India’s trade with its South Asian neighbours has the potential to triple, says a new World Bank report. It estimates that the country’s trade in goods, $19 billion at the moment, can touch $62 billion if there is deeper regional trade and connectivity within the region.
The report “A Glass Half Full: The Promise of Regional Trade in South Asia”, states that all countries in the region stand to gain from increasing trade cooperation. “For India, deeper regional trade and connectivity can reduce the isolation of Northeast India, give Indian firms better access to markets in South Asia and East Asia, and allow it to substitute fossil fuels by cleaner hydropower from Nepal and Bhutan”, the report says. Stating that Indian consumers will also gain from availability of greater variety of consumer goods at cheaper prices, it estimates that without trade barriers, trade between India and Pakistan can touch $37 billion, from a mere $2 billion today.
While intraregional trade accounts for 50 per cent of total trade in East Asia and the Pacific and 22 per cent in Sub-Saharan Africa, it forms only 5 per cent of South Asia’s total trade.
The report highlights two specific examples of India’s cooperation in the region to shed light on both the barriers and the opportunities related to regional trade and connectivity. While the first is the haat (local border market) initiative by the governments of Bangladesh and India aimed at recapturing the once thriving economic and cultural relationships including reduction in smuggling. The report says that surveys done for this study confirm significant increase in incomes of vendors in both Bangladesh and India and growth in livelihoods opportunities for women and marginalised workers. “Indian labourers at the haats earn one-third or more of their average monthly income from just four days of working at haats. Focus group discussions with stakeholders and interviews with Border Security Force personnel, conducted specifically for this study, reveal that the haats have also led to a reduction in informal and illegal trading, and generated a peace dividend,” the report points out.
The second example is the progressive liberalisation of India-Sri Lanka air services, which according to the report has improved connectivity, reduced air fares, and increased passenger traffic and air cargo volume. “Today, Indians and Sri Lankans enjoy direct connections from Colombo to 14 Indian cities, with a total of about 147 flights per week. Since 2005, India has been the largest source of foreign tourists in Sri Lanka.”
The report also addresses four specific barriers that have constrained trade within South Asia – tariff and para tariff barriers, nontariff barriers, the high costs of connectivity and the trust deficit among South Asian countries.
“In 2016, average tariffs in South Asia were 13.6 per cent, more than double the world average (6.3 per cent) and the highest among major regions of the world despite a regional free trade agreement (SAFTA) that came into force in 2006,” the report said.
The report recommends an approach of open regionalism, and views intraregional trade as complementary to, and as a stepping stone for, deeper global integration. “Given the context of South Asia, an incremental approach toward deeper trade cooperation can be very powerful, and the region has witnessed examples of this in the form of India-Sri Lanka air services liberalisation and India-Bangladesh border haats,” said Sanjay Kathuria, Lead author of the report and Lead Economist, World Bank. “Given its complicated history, size asymmetries, and a trust deficit, small steps backed by policy persistence is probably the right way to go for South Asia,” Kathuria added.