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South Asia Bets on Prosperity
As India steps up its economic diplomacy in the neighborhood, Pakistan risks falling further behind.
LOSS LEADERS: Pakistan’s economic policy makers in action. Photo: © Ispr/Xinhua/ZUMA Wire
By
Sadanand Dhume
June 18, 2015
Is South Asia beginning to look more like Southeast Asia? If this means an evolution toward a region marked more by shared economic promise than by unending political conflict, then the answer is a qualified yes.
First the good news: Political elites in India, Bangladesh and Sri Lanka are showing an increasing ability to put aside the fraught identity politics that has marred their relations and instead pursue mutually beneficial economic goals.
The bad news: The region’s two largest countries, India and Pakistan, remain at odds with each other. As long as Pakistan’s military continues to dominate the country, the odds of an economic breakthrough between New Delhi and Islamabad remain slim.
As a result, Pakistan risks being frozen out of an increasingly integrated region. Since India accounts for about 80% of South Asia’s economic output, Pakistan cannot deepen its economic ties with the neighborhood without engaging with India. The promise of billions of dollars in infrastructure investment from “all weather friend” China does not change this.
The best example of South Asia’s turn from conflict toward cooperation is the thriving India-Bangladesh relationship. Ahead of Prime Minister Narendra Modi’s visit to Dhaka earlier this month, the two countries resolved a tricky border dispute that for decades placed thousands of their citizens in isolated enclaves in each other’s territory.
India and Bangladesh have also pledged to strengthen transportation links—by rail, road and river—and boost their modest $6.5 billion in bilateral trade. Two Indian firms, Reliance Power and Adani Power, will build power plants in Bangladesh to ease its chronic electricity shortages. India also unfurled a $2 billion soft loan to upgrade Bangladeshi infrastructure.
India’s relations with Sri Lanka have followed a similar trajectory. Between 2003 and 2013, bilateral trade quadrupled to $5.2 billion, helped in part by a free-trade agreement. On a visit to Sri Lanka in March, the first by an Indian prime minister since 1987, Mr. Modi pushed for a deeper trade agreement spanning goods, services and investment.
These numbers merely reflect a modest start. India needs to do more to address its lopsided trade balance—it exports far more than it imports from Bangladesh and Sri Lanka. Meanwhile, the World Bank estimates that intraregional trade accounts for a piffling 5% of total trade for the eight-member South Asian Association for Regional Cooperation. For the Association of Southeast Asian nations, that figure is 25%.
Nonetheless, most of South Asia indeed appears headed down a Southeast Asian path. The advent of economic reforms in India in 1991 may not have erased emotive problems of language, caste and faith. But over time national political discourse has tilted toward economic development.
Similarly, Bangladesh may continue to struggle with radical Islam—secular bloggers can be butchered in broad daylight for questioning the faith. But when it comes to dealing with its neighbors and the world, Dhaka chooses to export garments, not jihad.
Even at the height of its bloody civil war from 1983 to 2009, Sri Lanka, blessed with a strategic location, high literacy rates and relatively good infrastructure, did not allow tensions with India over the island nation’s treatment of its ethnic Tamil minority to derail economic ties.
In a nutshell, most of South Asia has broadly embraced democracy, markets and trade. Politicians seek power by promising their citizens a better life.
Influential business lobbies—software services in India or apparel manufacturing in Sri Lanka and Bangladesh—infuse diplomacy with economic common sense. In each of these countries, the trade-to-GDP ratio is about 50%, modest compared with Southeast Asia’s export powerhouses, but nonetheless reflecting openness to trade.
Contrast this with Pakistan, where the military chokehold on policy stunts economic prospects. According to the World Bank, Pakistan’s trade-to-GDP ratio remained unchanged at 33% between 2003 and 2013. The United Nations estimates Pakistan’s official trade with India in 2013 at a measly $2.5 billion. Some economists estimate that it would be closer to $20 billion if not for artificial restrictions.
What’s more, Pakistani elites don’t appear overly bothered. The country’s leading English-language newspapers barely touch upon economic matters. The opinion pages are filled with treatises on the jihadist threat to the Shia minority, or the Taliban’s exploits in Afghanistan.
Pakistani trade policy can be frozen by mindless debates on the Urdu translation of the standard term “most favored nation status.” Nearly two decades after India granted MFN status to Pakistan, Islamabad has yet to reciprocate.
Since generals rather than politicians run relations with India, Pakistan has failed to crack down on jihadist groups such as Lashkar-e-Taiba, responsible for the 2008 Mumbai massacre. With the election last year of Mr. Modi, eager to deepen trade, but less inclined than his predecessor to turn the other cheek to terrorism, the odds of an economic breakthrough appear exceedingly slim.
In the end, both India and Pakistan lose from this standoff, but Pakistan loses more. India is slowly stitching together the rudiments of a South Asian common market. Unless Pakistan switches tack, it risks remaining stuck in a demented South Asian time warp while the rest of region begins, at last, to look more like sensible Southeast Asia.
http://www.wsj.com/articles/south-asia-bets-on-prosperity-1434649303
As India steps up its economic diplomacy in the neighborhood, Pakistan risks falling further behind.
