Economic Integration in a Rising South Asia

Jawaharlal Nehru Port is the largest container port in India I Image: Jargan Josh

Home to a population of 1.7 billion and an average economic growth rate of 6% over the past decade, South Asia is one of the fastest growing regions of the world. While most countries within South Asia are developing, they are doing so with little regional cooperation. This is in contrast to regions in the past that have progressed together, such as South East Asia, or the European Union, which used regional economic cooperation  to create one cohesive regional identity. South Asia is peculiar in that it is home to countries that share much more with each other culturally and geographically than many in other regions, but would much rather develop slowly and independently rather than rapidly and in conjunction. This leads to the question of why a region so dynamic and full of possibilities fails to take advantage of the benefits that lie in its immediate neighbourhood. As is often the case, politics and history in South Asia have always overshadowed its economy and continue to do so to this day. The limits to economic cooperation are facilitated by persisting hostilities along lines of terrorism, border conflicts and international alliance engagements.

These political disagreements have cost the region the opportunity to integrate in the same way many others have. At this point, the intra-region trade within South Asia accounts for less than 5% of the individual trade proportions of countries in the area. This is very low compared to the Europe Union (EU) and the Association of Southeast Asian Nations (ASEAN), where intra-regional trade is at 60% and 25% respectively. Currently, the trade between countries in South Asia accounts for approximately $28 billion annually. However, with greater integration this could grow to above $100 billion. Due to tariffs and duties, intra-regional trade costs for border sharing countries such as Pakistan and India is often higher than the costs of trade with countries outside of the region. It costs India less to trade with Brazil, which is 9000 miles away than it does to trade with Pakistan. This is because of limits on border movement and lack of accessible transit routes that other countries in the region are allowed to use.

It is of immense interest to those who work on the region’s economy to find ways to improve this situation. It is statistically proven that when countries trade with each other, they are less likely to fight wars and incite inter-state conflicts. While the political issues in the region are not going anywhere in the near future, we can expect them to decline in importance with an increase in trade between the countries of South Asia. So while India discusses border problems with Bangladesh and Pakistan, it should continue trading with both. Similarly, one way to improve relations with Afghanistan would be for Pakistan to offer a land transit route to the landlocked country. Even Nepal should be able to trade through India as energy is a major avenue for cooperation. While Bhutan and Nepal have excess energy potential, countries such as India, Bangladesh and Pakistan are all lacking in ability to fulfil their demands. Cooperation along these lines could increase interdependence and benefit all regional players. Greater engagement with each other could also increase future costs of conflict manifold and incentivize the countries in the long term to solve their bilateral disagreements to enhance trade.

Furthermore, where politics need not be a factor in inter-state relations, it should be denied any nuisance value. Organizations such as South Asian Association for Regional Cooperation (SAARC) need to be de-politicized and used as a means to further regional economic objectives. The kind of framework followed by the ASEAN countries and the EU may provide a good frame of reference. Whereas these agreements have often maintained a degree of independence from inter-state political scuffles, SAARC has failed to do so. The recent boycott of the SAARC meeting in Pakistan by India, Afghanistan and Bangladesh is proof of that. More than a genuine commitment to sanction Pakistan for its alleged support of terrorist organizations attacking Afghanistan and India, this boycott was meant more to embarrass the host, which it succeeded in doing so. If sanctioning Pakistan was the real aim, surely all of these countries could end trade with the country entirely. That being said, it is important that Pakistan plays it’s part in assuaging the fears and concerns of its neighbours on the topic of terrorism as best it can, which it has so far failed to do so. Furthermore, Pakistan’s insistence on depriving India of the Most Favoured Nation status has been used as a political ploy to garner domestic voter support. Had it been handled with more earnest, this opportunity could have instead been used to improve economic ties immensely between the hostile neighbours.

It is time that politics are kept at bay where they do more harm than good to all countries involved. Political problems and historical rivalries cannot be eased in a matter of days but greater economic engagement can increase the will on the part of all countries to create genuine resolutions for such problems, in order to establish better ties for the future. South Asia should learn from countries such as China and Japan, which have had similar problems for decades but have not let them interfere with their economic objectives. The region has only to gain from trading within and nothing to lose.

Note: All of the statistics used was used from one source from a World Bank series on South Asia. The link is provided below.

The content of this article does not represent the positions, research methods, or opinions of the Synergy Editorial Committee. We are solely responsible for reviewing and editing submissions. Please address all scholarly concerns directly to the contributor(s) of the article.

Misha Shahid is a student at the University of Toronto.

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