SOUTH Asia has attracted global attention because it has experienced rapid gross domestic product (GDP) growth over the past 29 years, averaging nearly 6.0 per cent per annum. Yet, it faces many challenges. There are two faces of South Asia. The first South Asia is dynamic, growing rapidly, highly urbanised, and is benefiting from global integration. The second South Asia is largely agricultural, land locked, full of poverty, conflict, and lagging. The divergence between the two South Asia's is on the rise. Many policy and institutional constraints contribute to this dichotomy.
One important constraint is regional conflict that has made South Asia one of the least integrated regions of the world. While progress has been made in reducing trade barriers with the rest of the world, intra-regional trade is a mere 5.0 per cent of total official trade as compared with 45 per cent in East Asia. Capital flows through legal channels are negligible, transit arrangements are cumbersome and expensive, and the physical connectivity is limited and restrictive. Additionally, lack of effective cooperation has constrained progress on a range of public goods involving climate change, water management, HIV/AIDS and disaster management.
Indeed, in an environment of regional peace and better economic cooperation, the biggest gainers will likely be the poor. A careful look at South Asia's geography shows that the border areas tend to be generally underdeveloped due to poor connectivity, lack of investment and political neglect. Much of the focus typically is on military activities to secure the borders. In most cases, economic activities in border areas are constrained by poor connectivity with the regional growth centers and by lack of access to international trade outlets such as a sea port. In many cases, these barriers are artificial in the sense that these facilities are available in nearby bordering towns of other countries but access is prevented by border restrictions.
Importantly, South Asian countries often share a scarce common resource which encompasses several countries. The most well-known example is the water flow from the Himalayan mountain range that feeds the three mighty rivers -- the Indus, the Ganges and the Brahmaputra. These rivers are the life-line for an estimated 500 million people, mostly poor, in Bangladesh, India and Pakistan. Despite some progress on cross-border cooperation, notably the Indus Water Treaty between India and Pakistan in 1960 and the Ganges Treaty between Bangladesh and India in 1996, regional cooperation on water management is generally inadequate. There are major water management issues in South Asia concerning flood control, better sharing of water for irrigation and hydro-power, and the management of the Himalayan glacier melt to prevent water loss for the rivers that will greatly benefit from better regional cooperation.
Cooperation in South Asia's North-East sub-region: The north-east sub-region of South Asia encompasses the four countries of India, Bhutan, Nepal and Bangladesh. Both Bhutan and Nepal are landlocked. Presently, their main access to sea port is through Kolkata. India's North-East states (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura) have borders along 98 per cent of their boundary surrounded by Bangladesh, Bhutan, China, Nepal and Myanmar. These states are linked to mainland India by only a narrow 27 kilometer Siliguri corridor. These states also use Kolkata as their nearest port. Three other Indian eastern states that belong to this sub-region are West Bengal, Bihar and the Uttar Pradesh (UP). West Bengal has a large border with Bangladesh and also shares a border with Bhutan, while Bihar and UP share borders with Nepal.
This entire region can be classified as low income area with large incidence of poverty and low social indicators, although parts of Bangladesh (notably Dhaka) and West Bengal (Kolkata) are richer than the other neighbourhoods of this sub-region. There are a number of constraints to development in this sub-region, many of which concern internal policies and governance of the respective countries and or states (of India). These constraints must be addressed, but alongside these national reforms more and better regional cooperation can make a substantial positive contribution.
The economic rationale for why cooperation is necessary to reduce poverty in this sub-region has been researched extensively. An analytical framework linking lagging regions, growth, poverty, inequality and regional cooperation has been developed in a recent research [Sadiq Ahmed and Ejaz Ghani "Making Cooperation Work for South Asia's Poor" in Sadiq Ahmed et. al. edited "Regional Cooperation for Poverty Reduction in South Asia - Beyond SAFTA", Sage: New Delhi 2010 (Forthcoming)].
The simple argument goes as follows: In addition to inequality at the personal income level, South Asia's development experience shows that there is a large gap between leading regions (high per capita income) and lagging regions (low per capita income). By and large poverty is high in the lagging regions as compared with leading regions. The spatial distribution of leading and lagging regions shows two characteristics: first, this income gap exists both within countries and between countries; and second most of the lagging regions are located around the border areas. A key reason why border regions tend to be lagging and poor is the lack of connectivity to regional growth centers due to poor physical and social infrastructure or policy restrictions. Therefore, a policy strategy to develop the lagging regions will require a focus on the border areas with a view to raising income and employment opportunities and reducing poverty.
A reduction the gap between lagging and leading regions (technically known in the economic literature as the "convergence problem") will also likely help reduce personal income inequality. In addition to domestic policy reforms, public investment and institutions, the lagging regions development strategy must allow much better connectivity to growth centers at the regional level by reducing policy and other constraints to goods and factor mobility.