India & It's Neigbours - Macroeconomic & Business Perspective

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India & It's Neighbors - Macroeconomic & Business Perspective

a preliminary investigation into the linkages between India’s growing economic and political clout and its correlation, if any, to the business opportunities present in the South Asian region keeping in mind the macroeconomic perspective.

The past, present and future business relations and growth opportunities of the countries have been analyzed and discussed. This provides a perspective on the changing trends in the market access, foreign trade and policy reforms between the different countries.

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India & It's Neigbours - Macroeconomic & Business Perspective

  1. 1. 1 MUDRA INSTITUTE OF COMMUNICATIONS, AHMEDABAD India and Its Neighbours Macroeconomic and Business Opportunities Nikhil Saraf (124), Paarmi Modi (127), Surabhi Anand (152) Under the guidance of Prof. Rasananda Panda
  2. 2. Acknowledgements We are deeply indebted to our Professor Rasananda Panda for this opportunity to write a comprehensive paper on ‘India and its neighbours: Macroeconomic perspective and business opportunities’ and his constant guidance, patience and support. We also extend our gratitude to Miss Maitreyi Purohit for her valuable suggestions and assistance. We acknowledge the crucial role of Mr. Shailesh Yagnik in guiding us through the data mining process and perusal of KEIC Library resources. We also thank the other staff members at KEIC Library for ‘always being at our service’. We extend a special ‘thank you’ to Mr. Mrinmoya Majumdar, Research Scholar at MICA for his encouragement and expert insights on this topic that helped clarify our doubts. We also thank our colleagues and peers for their support and exchange of ideas that helped in facilitating an enjoyable environment for the completion of the term paper.
  3. 3. Contents India and South Asia over the ages.........................................................................................................1 Table of Comparison...............................................................................................................................7 Periodical Analysis of India and Neighbours.........................................................................................13 India ..................................................................................................................................................13 Discussion......................................................................................................................................13 Economic Growth Rate .................................................................................................................13 Per-capita Income.........................................................................................................................15 Inflation Rate.................................................................................................................................16 China .................................................................................................................................................18 Discussion......................................................................................................................................18 1970s.............................................................................................................................................18 1980s.............................................................................................................................................19 1990s – 2000s ...............................................................................................................................19 2010s.............................................................................................................................................20 Pakistan.............................................................................................................................................22 Discussion......................................................................................................................................22 The Bhutto Regime (1973-1977)...................................................................................................23 The Zia Regime (1977-1989) .........................................................................................................24 The Musharraf Regime (2001-2008).............................................................................................26 The last five years .........................................................................................................................27
  4. 4. Sri Lanka............................................................................................................................................29 Discussion......................................................................................................................................29 1970s.............................................................................................................................................30 1980s.............................................................................................................................................30 1990s.............................................................................................................................................31 2000s - present .............................................................................................................................31 Bangladesh........................................................................................................................................34 Discussion......................................................................................................................................34 Nepal.................................................................................................................................................38 1960-1970s....................................................................................................................................38 1980s.............................................................................................................................................38 1990s.............................................................................................................................................40 