The Indian Prime Minister has been signalling an urge to improving economic ties in South Asia, first with the invitation to leaders from neighbouring countries at his oath-taking ceremony and now with the news to set up a South Asia Development Bank. While efforts towards regional integration are indeed commendable, particularly when they stem from Track-1 initiatives, their fate often meets discouraging ends.
Reportedly, India is to pitch the proposal for a South Asia Development Bank at SAARC’s ministerial council in Bhutan this month, in line with the recent signing in of the New Development Bank of BRICS. The regional bank will provide financing for infrastructure development to facilitate regional integration and trade.
Previously, a SAARC Development Fund (SADF) had also been established in 1996 to support industrial development, poverty alleviation, protection of environment, institutional/human resource development and promotion of social and infrastructure development projects in the SAARC region. The SADF now remains non-functional on account of inadequate funding and limited scope of work.
Meanwhile, the region continues to be home to a large percentage of the world’s poorest population and is amongst the least integrated ones in the world despite evidence supporting the welfare impacts of enhanced regional trade and collective development. The Intra-regional Trade Intensity Index stands at 1.59 while Intra-regional trade share is equally low at an abysmal 4.23 percent among SAARC member states.
The Modi government’s gesture, however, may only be symbolic since political differences continue to run high between India and Pakistan. According to Dr. Abid Suleri, Executive Director, Sustainable Development Policy Institute, a South Asian arrangement on the lines of the NDB is not likely to materialize.
The larger economies in the region may commit some reserves but the smaller ones—Afghanistan, Bhutan, Maldives and Nepal—would still not be able to make any contributions.
In that case, if India is to put maximum equity (based on the size of the economy), political differences with Pakistan might hinder development of projects that have historically been contentious, such as those related to river flows and building of water dams.
Despite facing common challenges, South Asia remains mired in regional conflicts that have hindered cooperative measures. Indeed, such measures, instead of fostering cooperation have instead been more focused on preventing conflict.
However, as the book ‘South Asia 2060: Envisioning Regional Futures’ indicates, there is an across-the-board urge to hold on to a regional South Asian identity.
So far, even signed agreements, including the SAFTA, have achieved little in terms of enhancing trade ties in South Asia, with countries still depending on markets outside of the region.
While foreign investors find South Asian economies as lucrative markets (owing to a rising middle class population), trade and investment barriers continue to limit movement of capital within the region.
One assumes if comparative advantages have not been sought and pursued in the interest of regional welfare, wouldn’t a development bank be rather ambitious.
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