Speakers:
Ambassador I P Khosla, Former Indian High Commissioner to Bangladesh
Dr Amita Batra, Senior Fellow, Indian Council of Research in International Economics

IP Khosla

SAARC is based on an idea about regional cooperation that has many elements such as cultural unity, economic unity, and a single administrative unit, etc. As opposed to the idea of cooperation, there is the counter argument that the region is not culturally united at all. The concept of administrative unity can be argued to be false and does not reflect reality. The concept of single civilizational unity that we took from the Europeans cuts both ways. Another argument says we must change the world, be people oriented. There is a vision of a South Asian Community where smooth flow of people, technology, culture, goods, ideas etc takes place. But there would be no significant change in this direction in the next ten years or so. We have been talking about connectivity since 1985, but nothing has happened except words.

India's Policy

India's policy in this regard is actually not very clear. Our policy makers tell us that the aim of Indian foreign policy is to ensure that our overall economic targets are achieved. The policy seems to suggest if one tempts the neighbours with economic inducements, political gains will follow. Presumably the idea is to offer economic inducements for political purposes. Possibly it could be a circular thing - economic inducement leading to political gains, which would create an atmosphere of peace leading to further economic gains. In the context of the 14th Summit, with neighbours (like Pakistan) insisting that politics has to come first, one is hoping that they would gradually see the great advantage coming to countries like Sri Lanka and Bangladesh through economic interactions and would put politics in the back-banner.

Is SAARC a success?

Just the fact that there have been summits and leaders are meeting, provides opportunities for cooperation which otherwise do not exist. It gives a chance for leaders and ministers to meet regularly, discuss and exchange views and even talk about bilateral relations. It is a positive element of SAARC. Civil Society has played a big role in SAARC. Regional think tanks are in existence and there are exchanges between artists, filmmakers, writers, singers, which is bound to have some effect in creating an atmosphere of regional cooperation.

The main thing is connectivity, which is Prime Minister Manmohan Singh's theme song since the 13th Summit. One needs to talk about connectivity in South Asia, leading to connectivity in Asia, and then with the world. However, in real life the possibility of achieving connectivity is very dim. Again, since the SAARC Development Fund was never used by anybody one cannot say whether the Food Bank is going to be used or not. However, the idea of a South Asian University is very positive and it will probably go ahead.

Amita Batra

The presentation looks at two broad perspectives: Economic Perspective and a Global Perspective. It looks at the combination of South Asia with West Asia and sees whether they could come together in a larger Free Trade Area. To get a region together there needs to be a common perception of threat and cooperation. The presentation aims to place South Asia in a global context and see what the 14th SAARC summit tried to achieve.

There is a paradigm change towards regional economic integration since 1990s. Traditionally Asian countries pursued trade liberalization through multilateral trading systems for the purpose of growth. This is due to the emergence of powerful blocs like the EU and NAFTA. About 60 percent of the total world trade today is carried out on a preferential basis; so those who are not part of any preferential bloc are going to suffer. There is also the risk of isolation from other groupings.

There is potential for regional economic integration (REI) in South Asia due to geographical, cultural, and historical proximity. There is huge economic potential as far as the region is concerned if trade barriers are removed. Trade complementaries is possible in areas such as textile, cotton, cereals, apparels, cane sugar, plastic and chemical goods hold intra-industry trade possibilities. There is also the possibility of efficient relocation of industries like the one that happened between India and Sri Lanka in case of tire industry.

If we look at the region and compare it to the other regions of the world in terms of Gross National Income (PPP), GDP growth rate and population, we see intra-region trade in South Asia is extremely low. Exports from South Asia have only doubled over the past two decades. There are lessons to be learnt from other regional organizations like NAFTA and Mercusor.

There are certain misperceptions regarding India's predominant position in South Asia. India has always been a willing partner as far as bilateral or regional agreements are concerned. It is time that one highlights the 'giver' position of India in regional trade.

In case of SAFTA, which has been operational since July 2006, with the objective of maximizing regional potential for trade and development, there is no timetable specification as to when the list of sensitive items will ultimately disappear. The existing institutional arrangement is very much weak. Most of the trade in South Asia is taking place through informal routes, formalization of which is extremely important. Harmonization of standards and procedures in trade as well as services is required. There have also been no concrete measures taken on the question of connectivity. Liberalization of service sector was never a part of SAFTA, although there was a mention of it this time. SAFTA agreement further neglects the trade and investment nexus.

SAARC has the potential to become a grouping of considerable economic benefit. One of the biggest concerns in REI in South Asia is that the smaller economies have a trade deficit vis-à-vis India. There is a possibility that if free trade is allowed this would be taken care of. It goes to the advantage of the small countries if trade barriers are removed. Apart from trade the other benefits of REI could be cross border water management, and a joint stand in WTO.

Statistics show that ASEAN+3+3 are a far more beneficial nexus than SAARC. It is not only beneficial for India but for the rest of the South Asian countries, which may benefit by coming together with India, thus setting the stage for an Asia-wide FTA.

Discussion

Observer Status in SAARC

Powerful countries like China, US and Japan are given observer status in SAARC. One view is that the presence of observers will modify India's voice in the regional organization, to prevent the exercise of monopoly over South Asian dynamics. Japan is getting more involved in South Asia. It has increased its contribution to the South Asia fund and is actively involved in Sri Lanka. Expansion of SAARC with the entry of Afghanistan in April 2007 has added discomfiture to Pakistan. Observer status to China has added discomfiture to India. With Iran as an observer, it would add discomfiture to the US. These developments question the relevance of the regional organization.

