Towards an inclusive growth in South Asia: Role of regional cooperation

Countries in South Asia are all on path of growth and poverty reduction, at varying paces and with varying patterns of inequalities in income and advancement opportunities for the poor. Larger economies like India have been growing at sustained high rates aided by huge inflows of external investment; among the smaller economies Bangladesh has maintained somewhat slower but steady, stable growth with much lower levels of foreign investment inflows. On many counts of social advancement indicators, smaller economies like Bangladesh and Sri Lanka have been faring better than their larger, faster growing neighbors, indicating that growth processes in these smaller economies have been more inclusive and equitable. Problems like inadequacy of physical infrastructure and income poverty in large segments of population bedevil most of the South Asian countries, big or small. Financial markets in South Asia have proven ill equipped in intermediating the region's foreign exchange reserves into investments needed in the region. Between 1960 and 1980, growth in South Asia was sluggish (only 3.7 per cent per year) due to inward looking control-oriented policies causing high dependence on low productivity agriculture, inefficient and low levels of industrialization, weak export performance, and inadequate creation of jobs. South Asia's prospects changed in the 1980s as it adopted pro-growth policies by opening up markets to international competition, replacing public sector with the private sector as engine of growth, and improving macroeconomic management. As a result, South Asia's growth rate climbed to 5.7 per cent during 1980-2000 with further acceleration during 2000-10. Poverty has come down sharply in all countries and social indicators have improved. However, despite growth and poverty reduction, South Asia still faces the challenges of reducing income inequality and growing imbalances between regions within countries and among South Asian countries leading to lagging region problems. Growth supported by factor accumulation and productivity improvements is sustainable. This is reflected in South Asia's experience since the 1980s. Yet South Asia has two key assets that have not been fully utilized: demography and geography. A young and growing labour force can yield growth dividends if fully utilized. High population density and better access to markets can benefit growth and hence poverty alleviation by allowing South Asian firms to take advantage of agglomeration economies and better factor mobility. According to the United Nations FAO recent statistics (October 2010), 925 million or 13.6 per cent of world population are undernourished and the number of hungry people has increased since 1995-97. Nearly all of the undernourished are in developing countries. In South Asia, around 40.0 per cent of the population lives in less than USD 1.25 a day. The increase has been due to three factors: 1) neglect of agriculture relevant to very poor people by governments and international agencies; 2) the current worldwide economic crisis, and 3) the significant increase of food prices in the last several years. However, according to a Brookings report, over the past half century, the developing world, including many of the world's poorest countries, have seen dramatic improvements in virtually all non-income measures of well-being: since 1960, global infant mortality has dropped by more than 50 per cent, the share of the world's children enrolled in primary school increased from less than half to nearly 90 per cent between 1950 and today. Poverty reduction is currently taking place in all regions of the world. The sharpest fall in poverty is occurring in Asia. South Asia alone is expected to see a reduction in the number of its poor of more than 430 million over the period 2005-15, representing a fall in its poverty rate of over 30 percentage points. This chequered picture of South Asian growth clearly makes a compelling case for regional co-operation and integration as the way forward towards faster, more inclusive growth and poverty reduction. It is well acknowledged that all South Asian countries have useful lessons for each other in approaches to physical and human development, trade, investment, poverty alleviation and so forth; and that there are lots to be gained from promotion of intraregional trade and investment by way of output, income and employment. There have been numerous initiatives, bilaterally as well as multilaterally in the SAARC forum. Despite numerous rounds of extensive dialogue and agenda setting, meaningful progress in concrete terms remained slow over the decades. However, in the past couple of years we can see significant headway in several directions, including tariff-free entry of Bangladeshi apparels into Indian markets, trans-border movement of goods, freer movement of border enclave residents to their main lands, and activation of 'border haats' for local trade in produces of residents of the border regions. These progresses will hopefully be followed by substantial pickup in intraregional investments in physical infrastructure and in manufacturing for markets in the region and beyond. To ensure continuing progress, we need to identify the factors behind the recent progress and take these further forward. Firstly, I believe that restoration of warmth of bilateral relations between Bangladesh and India has played a crucial role. Good bilateral ties help build sound base for fruitful multilateral co-operation; efforts for the later founder when bilateral ties remain frigid. Secondly, closer communication and contact between decision-making public authorities, businesses, academics and civil society organizations in South Asia can build strong bases for co-operation and learning from each other's efforts; consolidating trade, investment, social and cultural ties. Inclusive growth, rapid poverty elimination and attaining andor exceeding the UN, Millennium Development Goals (MDGs) are high priorities for all countries in South Asia; there is much to be gained towards these goals from exchange of experiences and ideas in promotion of financial inclusion, lessons related to addressing the challenges of climate change, extension of primary health care, hygiene and social safety net, basic education, job training and so forth, both at government and at non-government citizen's initiative levels. Such contact and communication processes have been growing over the years but have much further to go. Visa free movement of people within the region can hugely facilitate these processes, and would be much desirable as a medium term goal for the SAARC region. With closer, more harmonious social and cultural ties consolidated by these processes, freeing up labour mobility within the region will become an attainable reality rather than a far fetched dream as it may now seem to be. The regional co-operation priorities I am highlighting here, though of rather general nature, are no less relevant to the current imperatives in facing the looming risks of another possible global slowdown. Sustaining output growth in the face of weakening export demand markets outside the region will require upholding demand within the region with co-operation in expanding intraregional trade, in expanding social safety net public expenditure for the poor and vulnerable, in utilizing part of the region's substantial foreign exchange reserves in supporting investments in the region in employment intensive infrastructure and manufacturing projects. Mutually supportive fiscal co-operation in such periods of external stress will help pave the foundation for eventual integration in a South Asian economic and monetary union as a prominent hub of global growth. In particular, the South Asian economic growth must not only be accelerated but also be restructured in such a way that its capacity to reduce poverty is enhanced for given growth rates of GDP, which of course, have been enhancing significantly. In this context, South Asia must aim at achieving quality growth i.e. pro-poor growth by encouraging more joint-venture projects for accelerating growth of sub-sectors like agriculture and industry with high employment elasticity, regional network of support industries in the private sector facilitating small and medium enterprise (SME) growth in regional growth nodes, and of course, regional skill development centers for shifting labor force from low to high skills and thereby increasing productivity and income earning capacity of the poor. For promotion of inclusive growth, the Central Bank of Bangladesh has identified financial inclusion and socially responsible banking as key elements of Bangladesh's banking sector strategy. Accordingly, Bangladesh Bank has introduced the ten taka account, spearheaded a programme catered to the historically excluded sharecropper group, stepped up SME lending especially for women entrepreneurs, and has created the regulatory environment for mobile phone banking among many specific initiatives. Besides, Bangladesh Bank has taken various initiatives to introduce 'green banking' and are considering how the gender balance within the banking industry can be improved. In conclusion, I would like to shed lights at some potential scopes for enhancing regional cooperation in infrastructural promotion, particularly in the areas of telecom and internet, energy and transport. A regional telecom network and a high-bandwidth, high speed internet-based network would help improve education, health and innovation. More broadly, this would strengthen the competitiveness of South Asia in the services export sector. Cross-border transport restrictions are a huge constraint on trade and investment in South Asia. Unhindered access to regional ports will raise income for all countries. South Asia's poor would probably gain most from regional cooperation in water and climate change. Cross-border cooperation on water between India, Bangladesh, and Nepal offers potential long term solution to flood control and water shortages. (The writer, Dr. Atiur Rahman, is Governor, Bangladesh Bank. He can be reached at email: governor@bb.org.bd)