The Political-Economy of the South Asian Economic Union

#39 as is indicated by the attitude in #41 ( throwing the spanner ), its clear that pakistan has a lot to offer. while pakistan may not be a huge benefit as a economic partner, it can definately be a huge spanner-thrower. so, i disagree that pakistan has nothing to offer to india. it is important that two larger states set an agenda of peaceful trade.

e.g. the benefits of NAFTA for US have been huge from the point of overall stability in the south. a poorer and unstable mexico is an impossible nightmare for US prosperity. overall, pakistan is relatively stable, and can be influencial in in ensuring stability in our neighborhood. in the minimum, its very important that it not fuel instability.

saarc in its present form is a non-starter and pak sarkar wisely has thrown a spanner in the works by inviting china to be a member. off course india is opposed to participation by china and will block its entry thereby insuring a stalemate in saarc - an outcome that would have made jinnah perfectly happy.

also pak has made good economic progress over the last few years and futher domestic reform and free trade with china will will make saarc irrelevant for pak in a few years.

from s&p`s latest report on pak:

The outlook revision reflects sharp declines in the government`s
external debt indicators and structural improvements that, over time,
should help Pakistan`s export capacity. Extensive microeconomic reforms
over the past several years have improved Pakistan`s growth prospects,
whereby real GDP growth of about 7% is a real possibility in the medium
term.

...Standard & Poor`s expects strong inward foreign direct investment to
finance much of these deficits. Furthermore, the concessional nature of
the public external debt ensures a very low interest burden and hence
minimal stress on external liquidity from debt service.

The government is pursuing an agenda of privatization, trade
liberalization, and market-led growth. In the fourth quarter of 2005, the
government sold Karachi Electric Supply Corp. and Pakistan
Telecommunication Co. Ltd. to Gulf State investors.

...Custom tariffs have steadily been lowered. The weighted average tariff is 10%.

...Pakistan`s macroeconomic conditions continue to improve because of
responsible economic management and gradual structural reforms. Its
economy has outperformed expectations by registering real GDP growth of
8.4% in fiscal 2005 (ended June 30, 2005), the fastest in over 20 years.
The higher growth rate reflects both cyclical factors, and growing
domestic confidence, evident in consumption and investment growth. The
outlook for GDP growth remains encouraging, thanks to recovery in the
industrial sector, rising investment, and increasing foreign participation
on Pakistan`s economy.

saarc in its present form is a non-starter and pak sarkar wisely has thrown a spanner in the works by inviting china to be a member. off course india is opposed to participation by china and will block its entry thereby insuring a stalemate in saarc - an outcome that would have made jinnah perfectly happy.

also pak has made good economic progress over the last few years and futher domestic reform and free trade with china will will make saarc irrelevant for pak in a few years.

from s&p`s latest report on pak:

The outlook revision reflects sharp declines in the government`s
external debt indicators and structural improvements that, over time,
should help Pakistan`s export capacity. Extensive microeconomic reforms
over the past several years have improved Pakistan`s growth prospects,
whereby real GDP growth of about 7% is a real possibility in the medium
term.

...Standard & Poor`s expects strong inward foreign direct investment to
finance much of these deficits. Furthermore, the concessional nature of
the public external debt ensures a very low interest burden and hence
minimal stress on external liquidity from debt service.

The government is pursuing an agenda of privatization, trade
liberalization, and market-led growth. In the fourth quarter of 2005, the
government sold Karachi Electric Supply Corp. and Pakistan
Telecommunication Co. Ltd. to Gulf State investors.

...Custom tariffs have steadily been lowered. The weighted average tariff is 10%.

...Pakistan`s macroeconomic conditions continue to improve because of
responsible economic management and gradual structural reforms. Its
economy has outperformed expectations by registering real GDP growth of
8.4% in fiscal 2005 (ended June 30, 2005), the fastest in over 20 years.
The higher growth rate reflects both cyclical factors, and growing
domestic confidence, evident in consumption and investment growth. The
outlook for GDP growth remains encouraging, thanks to recovery in the
industrial sector, rising investment, and increasing foreign participation
on Pakistan`s economy.

Athar,
thanks for another informative piece on South Asia. We need to hear more

from Rand here since most of us are not scholars of political economy on CHOWK.

It was nice meeting you at OPEN. I wish you and your wife a Happy New Year.


Ras

#30 by Layman on January 1, 2006 9:51pm PT

Let me run the pakiisms through a pakiisms to real world translator

hegemonical attitude : India`s refusal to hand over Indian Kashmir to Pakistan on a platter.

Pakis want a piece of cake(or the whole cake) as an incentive to eat the candy..

Pakistan has nothing to offer to India..It`s an economy 10 times smaller than India`s with a lower per-capita income. There are no famous Pakistani companies that can invest in India, unlike Infosys, Wipro, Reliance and Tatas that are investing a lot of money in the west..

the problem of bangla and nepal are political. they are politically very unstable. with nepal india already has FTA..nepalis and indian dont need visas and can work freely. what nepal needs is political stability. whether nepalis hate indians or not is not relevant, they become a stable political entity is. lankans dont love indians, but have a good relations with indians and the bussiness relations are ever improving. e.g. air lanka expects most of their growth from indian travellers. nepal also enjoyed great tourism revenues in the past, and while indians dont get free halwa like they get in lahore in nepal, indian tourists always enjoyed their stay in nepal.

