World Bank released ‘A Glass Half Full: The Promise of Regional Trade in South Asia’ report recently.
What does it reveal?
The report estimates India’s potential trade in goods with South Asia at $62 billion against its actual trade of $19 billion.
It said the trade between India and Pakistan is $2 billion but without trade barriers, this could be $37 billion.
Intra-regional trade in South Asia is negligible and stands at a mere 5% of the region’s total trade.
The report recommends an approach of open regionalism, and views intraregional trade as complementary to deeper global integration.
India can play a critical role in regional cooperation for mutual economic and welfare gains.
It highlights two specific examples of cooperation in the region that sheds light on both the barriers and the opportunities related to regional trade and connectivity.
One is the setting up of borders haats by India and Bangladesh, which enabled small-volume trading among local communities on both sides of the border.
Another is the liberalization of India-Sri Lanka air services, which has improved connectivity, reduced air fares, increased passenger traffic and air cargo volume.
Both serves as a model for an incremental approach towards deeper trade cooperation in the South Asian region.
Deeper regional trade and connectivity can reduce the isolation of Northeast India and will give Indian firms better access to markets in South Asia and East Asia.
It will also allow these regions to substitute fossil fuels by cleaner hydropower from Nepal and Bhutan.
Indian consumers will also gain from availability of greater variety of consumer goods at cheaper prices.
How should India’s trade relations progress?
With Bangladesh – India is already selling power and pharmaceuticals and it is building a railway line through the country that will cut the distance to our north-eastern States.
Local border markets are bolstering cross-border trade between communities and spurring mutual trust.
India’s automobile manufacturers like Tata Motors and Ashok Leyland play a major role there and there is a possibility of controlling a sizeable chunk of the Bangladesh commercial vehicle market.
However, Indian auto manufacturers face competition from the Japanese who sell refurbished vehicles in the country.
Large numbers of medical tourists also arrive from Bangladesh and they account for a large chunk of medical revenues, especially in Kolkata.
With Sri Lanka – According to the World Bank study, both sides operated 147 flights a week to 11 Indian destinations in 2017.
Sri Lankan recently offered Indian visitors visas on arrival which had a huge impact on the island nation’s tourism industry.
However, it did not demand reciprocal visa on entry rights, which a more security-conscious India might have been reluctant to grant.
This made Indians to move on to the top of tourist arrivals to the island nation from ninth position.
It is also said to be considering visa-free entry for Indians and Chinese in the near future.
With Nepal and Bhutan – India-Nepal relationship has always been fairly open, but in the last three years it has soured.
India is getting hydroelectric power from Bhutan and looking at similar arrangements with Nepal, which could allow us to substitute more fossil fuels with cleaner hydro-power.
With Pakistan - Small quantities of trade in cement and agri-products reveals meagre trade potential between the two countries.
The Pakistanis make tractors and also have a large two-wheeler and auto-components market.
But India, which has a highly developed auto-components industry, contends Pakistani auto-components are of inferior quality and shouldn't be allowed in for now.
Hence, tariffs need to be harmonised for large-scale trade to take place.
Where does the future lie?
The troubled political climate in the region deters Indian investors from looking closely at our neighbours.
Regional power status of India is being aggressively challenged by the Chinese who possess vast foreign exchange resources and top-notch infrastructure-building skills, which is witnessed in its Belt and Road Initiative.
Trade between South Asian nations hasn’t been improved with SAFTA, where each country has a long list of trading restrictions.
Also, in South Asia, protection is greater in the case of imports from within the region than from the rest of the world.
Hence, Countries like Bangladesh and Pakistan can utilise India’s vast market potential and enrich its exports, which could boost intra- regional trade.
India and all other south Asian neighbours should look at lifting the curbs and galvanise intra-regional trade as quick as possible.
