Deepening South Asian Economic Cooperation Asia meeting 2-3 may 20013... · Only 7% of...

Confederation of Indian Industry (CII)

Deepening South Asian Economic Cooperation

By

Pranav Kumar

Head, International Trade Policy


Presentation on


Status of South Asian Integration

South Asia is one of the least integrated regions in the world;

It accounts for just 2 per cent of world trade and 1.7 per cent of world foreign direct investment;

Its intraregional trade is less than 6 per cent of its total trade;

South Asian intraregional trade is less than 2% of GDP, compared to more than 20% for East Asia;

intra-SAARC FDI accounted for only 3 per cent of total FDI inflows

Energy trade in the region is very low. Only India, Bhutan, and Nepal currently trade electricity; and

Only 7% of international telephone calls are regional, compared to 71% for East Asia.


Key Vehicles of Economic Integration

Trade – Intra-regional trade is low, despite SAFTA and tariff reduction

Investment – Intra-regional investment as a % of total FDI inflows is very low

Movement of people – restrictions on movement of people because of physical barriers or policy related barriers


Example of Indo-Sri Lanka Integration through FTA

Signing of FTA resulted in significant increase in bilateral trade

FDI inflows from India to Sri Lanka surged, as India jumped from one of the top 10 providers of FDI in Sri Lanka in 2000 to the fourth largest in 2005. FDI flows from Sri Lanka to India also increased.

A main reason the FTA has boosted FDI is that low tariffs allow Indian investors to send raw materials to Sri Lanka and then re-export products back to India.

In the first half of 2011, India remained the third largest contributor of FDI to Sri Lanka ($47 million).


India – Sri Lanka Trade

2.592.84

1.72

3.31

4.45

0.55 0.33 0.52 0.72

3.043.39

2.05

3.82

5.17

0.44

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2007 2008 2009 2010 2011

Exports Imports India - Sri Lanka Trade

Source: ITC Trade Database; US$ Billion


Indian Investment in Sri Lanka

Total investment up to 2011: US$ 700 Million

Manufacturing: : CEAT, Asian Paints, Piramal Glass, Dabur

Telecommunication : Bharti Airtel, TATA communication ,IT/ITES Mphasis, Aegis (Essar Group),

Hospitality : Taj Hotels group

Petroleum : Indian Oil Corp./Cairns India

Manufacturing for domestic mkt./Trading : Ultratech Cement/Siemens-India /TVS Revlon Mody

Market research /Consultancy : IMRB / A C Neilson / AMBA

Financial services/Insurance : SBI/ICICI Bank/ IOB/Axis/ UTI/ LIC

Construction : L & T construction

Services : Taj Group/Sita Travels Reliance Network , First Source IT


Some of the Recent Activities by CII in this Region

An 18-member high powered CII-led Indian business delegation visited Kabul from March 16-18, 2013 to explore opportunities and possibilities for business and investment in Afghanistan. The CII and the Afghanistan Chambers of Commerce and Industry (ACCI) were the leading organizers for the visit;

India – Afghanistan Business-to-Business Matchmaking on March 17, 2013;

CII organized a 13 member CEOs delegation to Sri Lanka from 18-20 November, 2012

A CII CEOs Delegation visited Bangladesh to connect with its Government and business community, and to set in place an action plan for facilitating bilateral investments, and further encouraging trade and cooperation between the two neighbours during June 2012.


Proposal for SEZ to Government of Bangladesh by Indian Businesses

Recently in CII mission to Bangladesh, Indian businesses requested the Bangladesh Government to set up SEZs for Indian companies, and to offer tax concessions as this would encourage Indian business, especially those from the North Eastern states of India;

This effort will encourage large-scale investments in Bangladesh; It will give opportunities to Indian businesses to invest in different sectors

and capitalize on low-cost local labour, to manufacture products for Bangladesh.

The SEZ could be located at Chittagong, or a similar port, it would offer a strategic location for industry and trade and would enable raw materials and produce from India to be shipped to Chittagong for value addition at the SEZ;

Creation of such SEZ could lead to substantial employment opportunities for Bangladeshis;

Setting up a SEZ in Bangladesh exclusively for Indian businessmen could open up the entire South East Asia to Indian business and offer substantial benefits to both India and Bangladesh.


Indian initiatives in Sri Lanka

India is contemplating to launch a Special Economic Zone (SEZ) to produce auto components in Trincomalee, Sri Lanka;

The SEZ is aimed at providing auto manufacturing hubs in Sri Lanka and India is eager to increase support in these and related sectors;

India will also set up a pharmaceuticals manufacturing hub in Sri Lanka for which a task force has been created;

In case of Sri Lankan apparel sector India can offer synergistic partnerships in design development and student exchange programs through its premier design institutes like NIFT, NID and FDDI.

