In an unusual and unprecedented gesture, Prime Minister Narendra Modi had invited all the heads of SAARC states to his swearing-in ceremony in 2014, wishing to establish solidarity and rapport with India’s neighbours. Now, the SAARC has been lying dormant for two years. The last meeting in Islamabad in November 2016 did not take place because India, followed by Bangladesh, Afghanistan, Maldives, Bhutan and Sri Lanka, did not attend. India was objecting to the Pakistani state sponsored Uri attack.
The newly elected Nepal Prime Minister K.P Sharma Oli, who is currently visiting India, will no doubt be talking about reviving SAARC. Nepal holds the Chair of SAARC. He may have discussed it with Pakistani Prime Minister Shahid Khaqan Abbasi who visited Kathmandu recently.
Whether India will agree is not certain. It will depend on Pakistan’s behaviour towards India. In all likelihood, the SAARC meeting will not be held in 2018 also. SAARC is the only big grouping bringing 8 countries in the South Asian region together and nothing can replace it in its coverage and ability to address the region’s problems solidly.
The region is one of the poorest in the world whhile the members have similar history, cultures and developmental problems. So far during its existence of over 30 years, it covered many areas in which members can cooperate for mutual gains. While the intra SAARC trade did not take off as well as in other such Regional Trade Arrangements ( RTAs) like EU and ASEAN, progress had been made in chalking out areas for cooperation and easing trade barriers between the members. As a region with a huge population, there is much scope for increasing investment, tourism and services and commodity trade.
China is an observer along with seven other countries. China is the elephant in the room and some members openly supported its full membership in the last SAARC meeting held in 2015.
China has huge investments in all the member countries surrounding India. All the members need infrastructure and China can help in building it. All have joined China’s grand plan of BRI. China is very much interested in the South Asian region especially in the light of promoting its BRI. Through loans, member countries can build infrastructure as Pakistan is doing under the CPEC ( China Pakistan Economic Corridor) connecting Gwadar port of Pakistan with Kashgar in China. It has committed $62 billion for the project.
If India continues to boycott SAARC, it will not mean the end of SAARC, because as in the case of TPP, a new group can been formed. The original TPP group of 12 minus US is now called the CPTPP (Comprehensive Progressive Trans Pacific Partnership). This can happen to SAARC too. A new group can be formed with 8 members minus India but including China.
India may also not join RCEP, the biggest multilateral trade partnership with 16 countries. It is going to be a very powerful partnership because it includes both China and India. RCEP (Regional Comprehensive Economic Partnership) has the whole of ASEAN-10 plus Japan, Australia, India, China, South Korea and New Zealand. Taken together these countries have 3.4 billion people and account for a quarter of the world trade and 39 percent of the world GDP.
But India has shown much reservation and wants the service trade to be opened in all the member countries of RCEP for Indian IT personnel. There are also problems in opening up agriculture, especially the dairy sector and pricing of pharmaceutical products through stricter IPR enforcement.
RCEP is supposed to be signed this year and Japan and Australia are pushing for it. Japan feels so strongly that it may push for signing the agreement minus India. Even China is keen on going ahead with the signing of RCEP and the Chinese Commerce Minister had talks with his Indian counterpart Suresh Prabhu regarding RCEP recently in New Delhi. With a thaw in India’s relations with China, there are hopes of India wanting to be in the same grouping as China. India’s fear of overcapacity in China is a genuine one and is shared by many other members but this should be tackled by anti-dumping laws. If India does not join RCEP, what is India left with then?
India has problems with EU-India BTIA and is countering problems with other countries with which it has FTAs like Japan, Korea and ASEAN and is unhappy about growing trade deficit. RCEP also presents the same prospect of steep tariff reduction and import surge from the region.
India is then left with BIMSTEC ( Bay of Bengal Initiative on Multi sectoral Technical and Economic Cooperation) which includes Nepal, Bhutan, Bangladesh, Sri Lanka, Myanmar and Thailand which is a sub- regional cooperation grouping. In comparison to SAARC and RECEP, BIMSTEC is quite small in its trade volume and investment prospects and has not really taken off with a plan for an FTA. Except for India and Thailand and Sri Lanka all others are least developed countries in the grouping. They are looking for cooperation in the form of help from India for their own development.
India is also a member of SCO (Shanghai Cooperation Organization) which is not an economic partnership and is a political grouping for regional security which however is important today. It has Russia, India, China, Pakistan and the Central Asian countries as members (Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan). They account for half of the world’s population and quarter of the world’s GDP. The next meeting will be in China in June 2018.
In the face of more protectionism from developed countries in the future, becoming a member of RCEP could give Indian companies a chance to be part of the global value chain where some parts could be manufactured in India for companies located elsewhere among the member countries. The RCEP countries are a hub of low cost manufacturing and trade in the global economy and it also includes major resource rich countries like Australia and Singapore which is a services trade and financial centre. It is an opportunity for India to embed itself in the world economy’s supply chain which now exists very effectively in South East Asia and China, and boost its exports and employment.
On the whole reviving SAARC and signing RCEP seem to be very good options for India for boosting manufacturing growth.
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David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany
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