LOSS LEADERS: Pakistan’s economic policy makers in action. Photo: © Ispr/Xinhua/ZUMA Wire
By
Sadanand Dhume
June 18, 2015
Is South Asia beginning to look more like Southeast Asia? If this means an evolution toward a region marked more by shared economic promise than by unending political conflict, then the answer is a qualified yes.
First the good news: Political elites in India, Bangladesh and Sri Lanka are showing an increasing ability to put aside the fraught identity politics that has marred their relations and instead pursue mutually beneficial economic goals.
The bad news: The region’s two largest countries, India and Pakistan, remain at odds with each other. As long as Pakistan’s military continues to dominate the country, the odds of an economic breakthrough between New Delhi and Islamabad remain slim.
As a result, Pakistan risks being frozen out of an increasingly integrated region. Since India accounts for about 80% of South Asia’s economic output, Pakistan cannot deepen its economic ties with the neighborhood without engaging with India. The promise of billions of dollars in infrastructure investment from “all weather friend” China does not change this.
The best example of South Asia’s turn from conflict toward cooperation is the thriving India-Bangladesh relationship. Ahead of Prime Minister Narendra Modi’s visit to Dhaka earlier this month, the two countries resolved a tricky border dispute that for decades placed thousands of their citizens in isolated enclaves in each other’s territory.
India and Bangladesh have also pledged to strengthen transportation links—by rail, road and river—and boost their modest $6.5 billion in bilateral trade. Two Indian firms, Reliance Power and Adani Power, will build power plants in Bangladesh to ease its chronic electricity shortages. India also unfurled a $2 billion soft loan to upgrade Bangladeshi infrastructure.
India’s relations with Sri Lanka have followed a similar trajectory. Between 2003 and 2013, bilateral trade quadrupled to $5.2 billion, helped in part by a free-trade agreement. On a visit to Sri Lanka in March, the first by an Indian prime minister since 1987, Mr. Modi pushed for a deeper trade agreement spanning goods, services and investment.
These numbers merely reflect a modest start. India needs to do more to address its lopsided trade balance—it exports far more than it imports from Bangladesh and Sri Lanka. Meanwhile, the World Bank estimates that intraregional trade accounts for a piffling 5% of total trade for the eight-member South Asian Association for Regional Cooperation. For the Association of Southeast Asian nations, that figure is 25%.
Nonetheless, most of South Asia indeed appears headed down a Southeast Asian path. The advent of economic reforms in India in 1991 may not have erased emotive problems of language, caste and faith. But over time national political discourse has tilted toward economic development.
Similarly, Bangladesh may continue to struggle with radical Islam—secular bloggers can be butchered in broad daylight for questioning the faith. But when it comes to dealing with its neighbors and the world, Dhaka chooses to export garments, not jihad.
Even at the height of its bloody civil war from 1983 to 2009, Sri Lanka, blessed with a strategic location, high literacy rates and relatively good infrastructure, did not allow tensions with India over the island nation’s treatment of its ethnic Tamil minority to derail economic ties.
In a nutshell, most of South Asia has broadly embraced democracy, markets and trade. Politicians seek power by promising their citizens a better life.
Influential business lobbies—software services in India or apparel manufacturing in Sri Lanka and Bangladesh—infuse diplomacy with economic common sense. In each of these countries, the trade-to-GDP ratio is about 50%, modest compared with Southeast Asia’s export powerhouses, but nonetheless reflecting openness to trade.
Contrast this with Pakistan, where the military chokehold on policy stunts economic prospects. According to the World Bank, Pakistan’s trade-to-GDP ratio remained unchanged at 33% between 2003 and 2013. The United Nations estimates Pakistan’s official trade with India in 2013 at a measly $2.5 billion. Some economists estimate that it would be closer to $20 billion if not for artificial restrictions.
What’s more, Pakistani elites don’t appear overly bothered. The country’s leading English-language newspapers barely touch upon economic matters. The opinion pages are filled with treatises on the jihadist threat to the Shia minority, or the Taliban’s exploits in Afghanistan.
Pakistani trade policy can be frozen by mindless debates on the Urdu translation of the standard term “most favored nation status.” Nearly two decades after India granted MFN status to Pakistan, Islamabad has yet to reciprocate.
Since generals rather than politicians run relations with India, Pakistan has failed to crack down on jihadist groups such as Lashkar-e-Taiba, responsible for the 2008 Mumbai massacre. With the election last year of Mr. Modi, eager to deepen trade, but less inclined than his predecessor to turn the other cheek to terrorism, the odds of an economic breakthrough appear exceedingly slim.
In the end, both India and Pakistan lose from this standoff, but Pakistan loses more. India is slowly stitching together the rudiments of a South Asian common market. Unless Pakistan switches tack, it risks remaining stuck in a demented South Asian time warp while the rest of region begins, at last, to look more like sensible Southeast Asia.
http://www.wsj.com/articles/south-asia-bets-on-prosperity-1434649303