banglas are in the grip of a mixture of bangalitis and ummaitis. my prediction is unless w. bengal gets better, bangla desh trade relations will not improve. as someone famous said, defence of the east lies in west ;-)

We want good relations with all neighbouring countries,irrespective of size or economic state.if the neighbouring countries wish to have free trade agreement with India,so be it.if they choose to have free trade agreements between themselves and not include India,then again ,so be it.
It will definitely be interesting to see Pak,BD,Nepal,Bhutan have an FTA without India in it.whetehr it will succeed and how much benefit they derive from this deal and will India have anything to lose by not being an part of it is not known.

frankly an SAFTA(without India) will not produce great worry in India.
The reason is that allover the World and especially in India,people are aware that as far as trade is concerend only 2 countries matter,the US and China.an FTA with these countries will arouse GREAT deal of interest.
the truth is that today we all have greater desire to have FTA with South American countries(like Brazil,Argentina,Venezuela) and others than be stuck without an sense of direction,entering into an FTA with Pak and BD.

ofcourse it would be an nice thing if we are able to trade with each other and SAFTA sounds good,but i only wish to point out that people from neighbouring countries need to be aware that it is better to focus energies building ties with other countries than waste time signing deals without honest purpose.

re: #29 by HisExcellency
Hegemonic attitude of India is an old theme now. Leave aside Pak`s dalliance with terrorism, for the kind of grief BD is giving India, India should have invaded that country (If Mexico had done the same to US, latter would have). India is a soft state. There is no hegemony. Only apathy.
Sridhar

re:#29 by HisExcellency
SAFTA without India will be like a man without his D!*K. It will be impotent.
Sridhar

#32 HisExcellency:
Pakistan sending goods by sea to BD will be more expensive than overland through India, IMHO. If Pak or BD want transit rights from India to Nepal, Bhutan or other countries, would it not be fair for India to expect transit rights through Pak (to Afghanistan) and BD (between NE India and West Bengal) in return? Both Pak and BD have been refusing to do so for long, while India has granted some transit rights between Nepal and BD (I believe some of it is incumbent on India by international law as Nepal is a land-locked state).

I agree with you that transit rights are better than multi-lateral free trade agreement, from the smaller nations` p.o.v and would support an agreement on transit rights amongst SAARC nations.

Regarding free trade, each country has to decide individually if it is in its own interest and make a decision without compulsion/pressure from India. While India may have more to gain from SAFTA, it can survive without it due to its large internal market and growing trade with China, Japan, EU, US etc.

It is too early to predict the fate of SAFTA or SAEU. Such arrangements cannot work/suceed under the atmosphere of distrust and/or political differences. EU, ASEAN etc. are working because they do not have political differences amongst them and also there is a balance of power. In SAARC, there is too much distruct prevailing between the member countries.

However, it is much better to have some sort of groupings than to have none. It is also advisable that the member countries also work on their political and other differences parallely.

#31 Layman wrote...

``How will Pakistan send goods to Bhutan, Nepal or BD?``

Pakistan can send goods to BD by sea, just like it sends goods to Sri Lanka (and vice versa). If necessary, Pakistan-Nepal-Bhutan can sign a transit trade agreement with Hindia just like the Afghan Transit Trade (ATT) agreement that Pakistan signed with Rabbani govt in 1994. Under ATT, Pakistani trucks could deliver goods to Central Asian Republics (CARs) through Afghanistan. Pakistani goods were subject to a flat-rate custom duty negotiated between Afghanistan and Pakistan.

Such a transit-trade agreement with Hindia is less risky for Pakistan-Bhutan-Nepal than an outright economic union or free trade agreement with Hindia.

#29 HisExcellency: ``Given the hegemonical attitude of Hindia, SAFTA and South Asian Economic union are non-starters. SAFTA minus Hindia will be more vibrant and mutually beneficial to Pakistan, Bangladesh, Sri Lanka, Bhutan, Maldives and Nepal.``

I would welcome a free trade agreement in the region minus India. But how do you expect it to work? How will Pakistan send goods to Bhutan, Nepal or BD? How will Nepal trade with BD? Transit rights anyone?

#26 jang: You may have a point when you say that India needs to pursue SAFTA for political reasons, if not economic ones.

However, I think any investment by Indian companies in Nepal or BD will be viewed with suspicion in those countries, just like the Indian left views foreign investment in India. If the companies make a profit (which is their goal), they will be accused of exploiting the Nepalis or BDeshis. If India does not invest in these countries, we will be accused of ignoring our neighbours and being `arrogant`. It is the reaction that small countries have to a large country.

BD is refusing transit rights for India to transport goods between the NorthEastern states and other parts of India. The transit through BD will reduce transport time and costs, thereby making things cheaper in the NE. I cannot understand why BD is being moronic - not providing transit rights may give them some satisfaction of having ``shown`` India its place, but BD is losing out as well. It can charge transit fees and make some money as well. It is a true win-win proposal if ever there was one.

Given the hegemonical attitude of Hindia, SAFTA and South Asian Economic union are non-starters. SAFTA minus Hindia will be more vibrant and mutually beneficial to Pakistan, Bangladesh, Sri Lanka, Bhutan, Maldives and Nepal.

{The onus for doing so clearly lies with India.}

Really? Daniel Pearl`s headless body is turning in its grave. Get this: hate of anything jew and kafir begets hate. If Pakistan wishes even to be counted amongst civilized nations first it must dismantle its jew/kafir hating terrorist training outfits. Otherwise crusades will never stop. Forget about union.