Three decades after the South Asian Association for Regional Cooperation – comprising India, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka and the Maldives — came into being, political tensions between Pakistan and India cast a long and troubled shadow over this regional grouping. Not surprisingly, there were limited outcomes at the 18th SAARC summit in Kathmandu that take forward regional cooperation, if not integration. Contrary to widespread speculation, there was no structured meeting between India’s Prime Minister Narendra Modi and his counterpart in Pakistan Nawaz Sharif. What sort of regional trade ties are possible when Pakistan doesn’t even extend most favoured nation status to India? Pakistan set its face against signing the railway agreement, motor vehicles agreement and energy cooperation agreements that scuttled prospects for any deliverables in Kathmandu. Even if it inks them, there is no assurance that it will implement them. All of this is a setback to India’s efforts to promote greater physical connectivity. South Asia’s diverse topography lends itself to greater cross-border power trade, but political inhibitions have ensured that actual progress will be less than the potential. As if all this weren’t bad enough, Pakistan and Nepal made a bid to upgrade China’s observer status in SAARC. This is unacceptable to India. It is the dominant economic power and is reluctant to share leadership with the dragon. India pushed for only a “project by project” engagement to fund and execute regional projects, in the areas of connectivity, environment, health and energy. But the shadow of China is indeed lengthening over the region, as it is developing port and transport infrastructure in Pakistan and Sri Lanka. It has promised $1.6 million to Nepal to develop its northern border districts. That it also has become Bangladesh’s largest trading partner is a painful reminder to India that its failure to deepen economic cooperation in the neighbourhood is only working to the dragon’s advantage. Clearly, the challenge for India is to keep it out of SAARC.
If India is to properly defend its turf against China, it must contribute to greater flows of trade within the region through unilateral trade liberalisation. This implies ensuring greater market access for their goods so that they acquire a greater stake in India’s rise as a rising global economic power and benefit from it. Unfortunately, for various reasons, this has not been happening and has only deepened their resentment over India’s big brother dominance. Every one of our SAARC neighbours has registered massive trade deficits with India. The loudest clamour for the unilateral opening up of India’s market has come from countries like Bangladesh that has run up a deficit of $5.6 billion in 2013-14, Nepal’s deficit with India, too, has ballooned from to $3.1 billion. Pakistan’s deficit grew to $1.8 billion. The combined deficit of Saarc members with India rose to $15 billion. Trade within this grouping is not more than five per cent of total trade as against the share of intra-Association of Southeast Asian Nations trade of 25 per cent. The need, therefore, is for bolder opening-up, where India must take whatever they have to offer. To be sure, this is affordable, as India has huge foreign exchange reserves and its balance of payments is healthy. Moreover, while the thawing of ties with Pakistan is desirable, it is not feasible for the moment. In the interim, India must shore up bilateral relations with other members, exemplified by the clutch of agreements it signed with Nepal. Prime Minister Modi, along with his Nepali counterpart, witnessed the signing of a motor vehicle agreement, power development agreement for Arun III and sister-city agreements between Janakpur and Ayodhya, Kathmandu and Varanasi, and Lumbini and Bodhgaya. India’s decision to provide business visas must be welcomed as it will make it easier to do business within SAARC. The earlier decision to provide a SAARC satellite for use by its members also illustrates the various ways India can decisively exercise leadership to foster greater regional cooperation and integration in South Asia. As Prime Minister Modi rightly noted, having a good neighbourhood is a universal aspiration. Nowhere is this more evident than in the South Asian region, which has more than half the world’s poor and one-fourths of its population.
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