South Asia’s emergence as a growing economic hub is a testament to the region’s increasing openness to business and investment. With a collective population exceeding 1.8 billion, this dynamic and diverse market offers tremendous opportunities for businesses worldwide. The recent strides made in trade liberalization, infrastructure development, and regulatory reforms have created a more favorable environment for both domestic and international enterprises. South Asian countries are shedding their historical barriers and are actively promoting cross-border trade, making it easier for companies to access this burgeoning market. As the region continues to grow, it serves as a compelling example of the benefits of embracing globalization and fostering a pro-business environment.
Tag: GS Paper-2: India & its Neighbourhood; Groupings and Agreements involving India and/or affecting India’s interests.
Exam View:
South Asian regionalism; History of South Asian regionalism; New factors accelerating regional economic integration.
Context:
South Asia’s new economic openness, Delhi’s vigorous neighbourhood policies, and Western support for an India-centred regionalism in South Asia could transform the Subcontinent’s economic landscape.
Decoding the editorial: South Asian regionalism
The pessimistic discourse on South Asian regionalism is trapped in two old propositions:
- South Asia is the least integrated region and insufficiently connected to the world.
- The road to regional integration in the Subcontinent must necessarily run through the SAARC.
History of South Asian regionalism
- The post-colonial and partitioned sub-continent chose economic autarky.
- It devalued regional integration.
- Endless conflict reinforced the lack of political appetite for cross-border commercial engagement.
- The trans-regional connectivity inherited from the British Raj steadily withered as the newly independent countries focused on import substitution.
- The 1990s saw the liberalization and globalization of the South Asian economies.
- It saw the injection of the language of regionalism in the sub-continent and a new interest in trade and connectivity.
- Economic reform, however, was uneven across the region and tentative even in the capitals, with some support for change.
- And it was hard to mobilize support for cross-border connectivity projects amidst the region’s security challenges.
- The 21st century has seen considerable improvement within the Subcontinent.
- The share of intra-regional trade in the Subcontinent’s trade with the world has grown from about 2 percent in 1990 to about 6 percent today but is nowhere near the potential or the achievements of other parts of Asia.
- SAARC is moribund.
- Its last summit was held in 2014.
- Pakistan’s priority for the last three decades has been to wrest concessions from India on Kashmir.
- However, the rest of the region has moved forward through bilateral, sub-regional, and trans-regional mechanisms outside of SAARC. A successful SAARC is not a precondition for thriving economic regionalism.
New factors accelerating regional economic integration
- The renewed pressure to undertake economic reform.
- The recent economic crises in Sri Lanka and Pakistan are compelling the elites in Colombo and Rawalpindi to embark on serious and painful economic change.
- Nepal and Sri Lanka are today more open to trade, investment, and connectivity with India.
- Pakistan is turning to the Gulf to end its dependence on loans and bailouts.
- The region is looming larger in India’s economic calculus.
- As India’s relative economic weight in the world has grown, its commercial ties with neighbours have increased.
- Bangladesh, for example, is the fourth-largest destination for Indian exports, valued at about $16 billion in 2022.
- India’s exports to Sri Lanka at about $6 billion are comparable with India’s exports to Japan.
- Trans-border projects to promote rail, road, energy, power, financial, and digital connectivity have all gained new impetus in India’s engagement with its neighbours.
- Renewed rivalry between the US and China and deepening conflict between Delhi and Beijing, have altered the Subcontinent’s geo-economic template.
- In de-risking their commercial ties with China, the US and its allies now actively promote economic and technological engagement with India.
- They are also promoting economic integration between India and its smaller neighbours.
- The US, for example, helped Nepal’s energy and road connectivity with India with the $500 million Millennium Challenge Grant.
- Kathmandu approved it last year despite considerable opposition from China.
- Japan is now promoting sub-regional connectivity between India and Bangladesh that can potentially transform the economic map of the eastern subcontinent and the Bay of Bengal.
- Tokyo and Paris also joined hands with Delhi to help Colombo navigate its economic crisis.
- Macron’s visit to Sri Lanka, the first by a French President, is an attempt to integrate Colombo into Paris’s Indo-Pacific outreach.
- India, which was complacent about China’s growing economic presence in the region a few years ago, has offered a measure of competition in the Subcontinent with its own bouquet of regional infrastructure projects.
Frequently Asked Questions (FAQs)
1. What has led to the recent opening up of South Asia to business?
Answer: South Asia’s growing openness to business can be attributed to various factors, including increased trade liberalization, infrastructure development, and regulatory reforms. Governments in the region are actively working to attract investment and promote cross-border trade, creating a more favorable business environment.
2. Which countries in South Asia are particularly welcoming to foreign businesses?
Answer: Several South Asian countries, including India, Bangladesh, Sri Lanka, and Nepal, have been actively pursuing policies to attract foreign investment and promote business growth. These nations offer various incentives and improved regulatory frameworks to facilitate foreign business operations.
3. What sectors in South Asia offer the most promising opportunities for businesses?
Answer: South Asia’s promising business opportunities span a wide range of sectors, with considerable potential in technology, renewable energy, healthcare, manufacturing, and agriculture. The region’s large consumer base and skilled workforce make it an attractive market for various industries.
4. Are there any trade barriers or challenges that businesses should be aware of in South Asia?
Answer: While South Asia is becoming more open to business, there are still challenges such as bureaucratic red tape, varying regulations across countries, and infrastructure gaps. It’s essential for businesses to conduct thorough research and understand the specific challenges in their chosen sector and market within South Asia.
5. How can international businesses navigate the diverse cultures and languages in South Asia?
Answer: South Asia is known for its rich cultural diversity and numerous languages. To navigate this diversity, international businesses can benefit from partnering with local experts, using language translation services, and fostering cultural sensitivity within their teams. Building strong local relationships and understanding cultural nuances can be a significant advantage in South Asian markets.
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