Region: Commerce across Southasia

The surge in cross-Southasian commerce, which could be of great benefit to the peoples across the region, has yet to happen, even if the economic logic is clear enough. The reason for this can be found within the national establishments of each country, which are still in the process of consolidating themselves. In the context of impressive economic growth of India, and the need to spread this across the region, as well as the need to shore up post-conflict economies as in Sri Lanka and Nepal, it is time to make one more push for cross-Southasian trade. Not only would doing so bring more and cheaper products and services to the people, but trade remains perhaps the best confidence-building measure – restraining both ultra-nationalist posturing as well as the martial spirit.

Unfortunately, Southasia today trades mostly with the outside world, rather than within itself. Whereas 25 percent of trade of the countries of ASEAN is with each other, in the Subcontinent this figure stands at a dismal four percent. This represents a colossal inefficiency, and underlines the failure of opinion-makers in each of our countries to build public opinion on the need to open up trade. For instance, Nepal is unable to take adequate advantage of the massive market next door in Uttar Pradesh and Bihar – to produce and sell its hydropower, or develop its tourism, agro-forestry and all manner of service industries with an eye to the markets across the border. While a Nepal-India transit treaty was signed in 1996, its on-the-ground implementation remains poor. For this reason, Nepal's annual growth in gross domestic product has remained consistently below three percent for more than a decade, even as India's has climbed from six to nine percent. This has also allowed the current rhetoric of ultra-nationalism the space in which to flourish in Kathmandu.

Bangladesh, too, is unable to take advantage of the Indian market. In this case, a near-to-the-surface anti-Indianism has for years blocked a range of sound projects that would otherwise have attracted significant investment from India – most importantly from the Tatas, who withdrew their USD 3 billion investment proposal in 2008. Pakistan feels this type of loss in many ways, when it buys raw material and finished products from Europe rather than from India, or when it pays a premium to source Indian goods via Dubai. Meanwhile, Indian businesses are also losing out – on markets, on economies of scale – when they are blocked from reaching out to the neighbourhood. No one is even keeping track of just how much the Northeast of India has suffered since 1965, when it was simultaneously blocked from the direct lifeline to the Indian mainland as well as denied access to the port at Chittagong. The economic inefficiencies of ultra-nationalism hurt everyone.

There is a fear among some of the national elites that Indian multinationals will swamp the neighbourhood if the fences are downed. The reality, of course, is far more complex. Why would anyone in the rest of the region try to keep Indian business out if they can provide fine products at rates cheaper than importing from overseas? This means India accessing Bangladesh apparel and jute, just as Pakistan could import car parts for the Suzuki 800 ('Mehran' in Pakistan, 'Maruti' in India) from India rather than from Japan.

It is time for the SAARC Chamber of Commerce to raise itself from its stupor, or be overtaken by businesses that will push the respective governments towards significantly opening intra-regional trade. In this process, of course, civil society and activist groups, including those focusing on issues of social justice and the environment, will have to be alert to the very real potential for negative fallout from commercial growth. Also we must be mindful of the need to protect small producers from excessively cheap imports. Assuming that such watchdogging does take place, however, the most significant concern will be to ensure that the possibilities of economies of scale and trade in Southasia are not hurt by the ultra-nationalist obduracy that has affected every country.

Creating a conducive environment in this way will do much to address the myriad issues that the governments of today claim as their central priorities. After all, when trade is inefficient, it is the poorest that are most immediately kept from accessing goods and services at affordable prices.

Trade follows flag (carriers)
In fact, there are signs that the tide is about to turn on the obstacles that have led to a closure of the intra-Southasia market. Nothing dramatic has taken place to speed this resolution, only the consistent push by civil-society proponents of soft borders and open visa regimes. Even as the governments breathe fire at one other (particularly between New Delhi and Islamabad, vitiating the atmosphere for the rest of the Subcontinent), the obviousness of doing crossborder business is slowly building resistance against the ultra-nationalist demagoguery that has kept our economies hostage.

To its credit, Sri Lanka started this process when it signed the free-trade agreement with India in 2008. This has subsequently seen the island's negative balance of payments cut to a third of the previous levels. In addition, the national flag carrier, SriLankan, now flies to eight cities in the Subcontinent, and international businesses have begun to regard Colombo as a stepping stone into the lucrative Indian market. Indeed, even Indian businesses themselves are relocating to the island – in order to sell back to India.

Meanwhile, many Pakistani businesses believe that they would fare better in India than Indian businesses would in Pakistan. Assam businesspeople might, as and when the bilateral opening occurs, fear the more proficient business houses in Bangladesh, but there is significant advantage to be shared from the Indian Northeast profiting from transit through Bangladesh, and Bangladeshi products and services finding a market in the Northeast. The India-Bangladesh memorandum of January 2010, which opens up transit facilities for use by India, Bangladesh, Nepal and Bhutan, might well serve as a platform for growth of commerce – and, one hopes, the bureaucracy of India and the bipolar politics of Bangladesh will allow this to happen.

We also have to look to the future, and how the Himalayan barrier is rapidly coming down as a restriction to trade. Even with the existing infrastructure, there is brisk trade between Nepal and the Tibetan communities to the north, having picked up dramatically since the Qinghai Railroad connected Lhasa to the Chinese mainland. It is only a matter years, certainly not decades, before economic growth in Tibet will require access to the sea through Mongla, Chittagong, Haldia and Kolkata.

For the moment, a harbinger of change can be seen in our region's airlines, which day by day are increasing the range of places being accessed – and connected – in the Subcontinent and beyond. Bangladesh now takes its large long-haul DC-10s for the one-hour Dhaka-Kathmandu flight, such is the demand for seats. SriLankan now serves eight destinations in the mainland. India's Jet Airways serves all the large neighbouring countries except Pakistan. Recently, Kingfisher and Spicejet have started serving Kathmandu. And all of this without even mentioning the state-owned Air India. Even Nepal's Buddha Air is now flying to Paro, in Bhutan and starts Lucknow-Kathmandu in January.

If air links are to be seen as the opening of a new era of Southasian commerce, we are in for a rapid breakdown of barriers. And it may not be long before some entrepreneurs enthused by the prospects of Subcontinental commerce will start an airline called Southasia!