2000s to Present ...........................................................................................................................41 Myanmar...........................................................................................................................................42 Discussion......................................................................................................................................42 Bhutan...............................................................................................................................................46 Discussion......................................................................................................................................46 1985-95.........................................................................................................................................46 Bilateral Trade between Countries.......................................................................................................49 India - China ......................................................................................................................................49 India – China Strategic and Economic Dialogue (SED)..................................................................49 Join Economic Group ....................................................................................................................50
  5. 5. India – Pakistan.................................................................................................................................51 Formal and Informal Trade ...........................................................................................................51 India - Sri Lanka.................................................................................................................................53 Free Trade Agreement..................................................................................................................53 India-Bangladesh...............................................................................................................................55 Informal Trade ..............................................................................................................................55 Bilateral FTA..................................................................................................................................56 India-Nepal........................................................................................................................................57 Indo-Nepal trade treaty ................................................................................................................57 India-Myanmar..................................................................................................................................59 India-Bhutan......................................................................................................................................61 Relationship with neighbours ...............................................................................................................62 Pakistan.............................................................................................................................................62 China .................................................................................................................................................62 Sri Lanka............................................................................................................................................63 Bangladesh........................................................................................................................................63 Nepal.................................................................................................................................................63 Maldives............................................................................................................................................64 Bhutan...............................................................................................................................................64 Future Business Opportunities .............................................................................................................65 References ............................................................................................................................................67
  6. 6. 1 India and South Asia over the ages "To understand the present and anticipate the future, one must know enough of the past, enough to have a sense of the history of a people." — Lee Kuan Yew, Prime Minister of Singapore 1India and its neighbours Often commemorating the past leads to newer dimensions of rethinking the past and future. The current scenario of the macroeconomics and business opportunities of India and its neighbours brings together the myriad threads of South Asian History and Economy. India and South Asia are
  7. 7. mere geographical constructs; South Asia being the more recent one. Today, South Asia encompasses diverse sovereign countries of India, Pakistan, Nepal, Sri Lanka, Bangladesh, Maldives, China and the newest addition, Myanmar. This vast geographical region stretches from the Himalayas in the north to Indian Ocean in the south and from the valley of Indus in the west to plains of Brahmaputra in the east. The region not only has a diverse population but also a complex historical and socio economic background. The shared history and current diversity is essential to creating an amorphous identity based on a number of parallel visions. This regionalism of the SAARC countries has always been a political dilemma. Putting this idea into perspective, India as a part of the South Asian subcontinent is not just geographically surrounded by neighbours but is also in a constant state of contestation with them. This spectrum of South Asian History from the social, political and economic perspective is sketched from the pre-modern history of the subcontinent to its present. (Bose & Jalal) Indian History began in 3000 BC with the two cities of Mohenjodaro and Harrapa, alongside the Indus which became the heart of the civilization rather than just a border differentiating factor. Indus Valley civilization achieved a high level of urban culture with immaculateness of drainage, street planning, and agriculture and literacy rate. The main occupation of the people was farming along with occupations in art, craft, trade and seal making. Trade occurred with places as far as Mesopotamia using bullock carts and boats for transportation. This trade existed primarily through barter system of exquisite beads and ornaments, metal tools, pottery and agricultural products. Later, the Aryans migrated from the Iranian plateau and consolidated the political organization of the Gangetic Plain in North India. They established the core of Indo-European language which is preserved in the Vedas. This led to a set of monarchies culminating in the Nanda Empire. Chandragupta dethroned the Nanda Empire founding the Maurya Empire which enveloped the entire subcontinent as a single political entity. A major reason why the Mauryan Empire became so powerful and wealthy was trade and military strength. There was a centralized and hierarchical
