Harnessing Business Opportunities for South Asian Economic Integration

Speech | 17 November 2009

Opening remarks by Rajat M. Nag, ADB Managing Director General, at the conference on Harnessing Business Opportunities for South Asian Economic Integration, 17 November 2009, New Delhi, India

I. Introduction

Honorable Minister Krishna, South Asian Association for Regional Cooperation (SAARC) Secretary General Dr. Sharma, Federation of Indian Chambers of Commerce Industry (FICCI) Secretary General Dr Mitra, President, SAARC Chamber of Commerce and Industry Mr Sayeed, Excellencies, distinguished guests: I would like to thank the Ministry of External Affairs, the SAARC Secretariat, the SAARC Chamber of Commerce and Industry, and FICCI for helping make this conference happen. Thank you very much for inviting me here today and giving me an opportunity to share some of my thoughts on South Asian integration - where we are today; what are the key impediments; and how we might address them.

II. Progress and Challenges

While the industrialized world has had to confront the worst recession in 70 years, we in developing Asia—particularly countries with large domestic and consumer demand—are in fact leading the world back to economic expansion. Monetary and fiscal stimulus appears to have worked, with the region now showing signs of a V-shaped recovery. Developing Asia's GDP growth slowed from 6.1% last year to an estimated 3.9% in 2009, and is forecast to return to 6.4% in 2010. India's GDP growth forecast has been revised upward in 2009 to 6%, with our forecast for 2010 at 7%. The rest of South Asia also seems to be turning the corner. This is encouraging news.

South Asia has enormous potential for using economic integration to reduce poverty and move the region to unprecedented prosperity. Unfortunately we have made only limited progress toward greater cooperation and integration in this region. With one-fifth of the world's population, rich natural resources and a vast market, we in South Asia have the potential to become one of the world's most thriving regional economies. Our population of 1.5 billion is about three times larger than ASEAN. There are 18 concluded free trade agreements (FTAs)1 which aim to link the region's economies together and with global markets. The enhanced South Asia Free Trade Area, or SAFTA, is now also more inclusive with provisions such as sequenced tariff liberalization, flexible rules of origin, and greater technical assistance.

But South Asia still faces many challenges before it can reach its potential as a fully integrated economic powerhouse. For example, intra-regional trade in South Asia is only 5.5% of total trade. This compares poorly with intra-regional trade of over 50% in East Asia. Certainly, we can collectively do much better. Low intra-regional trade shares in South Asian can be attributed to several factors. These include: (i) poor physical connectivity in land, sea and air; (ii) complex and cumbersome, both at and behind-the-border procedures which stifle business; (iii) the absence of regional production networks in key industries; and (iv) limited public-private sector partnerships. Furthermore, many of the region's FTAs are shallow in terms of their coverage, with large exclusion lists and relatively high protection.

India has a pivotal role to play in fostering South Asian integration. It is a regional economic power with world class information technology exports and booming trade with East Asia. And underlining its international respect and global connection for South Asia, it is the only South Asian member of the East Asia Summit and the G-20. India needs to play a key role in South Asian integration. It needs to create a shared sense of unity and a common purpose in the cause of South Asian integration. And, at the same time, neighbors need to recognize India's role and work together in a constructive manner. This is a win-win situation for all in South Asia.

None other than Prime Minister Manmohan Singh said the following at the 79th Annual General Meeting of FICCI on 8 January 2007:

"I dream of a day when, while retaining our respective national identities, one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. This is how my forefathers lived. That is how I want our grandchildren to live."

India's commitment to South Asian integration is strong and resolute at the highest level. That commitment needs to percolate down to other parts of government and especially at the operational level. We need to focus our minds on connecting the high-level vision and actions at the operational level. To me, this is the single most important challenge facing India in playing a key role in South Asian integration.

III. The private sector as key to regional integration

The importance of the private sector in South Asia's development and growth cannot be over-stated. A robust private sector is crucial to generating the jobs, services and financing needed for economies to grow and for poverty to be eliminated. In East Asia, it was the private sector that led to the development of production networks and supply chains in key industries, reduced costs, increased the efficiency and helped service the region and the industrialized world. Outward-oriented development strategies, investment in infrastructure and strong public-private sector partnerships provided the supporting environment. It was only after this market-led integration process began that business began to work with government to accelerate regional integration through the ASEAN framework.

Trends in South Asia suggest that, here too, economic integration is a natural offshoot of business expansion. Private sector participation can deepen regional cooperation and integration in several ways: (i) it will increase and diversify trade, at the same time building links across regions, such as with East Asia; (ii) it eases market access, especially through agreements such as SAFTA; (iii) it improves intraregional investment as doing business becomes easier; and (iv) it allows for an accelerated improvement in infrastructure.

While there are long-term issues that will require much time and effort, there are some key issues we can resolve easily. In fact, ADB joined FICCI in identifying several of these issues in consultation with private sector chambers. These include (i) expanding the SAARC visa exemption scheme; (ii) adopting a SAARC-wide motor vehicle agreement; (iii) removing non-tariff barriers; (iv) improving land customs stations; and (v) promoting greater intraregional investment generally. Taken together, we believe these five issues can have a huge impact on improving the business climate and accelerate private-sector led integration in South Asia.

IV. ADB's role in private sector development

ADB stands firmly behind these efforts for regional integration in South Asia. It is one of three strategic agendas under our long-term strategic plan known as Strategy 2020, the others being inclusive growth and environmentally sustainable growth.

And ADB has been focusing more and more on helping the private sector. Over the next decade ADB will boost its role as a catalyst for investments that the private sector might not otherwise be willing to make. To spur market-led growth, ADB will invest in infrastructure and advise governments on the basics of a business-friendly environment, including reliable rules, regulations, and policies that attract greater private sector enterprise. ADB's tools include direct financing, credit enhancements, risk mitigation guarantees, and innovative new financial instruments. ADB promotes public-private partnerships in all of its core operational areas. ADB's support for the development of the region's private sector will increase significantly, both in the number of ADB-financed projects and in its share of ADB's annual operations—with a target of 50% by 2020.

But, ADB's role should go much beyond that of a financier. We would be very happy to share our experiences elsewhere in regional cooperation, say in the Mekong, ASEAN, and Central Asian region. We are firmly committed to work with you all in fostering greater regional cooperation and integration in South Asia.

V. Conclusion

Over the next two days, we will have the opportunity to interact with some of the region's most prominent business leaders and development experts, all of whom bring years of experience and wisdom to this important issue of private sector-driven economic growth. From our experience with the shifting business and trade landscape-knitting South Asia together will not necessarily be easy. But private-sector led integration can help build more stable and enduring foundations for growth. It will help South Asia smooth business cycles, stimulate innovation, reduce poverty and complement global economic institutions. Expanding trade and business opportunities, usually aimed at export markets elsewhere, will be crucial to bringing South Asia together.

In doing so, we can help make Prime Minister Manmohan Singh's vision of an integrated South Asia a reality.

Thank you.

1 These include: India-Afghanistan PTA, Economic Cooperation Organization Trade Agreement, Preferential Tariff Arrangement