“GEOGRAPHY determines fate,” said 14th-century philosopher Ibn Khaldun, indicating that while humans are divided into many categories, geography is one of many factors responsible for unequal economic opportunity. South Asian geography has been blessed in more ways than one. The Indus Valley Civilization was not only known for its sophistication in city planning and grid structure, it was also a civilization that did not end in conflict. Thousands of years later, South Asia, once the home of peace and prosperity, is one of the poorest and least integrated regions in the world.
Home to 25% of the world’s population, South Asia is the least integrated in terms of trade and people-to-people ties. Intra-regional trade represents only 5% of total trade, which is tiny compared to ASEAN where intra-regional trade is around 25%, and nothing compared to the EU where it represents almost 70% of total trade. Trade barriers hamper regional potential as it is 20% cheaper for an Indian company to trade with Brazil than with Pakistan.
Attempts to improve integration were formalized in 1985 with the creation of the Saarc, but this organization died. While Saarc was able to build regional centers and a university, it could do little for trade – almost no notable trade takes place among its members outside India. Bangladesh has become India’s fourth largest export destination, but its trade with five other countries in Saudi Arabia accounts for only 2% of the total. India is interested in trade with its neighbors but ignores Pakistan. Annual meetings which invited leaders to meet also ended after Pulwama. The last summit took place in 2014 in Nepal while the next planned one in Pakistan never took place.
Organizations like Saarc need to rework their goals.
This situation is costing the region a fortune. The World Bank estimates that unlimited electricity trade could save the region $9 billion a year in supply costs and reduce emissions by generating renewable energy from Himalayan hydroelectric sources. A study by the Indian Council for Research on International Economic Relations confirms that the trade potential is between $11 billion and $20 billion for India and Pakistan alone; the World Bank estimates it at 37 billion dollars. Another estimate from the bank notes that the loss due to the regional trade deficit is $44 billion per year. Obviously, it is not the lack of potential that is hampering trade, but the lack of political will and vision on the part of the two largest countries in the region. Saarc tried but failed to convince Pakistan and India of the benefits of a better integrated South Asia.
If all of economics could be summed up in one sentence, it would be that prosperity doesn’t happen in isolation. One of the reasons Saarc did not work was that its original design assumed an equal interest on the part of its members in the conduct of business. India shows great interest in regional affairs through sub-regional organizations such as BIMSTEC and BBIN, but avoids Pakistan.
The situation in Afghanistan does not make things any easier; however, a better integrated South Asia is not wishful thinking on the part of the few, it is a necessity for regional stability. Evidence shows that climate change is particularly bad for countries in the South, which are warming faster than the rest of the world. Estimates show that the loss of the Himalayan glaciers will further jeopardize the lives and livelihoods of the 750 million people who depend on them. Agriculture, which still employs nearly 60% of South Asia, will be strongly impacted. A study confirms that climate change will lead to a 30-40% drop in Indian agricultural production by 2080. The threat also extends to food and energy security, mass migration and widespread poverty, making the inevitable need for integration.
To improve regional integration, organizations like Saarc need to rework their goals to a) harmonize and recalibrate the national interests of each country, instead of having an overall goal of regional prosperity; b) highlight the potential damage of continued regional disintegration, given future common threats; and (c) offering security and justice as well as the promise of economic gain, which involves addressing issues such as immigration and crime prevention.
The region should also consider having technical associations in interest-based subgroups. Unless such an organization tackles bad policies, tariffs and unnecessary regulations, the goal of integration will continue to fail.
The success of the EU, which had its roots in the European Coal and Steel Community, rested on the goal of making war between its members “not only unthinkable, but materially impossible”. This is a good example to study. South Asia must strive to reduce its populism, which is fueled by social media, because a good economy needs responsive politics. The citizens of this region do not deserve to bear the cost of the disintegration caused by the denial of the right to coexist and integrate.
The author is a researcher at the Center for Business and Economic Research, IBA.
Posted in Dawn, November 6, 2022