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Business Commentary / Rajeev Srinivasan

South Asian Economic Community within realm of possibility

The Christmas issue of The Economist had an interesting article about "Unthinkables -- An ostrich's view of the world". They looked at "four big issues the great and the good in the West may be kidding themselves about". The four, which they suggest are articles of faith that may be completely wrong, are: 1. "China will not break up" -- on the contrary, it might; 2. "democracy is on the march" -- not quite, totalitarians are not quaking in their boots; 3. "shares are the best long-term investment" -- the US bubble may well burst, bringing the rest of the world's bourses down with it; and 4. "there's no need to worry about nuclear war" -- the current discriminatory non-proliferation regime may collapse.

It is a provocative set of issues, especially considering 1998 was so full of suprises; indeed the last decade or two has set much conventional wisdom on its head. Nobody would have predicted such epoch-making events as the fall of the Berlin Wall, the disintegration of the Soviet Union, the economic collapse among the Asian Tigers, or the impeachment of a US president. Who could have foreseen the rise of the Internet, the eclipse of giants such as AT&T and Bank of America, or the elevation of Hyderabad to infotech stardom?

The conclusion to be drawn is that change and uncertainty have become facts of life; and that change is more rapid and its impact more dramatic than it has been in the past, partly as the result of the increasing globalisation of economies. Therefore, it is best to be prepared for the unexpected.

Looking at The Economist's list, the first item does not particularly surprise me, as I have been saying essentially the same thing for some time. The Chinese empire is fragile, and the cost of decentralising authority and power is that the restive peripheral areas -- whether it be the colonised provinces of Tibet, Xinjiang or Inner Mongolia, or the prosperous coastal belt around the cities of Canton and Shanghai -- may decide to go their own way.

From India's point of view, the break-up of China is a desirable eventuality which should perhaps be helped along with a little discreet assistance to secessionists and malcontents. However, The Economist's rationale is a little mischievous -- they ask how almost a fourth of humanity could inhabit a single country. They also imply in passing that the same question might be asked of India -- suggesting that the breakup of India is not unthinkable either. This possibility Indians have to stave off with urgency and vigour -- a fragmented India will find its parts don't add up to much.

It is curious, but not surprising, that The Economist chose not to ask the other obvious question -- how reasonable is it that certain large countries possess significant shares of the world's landmass? Canada, the United States and Australia each have at least 10 to 15 per cent of the world's land and presumably resources. By the same token as above, these ought to be broken up into smaller, more manageable units. But of course, the West has no interest in their own members fragmenting.

In fact, the West is showing considerable eagerness to defragment. The unveiling of the Euro on January 1, 1999 is a case in point. Western Europeans, highly diverse, highly parochial, often mortal enemies for at least a millennium, and who have fought brutal and continuous wars amongst themselves, have finally come together in the early stages of a monetary union; and who knows, eventual political union as well.

They have finally realised the wisdom of aggregation -- the European Economic Community now offers a larger market than the United States. The EEC has always been envious (see Servan-Schreiber's Le Defi American) of the US's ability to nurture local firms on its own gigantic national market -- now the EEC too has economies of scale. Various trade blocs, such as NAFTA in North America, ASEAN, and Mercosur in Latin America, in addition to the EEC, have shown the advantages of increased trade flows between neighbouring nations -- if you are making money trading with them, you are less likely to start a war with them.

Therefore, the weak noises emanating recently from Delhi about almost-free trade with Sri Lanka are most welcome. This is the concrete realisation of the potential of the South Asian Association of Regional Co-operation about which there has been much talk, but little action, mostly, alas, because of bad blood between the two largest regional economies, Pakistan and India.

Now India has decided to go ahead with bilateral freeing of trade with Sri Lanka, and earlier with Bhutan and Nepal, if I am not mistaken. There is some talk of doing the same with the Maldives as well.

Even though the nay-sayers cavil that it is a delayed and incomplete lowering of trade barriers, it is still an extremely welcome step. And it is true that India has to provide some concessions as by far the larger economy, as the partner economies may worry about being overwhelmed by cheap imports. This needs to be done with hard bargaining, unlike the thankfully-discarded "Gujral Doctrine" of just giving things away.

This may lead, eventually, to a virtual SAFTA (South Asian Free Trade Area) without Pakistan, possibly with closer link-ups with other Indian Ocean Rim nations, including South Africa, Thailand, and Malaysia. Sooner or later, it is inevitable that Pakistan will wish to join the party as well; which is greatly to be desired.

Pakistan may sell power and raw materials to India, and expand the ridiculously small set of exactly 557 items currently on their positive list for imports from India. Then it is likely both countries would prefer to fight bloodless trade skirmishes than fight over Kashmir or use nuclear weapons.

And that leads to the unthinkable -- is it possible to consider a customs union, monetary union, and even eventually a political reunification of the Indian subcontinent? As it once was the case in Europe, this eventuality looks very remote today. But there have been great animosities indeed between West Germany and East Germany, between North and South Korea, and, in general, among the haphazard states created by the cartographer's whim at the end of the colonial era.

If Germany can reunite -- albeit with some pain -- and it is almost certain that Korea will reunite in the next 50 years, is it entirely out of the realm of possibility that there will at least be a South Asian Economic Community by then? The current members of SAARC, plus perhaps an independent Tibet, and Burma?

These states are all bound together to a significant extent by Indic culture; even 50 years of a religious overlay has not obliterated that fact. Without getting into the emotional complications of reuniting those divided by religion, it is clear that an economic union makes sense. Perhaps a Bharatiya Janata Party government is the one that can take this forward, without the shibboleths of past sins blinkering them to the unthinkable (but possible).

Rajeev Srinivasan

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