Two Sri Lankan apparel business houses — Brandix Apparels and MAS Holdings — have already partnered with India in setting up two Integrated Textile Parks at Vizag and Nellore to provide expertise to India in green manufacturing processes.


Leading Indian Investments in Sri Lanka


Barriers to Integration

South Asia ranks the last among all world regions in terms of road density, rail lines, and mobile tele-density per capita;

Presently, the trucks of one country are not allowed across the border to deliver cargo, with the exception of Nepal which allows Indian trucks to stay for 72 hours. Almost all road-based intra-regional trade has thus to be transhipped between one vehicle and another;

A study shows that the transaction cost in South Asia accounts for nearly 7.5% to 10% of FOB value;


Areas of Potential Cooperation

Trade;

Value Chain Integration;

Infrastructure;

Trade Facilitation;

Services;

Investment;

Tourism;

Agriculture;

Energy;

Education;

Healthcare; and

Small Medium Enterprises (SME)


Recommendations

Trade

– Further tariff rationalization is needed;

– Easier market access and special; preferences should be given to least developed countries such as Bhutan, Maldives and Nepal.

Value Chain Integration

– Need to develop manufacturing sector;

– Sectors needed to be identified;

– More SME participation is required.

Infrastructure

– Public – Private involvement are needed;

– Container train operations on major freight corridors are needed.


Recommendations

Trade Facilitation

– Need to address Regulatory environment and standard harmonization;

– Need cooperation/ harmonization in customs related matters;

– EDI needs to be implemented at all the cross border ports;

– Need ‘single window’ operations to provide a one-stop shop solution to the trader to fulfill all export, import and transit related regulatory requirements.

Services

– Along with IT and BPO, other sectors such as healthcare, education, financial services, tourism and entertainment need to be emphasized;

– Cooperation in the Banking sector institutions is the need of the hour;

– India’s experience of private sector participation in social services should be shared with other South Asian nations.


Recommendations

Investment

– Need trade and investment linked banking agreements between South Asian countries;

– Each country should improve its performance indicators outlined in the World Bank’s Doing Business Report to facilitate greater flow of FDI.

Tourism

– Need collaboration between tourism ministries and agencies of all South Asian countries;

– Need better air links to expand tourism;

– Visas for the smaller countries need to be available at the airports on payment of fees.


Recommendations

Agriculture

– Cooperation between agricultural research institutions is needed among all the South Asian nations;

– Joint venture projects need to be undertaken to rapidly accelerate the growth of agriculture.

Energy

– Need to encourage enterprises of South Asia to work together to optimally exploit the petroleum and natural gas resources;

– Need to cooperate in developing the technologies for renewable resources including wind energy, solar energy, tide energy, bio-energy etc;

– Need to share experience in energy management.


Recommendations

Education

– Encourage private sector participation;

– Need various exchange programmes;

– Need tie-up between identified research institutions in identified fields.

Healthcare

– Exchange of experiences and information – in delivery of health care and managing key diseases, in traditional medicines, building of hospitals, manufacturing of pharmaceuticals etc;

– Need harmonization of healthcare standards in South Asia.


Recommendations

Small Medium Enterprises

– Experiences of development of SMEs should be shared, including government policies, management system, laws and regulations;

– The governments should create favourable conditions for the SMEs of the member countries to cooperate each other;

– Need cooperation in knowledge-based industries among all member countries.


Financing infrastructure development in South Asia

Like ASEAN Infrastructure Fund (AIF), South Asian nations can also try for a South Asian Infrastructure Fund (SAIF) to finance the development of road, rail, power, water and other critical infrastructure needs;

Working together to finance infrastructure projects will boost trade, foster economic growth and create more job opportunities;

South Asian nation should also emphasize Private-Public Partnership (PPP) for infrastructure development.


Way forward…

South Asia will play an important role in the global development as it has the world’s largest working-age population, a quarter of the world’s middle-class consumers;

There are tremendous opportunities to expand trade volume and intensify economic cooperation;

To ease trade, investment and business facilitation, a free economic zone and common currencies through out the region is required. (Kashmir – Indian and Pakistani currency, North Bengal – Indian and Bhutanese currencies)

The participation of the private sector is indispensable to support rapid growth and industrialization, to create the infrastructure for economic development, to generate employment, and to distribute wealth and income more widely;

With greater regional integration, seamless connectivity, and the removal of bottlenecks, South Asia has the potential to change global poverty.

Deepening South Asian Economic Cooperation Asia meeting 2-3 may 20013... · Only 7% of...

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