  8. 8. government which regulated tax collection, trade and commerce, industrial arts, mining and welfare of foreigners. Indian merchants traded in silk, cotton and elephants to Mesopotamia and the eastern Roman Empire. The new emergence of Buddhism and Jainism also assisted in uniting the subcontinent irrespective of the primitive means of communication. The fall of the Mauryan Empire led to invasions by Greeks and Scythians resulting in re-divisions of regional dynasties. The Gupta Empire restored the congruence of the subcontinent which was later disrupted by the influx of the Huns from Central Asia. Despite the multiplicity of powers, there was plenty of trade by sea and land with the Roman Empire and China and poetry, literature and arts flourished. In return for spices, pearls, silk and ivory, Indian merchants received Roman gold and extended their influence to Southeast Asia. (Bose & Jalal) From the seventh to the sixteenth centuries, Arabs and Turks began invading and establishing their control over India. Through this, the northwest geography of the subcontinent determined itself to be an indeterminate series of gradation beginning from Iran and Afghanistan and ending in Delhi. The integration of Mughal culture in India played a vital role in the formation of Indian society, economy and politics. The expanding Mughal economy had weekly markets and trade centres where people would congregate on a particular day. Transport facilities improved with the provision of metalled highways, river transport and bridges. Agriculture still remained a major part of the economy. Textile industry boomed and there was a great demand for cotton, silk and tobacco. However one aspect of Mughal administration was that they did not provide assistance and facilities for agricultural development. Currency also developed with the return of stable power in the form of standardized gold, silver and copper coins. India also had flourishing foreign trade with countries. Imports were raw silks, gold, ivory, horses and slaves and exports were textiles, spices, opium and indigo. The disintegration of the Mughal Empire, paved the way for the European presence in India. They marked their rule by winning the conquest at the battlefield of Plassey and Buxar and introduced
  9. 9. Western language, culture, trade, methods of government and technology. The British Empire changed the entire Indian economy into an import dependent and non self sustaining one. By the end of the eighteenth century, Europe had growing industrial revolution and manufacturing industry with grave demand for raw material. The price level in India remained low, thus the British were able to dictate prices and increase profits. Export duties were fixed and internal duties were made cheaper for people to buy British goods rather than local goods. Agriculture was reorganized and British introduced land revenue reforms and policies to dominate over the peasants. The British economic exploitation of India drained massive amounts of wealth out of the Indian economy. In the early part of the twentieth century, a nationalist movement occurred with the emergence of Mahatma Gandhi eventually leading to the Independence of India in 1947 and Partition of India and Pakistan. Founded by Mohammad Ali Jinnah, Pakistan was founded on the premise of providing a homeland for Muslims of the Indian Subcontinent. Though Pakistan seems to be the modern-day remnant of Muslims rule over Medieval India, India still has the third largest Muslim population in the world. Today, Pakistan is not just a nuclear armed adversary, but is a country breathing terrorism and fear down the neck of India at the border. This same threat exists from Afghanistan as well. The border existing between Pakistan and Afghanistan is largely a mirage in both history and the current scenario. Throughout history several ethnic Pushtuns passed weekly without identity papers across the Khyber Pass and thus the Achaemenid, Kushan, Mughal, Ghaznavid and other empires have always posed a threat for the Indian Subcontinent. Afghanistan only emerged as a country with the help of leader Ahmad Khan in the mid eighteenth century when he carved out a buffer zone between Persia and the withering Mughal Empire in Indian Subcontinent. It is this geography that makes Afghanistan a base and a pathway for terrorist activities. South Asia has experienced a constant bipolar conflict between India and Pakistan with Afghanistan as the main battleground. (Ludden)
  10. 10. Indian and Chinese civilizations are among the oldest human civilizations of the East. Fahien and Huen Tsang, two monks of the Jin and Tang dynasties brought about religious and cultural exchanges. However since 1962, Indo-China relations have been frosty. This was due to the 1962 war over a disputed Himalayan border in the combat region of Aksai Chin near Kashmir in the northwest and Arunanchal Pradesh in the northeast. This war led to an uprising in Tibet that sent Dalai Lama to exile in India and caused Chinese invasion of Tibet. The Indo-Chinese border is still a matter of dispute because of the lack of a formal treaty or agreement. Today, both the countries have complimentary power. China has more practical traditions with a lineage of inventions where as India has a speculative tradition. Relations between India and Nepal have been close because of geographical location and common religious and cultural identities. This was initiated in 1950 by the Indo-Nepal Treaty of Peace and Friendship. The increased involvement of Indians with the Nepalese economy led to tensions in the relationship, however worsening economic relations resulted in quick restoration of amicable relations. Today, the increasing dominance of Maoism in Nepal’s politics and the