The author is former director general, National Council for Applied Economic Research and chairman, Central Electricity Regulatory Commission
India has been unable to become a partner in any functioning regional economic grouping. Regional groupings are a distinct trend in world trade and investment relationships today together with growing globalization and opening up of markets. Neighbouring countries are also joining together to help stimulate trade and investment among themselves.
India is member of two such regional groupings. The first was an offshoot of the South Asian Association for Regional Cooperation and was intended to stimulate trade and investment in south Asia. It has been bogged down by the perennial quarrels between India and Pakistan, and now by issues of cross-border terrorism. Pakistan has not even given the “most favoured nation” status to India, something which international trade treaty obligations require it to do. In recent years, India has tried to bypass the non-functioning SAARC and its offshoots by entering into bilateral arrangements with Bhutan, Nepal, Sri Lanka and Bangladesh. This has sharply reduced or eliminated customs duties on selected products and trade has grown as a result.
The other regional economic initiative was taken when India thought it would be preferable to create a larger grouping in which India was not as dominant either economically or in population as it is in SAARC. This grouping was of countries in the Indian Ocean region. This also has not taken off in economic relationships. The chief reason seems to have been the desire of Australia, which was one of the founding members with India, to make it inclusive of all countries big and small, from the outset. India preferred the membership to be limited at the start and expand slowly.
In the event it became a political game between the two and the membership consists of a number of minor economies in addition to India and Australia. It has not led to any economic initiatives. Australia lost interest after the Labour party gave way to the Conservative government of John Howard. He does not regard Australia as part of Asia and has little interest in fostering closer relations with Asian economies.
There was an earlier grouping that India was invited to join at its inception but did not. This was the Association of Southeast Asian Nations. India then considered it to be a fall-out of the Cold War. The United States of America had created the South-East Asia Treaty Organization, one of many American initiatives to contain communism by building a bulwark of nations around the Soviet Union. As a non-aligned country India disdained that initiative. Since then ASEAN has become highly successful and has led to the Asia Pacific Economic Community to which India was not invited. After many years of wooing we have only recently been granted observer status in both.
In this background we must welcome the initiative to form an Asian economic community. Japan had tried to create one through military force and conquest in World War II. Now as one of the economic superpowers in the world it is much more acceptable as a leader for such an initiative.
At a conference this month in Delhi organized by the low profile think-tank, Research and Information System for the Non-Aligned and Other Developing Countries, key countries from Asia discussed and agreed that the idea had promise. They felt that the first stage should be a grouping of Japan, ASEAN countries, China, India and South Korea, comprising the largest and most powerful economies in the region.
These countries together are as big as if not larger than even the European Union and the North American Free Trade Agreement countries of the US, Canada and Mexico. Their foreign exchange reserves are larger than both these powerful groups together. And yet mutual trade and investment among them is relatively small. There are colossal investment opportunities in building the Asian infrastructure so that it is connected by rail and road, shares electricity through a common grid, has oil and gas pipelines across the continent, to name a few. These projects are unlikely to be funded by lenders in Europe and the US but could be funded by Asian countries leveraging their large foreign exchange reserves.
The historical relationships in Asia before colonization by the West encompassed trade, investment, migration, religion and culture. Within the same continent these are natural and an Asian economic community will foster them. Already smaller and local groupings are being developed as for example, on their borders, between India, Burma, Bangladesh and Thailand.
There are many hurdles. The Asian mindset must change, to look to each other than to the West. The approval of the world’s only military superpower, the US, is necessary if the initiative is not to be killed at the start. The lurking distrust of China by Japan and India could be overcome if they could find a common concern. What could be this common concern' In the coming years, China, India and Japan will be insatiable in their demand for oil and gas. With the ASEAN and Korea, their demand will overtake the EU and NAFTA. Yet, except for the ASEAN the other four will be dependent on supplies from the West and East.
Policing these sea-lanes, especially the narrow Straits of Hormuz and Malacca, through which most of the ships carrying the oil and gas must pass, must be a task that they must do for themselves. Their security should not be left to the US. India is well placed geographically to play a major role in this task. Access to the vast reserves in central Asia and from Russia will also be more likely if India and China cooperate. Energy security must be the mantra on which this economic grouping moves forward, with JACIK as the beginning.
There are many issues to be resolved. Trade barriers have to be reviewed. Agriculture will be a sticking point, especially because in Japan it is uncompetitive but culturally necessary and so is highly protected. Before funds can be invested within Asia, there must be a cleaning of financial structures and institutions. Crony lending must cease. Corporate governance must become transparent. The business framework must be of similar quality and regulation, for chartered accountants, merchant bankers, stock markets, and others.
Any community must have some common binders in terms of standards, rules and procedures and these must be developed. There must be a greater sharing than there is of music, films, publications, television and education. China, India and some of the ASEAN countries have youthful populations while Japan and Korea have ageing ones. Migration is already large but illegal on paper. It is an issue that needs resolution.
Indian governments have been short on vision as far as such initiatives are concerned. They have not learnt from the experiences of the successful groupings in the EU and ASEAN. These developed gradually and expanded into more relationship areas and countries over many years. They ensured the involvement of intellectuals and think-tanks to create a climate of favourable opinion. With SAARC and the Indian Ocean region, the Indian government did not back such involvement. Those initiatives have failed. The idea of the Asian economic community is vital to our economic, energy and defence security as well as for the other JACIK countries.
It must not be allowed to die because of the absence of governmental vision especially in India. Fortunately, Japan appears ready to lead this initiative. It is in a position of some trust, certainly in the ASEAN and India. There is no reason for the Americans to be hostile to the idea since it will bring China into the comity of relatively democratic nations. The Indian government must accept this community as a goal for India. It must support conferences and research to move it along. For some time it must be left to non-governmental groups to push the idea forward. Government involvement in public at the outset might be a kiss of death. But government must be committed to it and closely monitor the progress.