THE
stunning electoral success of the Congress party and its allies in India
against the incumbent BJP last May has demonstrated that what matters
for the people of a country is not just the level of GDP growth but the
way it is distributed between the rich and the poor. I have been arguing
this in my published work during the last three years in the Pakistani
context, and now we have learned the lesson from the voice of the people
of India. There is an ongoing debate on whether recent economic growth
in India and Pakistan has significantly reduced poverty.1
It is clear, however, that for rapid poverty reduction, high GDP
growth will have to be combined with restructuring growth so as
to enhance its impact on poverty reduction.
The policy
challenge, therefore, for both Prime Minister Manmohan Singh and Prime
Minister Shaukat Aziz is to redesign their respective economic strategies
so as to achieve a sustained high GDP growth, and at the same time achieve
rapid progress in employment creation and poverty reduction. In this context
it may be time to consider how a new economic policy is linked with a
rapid peace process. In this article we will first indicate the economic
logic of replacing conflict with peace. We will then specify the practical
policy actions that can be undertaken to bring the peace dividend to the
people.
South Asia
stands today at the cusp of history: Between a past, darkened by poverty,
disease, illiteracy and conflict, and a bright future, when the great
potential of its human and natural resources, and the shared humanity
of its diverse cultures can be actualized. The global environment provides
a historically unprecedented scale of private capital flows, trade opportunities,
information and technology, which if utilized can dramatically transform
the material conditions of life of the countries of South Asia.
Within the
globalized economy the emergence of a number of regional economic blocs
in the continents of Asia, Africa and America, demonstrates that the economic
and social welfare of any country is advanced far more if it interacts
within the global economy as part of a regional bloc, rather than individually.
An integrated regional economy accelerates economic growth of member countries
through the advantages of geographic proximity, economies of scale in
production and infrastructure. At the same time member countries enjoy
better leverage in dealing with the global system of finance, investment,
trade and institutions. A regional bloc also provides a stabilizing cushion
to member countries from the destabilizing fluctuations in the global
economy.
For
South Asian countries, moving towards regional economic integration provides
an opportunity for rapidly accelerating economic growth through increased
foreign direct investment from rest of the world, lowering energy costs
through power trading, improving the quality and connectivity of infrastructure,
increased intra-SAARC trade and the negotiation of better terms for common
interests with the WTO.
An examination
of the economic growth performance of South Asian countries shows that
economic growth is far below its potential and still sharply lower than
the growth rates prevailing for example in South East Asia. Recent research
has shown that much of the difference in the growth performance of South
East Asia compared to South Asia is attributable to much higher rates
of investment in the former. Apart from this, poorer performance of governance
variables in South Asia such as economic regulatory systems, fiscal and
judicial systems, are important factors in the relatively poor growth
performance of South Asia compared to South East Asia.2
Lower levels of governance variables lead to increased cost of investment
and hence lower economic growth rates for given levels of investment.3
Increasing
investment and accelerating economic growth in South Asia through regional
cooperation would, therefore, play an important role in improving the
standard of living of the people in the region. In this context policies
should be initiated for facilitating joint venture investment projects,
developing infrastructure and increasing the efficiency of investment
by providing incentives for technology transfers and firm level R&D
associated with foreign direct investment.
A
rapid improvement in the material conditions of the people of South Asia
requires not only a faster economic growth rate but also a restructuring
of growth so as to make it pro poor. This requires providing the institutional
basis and economic incentives for changing the composition of investment
towards those sectors which generate relatively more employment and which
enable increased productivity and incomes of the poor. These sectors include
the construction sector, small-scale industries, and milk, fruits, flowers
and vegetables and marine fisheries.4
Regional infrastructure for transportation, technical services and skill
development could enable new growth centres at the regional level for
the production and export of the goods and services in these sectors.
The increased weight of the output of these sectors in total GDP would
enable not only a faster economic growth rate for given levels of investment
but also a more equitable growth.5
Apart
from implementing the decision at the Islamabad SAARC Summit to establish
a South Asian Free Trade Area, three broad areas for deepening economic
cooperation can be identified for purposes of specific policy action:
(i) Energy cooperation within South Asia; (ii) Increased
investment for accelerating economic growth; and (iii) Restructuring
growth for faster poverty reduction.
