorism operation. Also, liberalizing trade will cut the source of funds to criminals who typically work hand-in-glove with the terrorists. After all, only when trade is outlawed can outlaws profit from trade.

Today, the world has woken up to India, after decades of self-imposed isolation. Now India should open itself to the neighbors, and to new possibilities. Rather than talking about talks, here is an opportunity for India to walk the talk, and truly reshape the destiny of nearly one-quarter of humanity.

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