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Asian Tribune is published by World Institute For Asian Studies|Powered by WIAS Vol. 12 No. 2828

ADB plans for regional economic integration in South Asia

By M Rama Rao, India Editor, Asian Tribune

New Delhi, 18 January ( Though India and Pakistan are locked in a bitter war of words post 26/11, the Asian Development Bank hopes that these two south Asian rivals will sooner than later play a key role in promoting regional cooperation. The potential for such cooperation is immense according to the Manila based bank which has come up with the framework of a regional technical assistance (RETA) programme.

South Asia is one of the fastest growing regions but it remains the least integrated in the world. Intra-regional trade accounts for a mere 2% of gross domestic product, compared to 20% in East Asia. Similarly, intra-regional exports have hovered around 5%, while reaching 50% in East Asia. Various political and economic factors contribute to this situation and it presents both challenges and opportunities.

A host of domestic issues and challenges particularly at the sectoral level, are linked to regional cooperation and integration (RCI). Both India and Pakistan are engaged in addressing these issues in their own way, notwithstanding the problems created by the impact of US 'meltdown'.

South Asian economic integration may receive an indirect boost as India and Pakistan pursue greater trade and investment links with East Asia and Southeast Asia through increased triangular trade and investment. But in so far as intra-regional cooperation with in South Asia, which now includes Afghanistan as well, is concerned, Pakistan has been a stumbling block with its reluctance to give to India what it has been offering to Pakistan, namely, Most Favoured Nation (MFN) status.

ADB opines that obstacles to regional cooperation stem in part from the need to address long standing development challenges—such as persistent poverty, rising inequality, and continued conflict—which have necessarily taken precedence over regional concerns. Another reality is the fact that many of the domestic policies, institutions, and capabilities required to pursue successful regional cooperation are either missing or inadequate, as South Asian countries picked up the liberalization mantra hardly a decade back. Geopolitical and security issues have also bedevilled regional cooperation to such an extent that the much hyped SAFTA (South Asian Free Trade Area) has failed to take off.

External pressures could have led to increased economic cooperation, according to ADB economists; unfortunately, such pressures have been absent in the region with countries big and small yielding to temptations of their own protective trade barriers. Asian financial crisis and China's rapid economic growth helped galvanize cooperation in Southeast Asia. But south Asia lacks a similar incentive and it means that incentive for regional cooperation may have to be generated internally.

This is tough proposition but not difficult to handle given the fact that there is a high level of informal trade between India and Pakistan on one hand and India and rest of South Asia on the other. Before Mumbai happened, annual trade between India and Pakistan has more than tripled. From $251 million in 2000–2001 it touched $869 million in 2005–2006.7 Both countries have explicitly agreed to work towards increasing trade and people-to-people contact, and exploring options for opening traditional transit routes to boost formal bilateral and regional trade.

The Asian Development Bank will provide technical assistance of $750,000 for the South Asian Regional Cooperation project. The grant is focused on India and Pakistan as these are the two largest economies, according to Jayant Menon, Principal Economist with ADB's Office of Regional Economic Integration. The grant will also seek to support and accelerate domestic policy reforms that have begun in India and Pakistan. It will identify constraints and promote policy reforms and other strategies needed to overcome the barriers to cooperation and integration. Once this phase is completed some time towards end 2009, ADB will examine similar issues in Bangladesh, then Sri Lanka and Maldives, followed by Nepal, Bhutan and Afghanistan.

If the ADB succeeds in giving a push to regional economic integration, then, probably Prime Minister Manmohan Singh's dream of a 'day when, while retaining our respective national identities, one can have breakfast in Amritsar, lunch in Lahore, and dinner in Kabul' may become a reality sooner than later, notwithstanding the current hiccups.

- Asian Tribune-

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