Specific
policy actions for each of the above three areas, are as follows:
1. Energy
Cooperation within South Asia. (a) In the context of developing energy
markets of these resources, power trading in the region calls for establishment
of high voltage interconnections between the national grids of the countries
of the region. India, Pakistan and Bangladesh should also cooperate closely
in establishing gas pipelines in South Asia for transporting gas from
Iran, Qatar and Turkmenistan and even Myanmar. Specifically, the ongoing
official negotiations on transporting oil and gas from Iran through Pakistan
to India should be brought to an early and successful conclusion. To strengthen
the mutual inter-dependence between India and Pakistan the recent proposal
by Mani Shankar Aiyar6
for transporting diesel fuel from Panipat to Lahore should also be taken
up quickly.
(b) The
precondition to create a competitive power market is to allow freedom
to generators to produce electricity and distributors to sell in the market.
In this context joint developing, trading and sharing of energy should
be pursued.
2. Increasing
Investment Within South Asia through joint venture projects.
The key
joint venture projects that can be undertaken to increase investment and
growth in the region are as follows:
(a) Facilitating
private sector joint projects in building a network of motorways and railways
at international quality standards throughout South Asia. These modern
road and rail networks would connect all the major commercial centres,
towns and cities of SAARC countries with each other and with the economies
of Central Asia, West Asia and East Asia.
(b) Facilitating
regional and global joint venture projects for developing new ports along
both the western and eastern seaboard of South Asia, and at the same time
upgrading existing ports to the highest international standards.
(c) Facilitating
regional investment projects in building a network of airports, together
with cold storages and warehouses that could stimulate not only tourism
but also export of perishable commodities such as milk, meat, fish, fruits
and vegetables.
(d) Facilitating
regional joint venture projects for building dams to utilize the huge
untapped potential for energy and irrigation in the mountain ranges of
South Asia. These dams of course should be designed and located strictly
in accordance with the existing international treaties such as the Indus
Basin Treaty.
(e) Facilitating
regional joint venture projects for improving the irrigation efficiency
of the networks of canals and watercourses in South Asia.
3. Restructuring
Growth for Rapid Poverty Reduction.
(a) Generating
employment and incomes for the poor Economic growth must not only be
accelerated but restructured in such a way that its capacity to alleviate
poverty is enhanced for given growth rates of GDP. In this context of
achieving pro-poor growth, three sets of measures can be undertaken at
the country as well as the regional levels:
(i) Joint
venture projects need to be undertaken to rapidly accelerate the growth
of those sub-sectors in agriculture and industry respectively which have
relatively higher employment elasticities and which can increase the productivity
and hence put more income into the hands of the poor. These sub-sectors
include production and regional export of high value added agricultural
products such as milk, vegetables, fruits, flowers and marine fisheries.
(ii) Regional
network of support institutions in the private sector can be facilitated
for enabling small scale industries located in regional growth nodes,
with specialized facilities such as heat treatment, forging, quality control
systems and provision of skill training, credit and marketing facilities
in both the country specific and regional economies.
(iii) A
SAARC fund for vocational training may be established. The purpose of
this fund would be to help establish a network of high quality vocational
training institutes for the poor. Improved training in market demanded
skills would enable a shift of the labour force from low skill sector
to higher skill sectors and thereby increase the productivity and income
earning capability of the poor. It would at the same time generate higher
growth for given levels of investment by increasing factor productivity.
(b) SAARC
educational foundation A SAARC educational foundation in South Asia
may be created on the basis of contributions by individual SAARC member
countries and more substantially by multilateral donor agencies. The purpose
of this foundation would be to create a network of high schools of an
international standard in selected districts in each of the countries
of South Asia. These SAARC schools could act as role models and set standards
for both the private sector and the individual governments to follow.