Complexities of SAARC

SAARC has been an ongoing process that has not yielded significant results. The 14th Summit has posed a fundamental dilemma for India. There are five different layers operating simultaneously in South Asia. These include, bilateral relations, regional groupings characterized by BIMSTEC, SAARC member relations, the idea of an extended neighborhood including Central Asia and Southeast Asia and the continental level of cooperation. There is possibility that either all levels mutually reinforce or cross cut each other. Structural weaknesses of SAARC need to be addressed to ensure positive developments. However, the cause for limited success of BIMSTEC is unclear. Earlier, the orthodoxy in SAARC blamed India and Pakistan for failure of regional cooperation under SAARC. Now, Indo-Pak talks are not discussed by other members. The Indo-Pak Composite Dialogue process has been ongoing for four years. However, it has had limited impact on SAARC.

South Asian Identity

The South Asian scale of identity is significant. It is most recognizable outside South Asia. South Asia is seen as a region with one common identity. However, a common identity in South Asia is a complex and debatable issue. South Asian identity is not problematic; it is the idea to approach South Asia that is artificial. People give priority to different kinds of identity. There is a need to accept each other's identity. Moreover, the vision of priority to identities differs in most South Asian countries.

Origin of the term 'South Asia' needs to be discussed. It is a political term placed within the geographic framework. The idea behind the use of the term was to exclude India from the region. The boundaries of South Asia are not clearly demarcated. Questions have been raised on Burma and Tibet being included as part of South Asia. However, definitions are very problematic and reduce coherence.

East Asia Summit

The East Asia summit has been discussed but there is no major substance in it. Countries are more interested in linking their respective economies with China. Lately, China has shown interest in establishing links with South Asia. However, India is uncertain on its policy of economic inducements, political gains or interests in East Asia. India will grow at eight percent and inflation will continue. However, this would not be a structural impairment. India's economic sustainability is questioned by China's growing economy. India does not have a vision for taking South Asia to East Asia.

South Asian University

The idea of setting up a South Asian University has the potential to take off. However, if India pushes the idea of the South Asian University, it will be unacceptable to others. Hence, the University should be set up in a smaller member country. There is another opinion which pictures the University as a union of students from all over South Asia. However, before establishing such a University, free interaction between academia, researchers and students in the region should be encouraged.

ASEAN and Economic Growth

ASEAN+3 do not have a very strong institutional mechanism. Singapore is blamed for its bilateral programme. ASEAN has a trade surplus with China, but India does not. However, with a growing manufacturing and services sector, India need not fear a trade deficit. A uniform opinion on the economic dominance of India in South Asia is questionable. India may have the potential for becoming a leading economy but her neighbours might not share the same view. Moreover, investments and services sector opening up are a contentious political issue in most South Asian countries.

SAARC and Connectivity

In ancient civilizations, economic or trade links were opened for neighbouring civilizations. In the recent past, significant shift is seen in India's policy on regional cooperation when it promised to make borders irrelevant. The change in policy needs to be analyzed in the larger context. Before partition of India in 1947, there was a natural direction for trade. However this was disrupted after formation of Pakistan in 1947 and Bangladesh in 1972. Connectivity was weakened in the region. SAARC is trying to restore it. However, trade includes the exchange of goods and the flow of labour. It is doubtful if connectivity can increase without labour mobility.

Indo-Pak Economic Relations

Concern for economic growth is evident but the government has played a limited role in addressing these concerns. Sir Creek discussion between India and Pakistan has gained momentum only because of the EEZ in 2009. Economic exchanges between neighbours will continue but there will be no major peace dividends. Moreover, low level of free trade between India and Pakistan is due to political mistrust. Political failure in SAARC can be held responsible for its economic failure.

SAARC Trade

Member countries have strengthened bilateral trade with each other. This has hampered regional trade agreements such as SAFTA. Also, it is not possible to always predict the success of a FTA for member countries. For example, when tariffs were cut between India and Sri Lanka, only copper trade increased between the two initially. India has felt the need to provide economic support to Bhutan for larger political concerns. However, this relationship is of a different nature and has existed prior to SAARC. India has not behaved like a strategic benign leader in the region, and is unsure of its priorities. An 8-9 percent growth rate has had limited impact on alleviation of poverty in India. Defence expenditure has importance but geopolitical perspectives are not always beneficial. If economy is given precedence it can improve relations between states. Expansion of SAARC adds additional sources of economic and commercial exchange.

SAARC and Counterterrorism

In the 14th SAARC summit there was no mention of terrorism or adoption of a common approach to counter terrorism in the region. SAARC should take up the issue of states promoting terrorism in the region. If there is a joint mechanism to counter terrorism, between India and Pakistan, then terrorism can be discussed on the regional table. However, action on this remains limited. Also, a regional organization cannot ignore global challenges like global warming, WMD proliferation and energy security.

Concluding Remarks

SAARC meetings are important as they are an indication of intention to cooperate. India's increased growth rate has attracted countries to the region to share economic benefits. This process will continue and the region will grow and prosper with India.