Inclusive and sustainable growth in South Asia Very pertinent

DILLI RAJ KHANAL

It is now well recognized that amidst higher growth South Asia (SA) is emerging as the economic power house of the 21st century. During 2000-2008, the average growth rate was 7.8 per cent against 3.3 per cent growth at the global level. During 2009-2011 also, growth rate has remained about 6.5 per cent on the average, showing strong resilience capacity despite very pervasive adverse

effect of great financial

crisis across the globe. The consumption and income based poverty trends also confirm that poverty has

reduced steadily over the years. The competitive strength in many areas

including immense potentials of harnessing rich natural, human and other resources accompanied by demographic dividends, among others, corroborate such a possibility.

However, as many indices reveal, the challenges are immense and daunting. First, amidst least integrated at the aggregate level, economic growth within the South Asian countries is highly uneven with an annual growth rate at around 3 to 4 per cent is somewhat compounded by very adverse initial conditions with very weak economic base and domestic supply capacity linking to many structural constraints. Second, still today almost half of the poor of the world live in the South Asian region. Despite steady improvements in HDI on the average at 0.548 in 2011, the inequality adjusted index comes out at only 0.393. The gender inequality index is 0.601, marginally lower than Sub-Saharan Africa. In such a paradoxical trend, sustainability of growth is an added problem amidst increased threat of deepening crises globally, the agenda of the 5th SA Economic Summit held in Islamabad from 11 to 13th September, 2012 was Making Growth Inclusive and Sustainable and hence the theme was very pertinent against the backdrop of proposed next SAARC Summit in Kathmandu.

As obvious, the discussion and debate in the Summit had revolved around the main theme. Unlike an isolated argument that growth should be the main agenda of SA for the time being, overwhelming view at the Summit was inclusion and higher growth can go together and therefore various measures both at domestic and SAARC level should be driven by this in complementary way.

Based on the deliberations carried out in different specific areas including regional trade agreements, trade in agriculture, energy security, cooperation in water, transport and logistic corridors from South Asian outlook, liberalization of services trade, migration, potential supply chains, regional tourism potentials, climate change, inclusion and sustainable SA and options for collective response, it became clear that there is still long way to go.

First of all, there is big trust deficit among some member countries driven by many unsettled sensitive issues. Amidst this, many agreements made so far either have not been implemented or progress has been very slow. For instance, after services trade agreement in 2010, no follow up actions have been taken. Lack of connectivity, poor or no legal and intuitional frameworks in the agreed areas, weak financial capacity or absence of access to financial services, poor telecommunication network, absence of transit facilities and suitable measures to encourage private investors have been major detrimental factors. As such, both commodity and services trade within the SAARC countries is minimal or stagnant. The intra-private investment flow is equally very low.

Another feature which is often generalized or ignored is that despite high trade integration with almost 70 per cent trade with SAARC countries, countries like Nepal are facing immense trade deficit problem indicating loss not gains.

This means that unless trade and economic integration are linked to harnessing domestic potentials for raising supply or production capacity in tandem, mere emphasis does not ensure mutual gains. Such issues were brought into discussion during deliberations more distinctly.

On the whole, the proper theme enabled to concretize issues more candidly and suggest measures for enhancing economic integration in SA that, at the same time, could ensure gains for the member countries more equitably. It was broadly suggested that instead of adding commitments in one after another area, step by step approach would be beneficial. As such, the major emphasis was given on augmenting trade in energy and tourism having huge potentials with comparative advantages. For this, promotion to the FDI from within the SAARC was also duly emphasized.

Similarly, more reforms in services trade was stressed, key for, among others, reducing trade cost, boosting production in real sector and enhancing trade competitiveness. It was also suggested that the connectivity should get higher priority to facilitate that process. For all these to materialize, it was highlighted that area specific institutional arrangements and capacity enhancement is essential. At a time when there is an increased threat of protection practices in developed countries, it will be interesting to see that how the coming SAARC Summit will move ahead to remove trust deficit and take concrete steps for ensuring high but inclusive and sustainable growth across member countries .