(c) SAARC
health foundation7
There is an unacceptably high prevalence of disease particularly amongst
the lower income groups in the countries of South Asia. Recent research
has shown that poor health is a major trigger that pushes people into
poverty.8
Therefore, taking urgent measures at the regional levels for both preventive
and curative health institutions would be an essential part of poverty
alleviation and human development. In this context I have proposed that
a SAARC health foundation may be instituted as a private-public partnership
with the following objectives. It can be financed primarily by the private
sector, with contributions by regional governments and multilateral donor
agencies:
(i) To establish
reproductive health care clinics in selected low income districts in each
of the countries of South Asia for providing pre-natal and post-natal
care to mothers. This could be an important factor in improving the health
of mothers and ensuring improved outcomes of pregnancy in terms of the
health and productivity of the next generation.
(ii) Establishing
high quality model hospitals (one in each district of each country of
South Asia). These hospitals in terms of their quality of medical care
could set the standards for others in the private and public sectors to
follow.
(iii) SAARC
district extension services for sanitation and provision of drinking water
at the community level. These centres could provide to NGOs, private sector
and community organizations information regarding the available low cost
measures that can be taken at the village and mohalla levels for improved
hygiene in the home and access over clean drinking water. The rich corpus
of experience of different communities in the South Asian region who have
tried on an experimental basis to provide sanitation and clean drinking
water can be accessed and made available in a usable form to village and
mohalla levels community organizations.
In this
article we have set out the economic logic of regional cooperation in
South Asia and the specific policy actions that can be taken to improve
employment, health and education of the deprived sections of South Asian
societies. However, the prerequisite for such a process to begin is a
change in the governmental mindset. There is an urgent need today for
moving out of a mindset that regards an adversarial relationship with
a neighbouring country as the emblem of patriotism, affluence of the few
at the expense of the many as the hallmark of development, individual
greed as the basis of public action, and mutual demonization as the basis
of inter-state relations. We have arrived at the end of the epoch when
we could hope to conduct our social, economic and political life on the
basis of such a mindset. If the people of South Asia as a whole are to
actualize their potential for development, a sustained and rapid peace
process between India and Pakistan is the need of the hour.
Footnotes:
1.
For India, see for example, the brilliant paper by Abhijit Sen, which
convincingly argues that contrary to received wisdom there has been no
significant reduction in poverty during the high economic growth period
of the 1990s. Abhijit Sen, Poverty and Inequality in India: Getting Closer
to the Truth, paper presented at the World Bank Workshop on Equity and
Development in South Asia, 7-8 December 2004, New Delhi.
For
Pakistan, see for example, Akmal Hussain: (i) Institutions, Economic Structure
and Poverty in Pakistan, South Asia Economic Journal 5(1), January-June
2004, Sage Publications, New Delhi, 2004. (ii) Poverty reduction figure
is fudged, Daily Times, 14 June 2004. (iii) Questioning the official
truth, Daily Times, 16 June 2004.
Ashfaque
H. Khan, Poverty reduction figures are not fudged, Daily Times,
15 June 2004.
S.M.
Naseem, Have we really broken the begging bowl? The Daily Dawn,
29 November 2004.
2.
See: Faisal Bari and Ali Cheema, Towards a Common Investment Strategy
for South Asia, Report submitted to the South Asia Centre for Policy Studies
(SACEPS), May 2003.
3.
Akmal Hussain, Institutions, Economic Structure and Poverty in Pakistan,
op. cit.
4.
Akmal Hussain, A Medium Term Strategy of Economic Revival, paper presented
to the Presidents Economic Advisory Board, 1999. Published version titled:
A Policy for Pro-poor Growth by Akmal Hussain, in UNDP (Pakistan), Towards
Pro-Poor Growth Policies in Pakistan, 2003.
5.
Ibid.
6.
This proposal was made by Mani Shankar Aiyar, during his keynote address
at the SACEPS seminar on Regional Cooperation in South Asia in New Delhi,
31 August 2004. Also see Akmal Hussain, A New Beginning in the Peace Process,
Daily Times, 28 September 2004.
7.
For a more detailed discussion of this concept, see: Akmal Hussain, South
Asia Health Foundation, A Concept Note, 8 November 2004. Note presented
to the South Asia Centre for Policy Studies.
8.
Akmal Hussain, et. al., UNDP, Pakistan National Human Development Report,
2003, Oxford University Press, Karachi, 2003.
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