Updated: July 5, 2011 12:06 IST

Study on integrating services

S. L. Rao
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This is a comprehensive study of the potential for integration of services in trade and investment among South Asian countries. It starts with the premise that such potential exists because services constitute 50 per cent or more of the GDP of all these economies and are the main contributing factor for the 7 per cent, or more, GDP growth recorded by the SAARC countries. Also, the growth of services in this region pre-dated sustained industrialisation, as it happened in other Asian countries.

The study covers five services — telecommunications, energy, tourism, health, and education. It identifies areas where prior action by the countries concerned is necessary before the potential could be realised. They are: improvement in the information base; cross-country learning and harmonisation of regulatory frameworks, standards, institutional mechanisms — related to visas, for instance — and taxation system to ensure better mobility of labour and capital; development of transport infrastructure and trade facilitation measures; and capacity building at the regional level.

At present, intra-regional trade through the groupings in SAARC — SAPTA and SAFTA — is low compared to ASEAN. The reasons are: considerable overlap in their respective trade baskets; small-sized and relatively underdeveloped markets in most countries; poor connectivity in transport and communications; infrastructural bottlenecks; relatively high and dispersed levels of protection in most countries; and the political issues affecting bilateral relations that make them reluctant in varying degrees to work for interdependence.

However, the book shows how there is a vast scope for regional integration in the realm of services. In all countries, the core of economic structures has shifted from agriculture to services. There is considerable variation in the size of their service economies. In capital and labour flows across the countries too, there is room for complementarities.

Telecom is one sector that can help all countries overcome the disadvantages arising from poor development. The potential for capital flows from India is considerable. However, the investment climate needs to be improved by prioritising regulatory cooperation, harmonising numbers, adopting comparable call rates, and going for lower termination charges to encourage competition.

Strong political will

Integrating energy services especially calls for a strong political will. Trading in electricity and natural gas as well as transit pipeline facility offers a huge source of revenue. Any effort at regional cooperation should begin at institutional, infrastructural, informational, and regulatory levels.

The creation of an apex regional body for the purpose will help. The Iran-Pakistan-India and Myanmar-Bangladesh-India gas pipelines have been under discussion for a decade. Selling hydroelectric power to India will make sound economic sense for Nepal, as it did for Bhutan. As for tourism, there is tremendous opportunity for trade integration even in the immediate term. The need of the hour in this context are: lower travel costs; better transport connectivity; and the streamlining of visa procedures and the tax structure. In the domain of health services, the ideal way to go will be to make small beginnings in the form of ‘pilot' ventures and gradually move forward. Cross-border investments, capacity building, and regulatory systems are perhaps the right areas of cooperation to start from. Among the tricky issues to be sorted out are insurance and cross-border payment arrangements.

The potential for cooperation in educational services rests at the post-graduate and professional levels. Scholarships, faculty inter-change, and collaborative research are some of the areas in which it can happen. Sadly, however, there has been a decline in the flow of international students to India, especially from the other South Asian countries, in recent years. Distance learning is another line to explore for regional integration.

In all these sectors, it must be noted, India is the market, investor, and user of labour and natural resources, while the other countries in the region are playing the secondary role of feeding its growing appetite. Understandably, this engenders a feeling of envy in them and it is for India to find ways of countering it. A possible remedy is for the South Asian community to join another regional grouping like ASEAN, provided of course they are agreeable to the idea.

Stark reality

In conclusion, the book quite appropriately refers to the stark reality that political economy has been at the back of regional integration not making headway in South Asia and asserts that it will continue to be so. The dominance of India — geographic, demographic and economic — has been an important factor. And India's faster and more consistent economic growth in recent years has only added to it. If China's attempt to meddle in the region made matters more difficult, the history of unfriendly relations between India and Pakistan has led to other countries becoming wary of getting closer to either. The challenging issues Rupa Chanda has ventured to tackle in this book warrant a wider debate and strong advocacy in the interests of peace and stability in South Asia.

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