strengthening of China have made the Nepalese government distance itself from India. In 1971, Bangladesh emerged as an independent nation from the eastern Indian Subcontinent in the Bangladesh Liberation War. After independence, the new state faced difficult famines, natural disasters, widespread poverty and political and military turmoil. Since 1975, India and Bangladesh have maintained diplomatic relations in field of policy from economic trade, border security and sharing of boundary lines, common and trans-boundary waters. They offer natural markets for each other’s export products because of reduced costs, quicker delivery due to geographical proximity, common language and infrastructure. Early history of India with Sri Lanka dates back to 4th century BC by Mahinda, the son of Asoka to spread Buddhism. Later in the 1970-1980s, India directly intervened in the conflict after the Sri Lankan government tried to regain control by economic blockade and military assaults. India and Sri
  11. 11. Lanka eventually entered into a peace keeping agreement. Economic relations began with a formal joint committee aimed at increasing cooperation in trade, industry, agriculture and tourism. (Ludden) SAARC International trade between neighbours helps in improving welfare by increasing levels if investment and consumption. It also generates higher employment and higher wage rates with positive effects on poverty and income distribution, thus bringing out social welfare. This intra-regional trade expansion brings about the most regional cooperation through better utilization of production capabilities and economies of scale. South Asia in recent times is popularly known as SAARC – The South Asian Association for Regional Cooperation. Established on 8th December 1985, it is an economic organization of eight countries; namely India, Pakistan, Bangladesh, Bhutan, Sri Lanka, Nepal, Maldives and Afghanistan. The SAARC countries occupy one of most densely populated regions in the world with 1.4 billion people. It has the lowest GDP per capita and poverty is commonly spread in the countries. India and its neighbours share various similarities. Thus, trade liberalization and regional economic integration have increased efficiency and economies of scale by the initiation of South Asian Free Trade Area (SAFTA) in 2004. Currently, SAARC continues to face several risks in development and progress in macroeconomic stability, investment climate and infrastructure bottlenecks. The overall outlook for South Asia remains cautiously positive in the direction of increased exports and foreign investors. At the same time, risks in terms of financial sector vulnerabilities and weakness in revenue collection are closely monitored. Despite the macroeconomic stability, the top priority for South Asia is to tackle its poverty challenge by tightening fiscal, monetary and political policies and improving quality of regulations and governance. (Vadra, 2012)
  12. 12. Table of Comparison INDIA BANGLADESH CHINA PAKISTAN SRI LANKA NEPAL BHUTAN MALDIVES MYANMAR POPULATION Total population million; as of 1 July 2013 1213 152.5 1354.0 180.7 20.3 26.85 720.679 thousands 419.99779 thousands 61.0 Population density persons per square kilometre 370 1054 141 227 323 182 19 2557 90 NATIONAL ACCOUNTS At Current Prices billion Rupees; fiscal year beginning 1 April billion Taka; fiscal year ending 30 June billion Yuan; calendar year billion Rupees; fiscal year ending 30 June million Rupees; calendar year million Rupees; fiscal year ending 15 July million Ngultrum; calendar year million Rufiyaa; calendar year billion Kyats; fiscal year beginning 1 April GDP by industrial origin at current market prices 100206.2 9181.4 51932.2 20090.9 7582375 Net factor income from abroad -999.0 893.0 -266.0 1035.7 -148422 1536000 97527.1 34147.5 51727.5 GNI 99207.2 10074.4 51666.2 21126.6 7433953 14785 -5574.5 1550785 91952.6 -Structure of Output percent of GDP at current prices Agriculture 17.4 17.7 10.1 24.4 11.1 35.7 16.2 3.8 30.5 Industry 25.8 28.5 45.3 22.0 31.5 14.9 41.3 20.5 32.1 Services 56.9 53.8 44.6 53.6 57.5 49.4 42.5 75.7 37.5
  13. 13. -Structure of Demand percent of GDP at current prices Private consumption 56.8 75.2 36.3 82.5 69.6 77.8 46.4 70.9 Government consumption 11.8 5.6 13.7 10.5 13.5 10.7 18.7 Gross domestic capital formation 35.6 26.5 48.8 14.9 30.3 34.9 56.7 30.3 Exports of goods and services 23.8 23.2 27.2 12.3 22.8 10.0 37.1 14.6 Imports of goods and services 31.5 32.1 24.4 20.3 36.5 33.4 60.7 14.9 At Constant Prices GDP by industrial origin at market prices 58136.6 4090.5 47287.9 9785.3 3047277 670735 53911.5 998.0 45209.6 Net factor income from abroad -563.3 397.9 386.6 -59649 GNI 57573.3 4488.4 10171.9 2987628 -Growth of Output annual change, percent GDP 5.0 6.2 7.8 4.4 6.4 4.9 9.4 3.4 7.6 Agriculture 1.9 3.1 4.5 3.5 5.8 5.0 3.1 4.8 2.0 Industry 2.1 8.9 8.1 2.7 10.3 3.0 8.8 14.0 8.0 Services 7.1 5.9 8.1 5.3 4.6 4.5 12.2 1.4 12.6 -Growth of Demand annual change, percent Private consumption 4.0 4.5 5.8 6.8 5.2 6.1 Government consumption 3.9 4.1 7.3 -0.6 15.9 Gross domestic capital formation 5.1 11.2 1.7 7.4 0.5 11.5 Exports of goods and services 3.0 7.8 -15.3 0.2 1.9 6.5 Imports of goods and services 6.8 7.5 -3.6 0.5 3.4 3.7
  14. 14. Investing Financing at Current Prices Gross domestic capital formation Gross national saving 35689.4 2436.9 25352.4 2996.7 2296147 535545 55275.0 15667.5 Gross domestic saving 32990.6 2679.5 25727.9 4077.8 1819773 614018 41403.1 Net factor income from abroad 31395.0 1768.5 25972.2 1403.6 1286481 176461 33979.7 Net current transfers from abroad -999.0 893.0 -266.0 1035.7 -148422 14785 -5574.5 2594.6 17.9 21.7 1638.5 681714 422772 12997.9 At Current Market Prices Rupees Taka Yuan Rupees Rupees Rupees Ngultrum Rufiyaa Kyat Per capita GDP 82339 60571 38449 111184 373002 57202 135327 848325 81304 Per capita GNI 81518 66463 38252 116915 365700 57753 127592 PRODUCTION INDEXES period averages Agriculture ... … … … Mining 123.4 479 206.7 479 Manufacturing 181.1 570 264.3 570 MONEY AND BANKING billion Rupees; fiscal year beginning 1 April billion Taka; as of end of period billion Yuan; as of end of period billion Rupees; as of end of period million Rupees; as of end of period billion Rupees; as of end of period million Ngultrum; as of end of period million Rufiyaa; as of end of period billion Kyats; as of end of period Money supply (M1) 18898.2 1097.2 30866.4 6050.7 450049 264.4 31960.2 8436.1 7635.0 Currency in circulation 11445.3 584.2 5466.0 1826.7 251539 170.5 6390.7 2116.7 5856.8 Demand deposits 7452.8 513.0 25400.4 4223.9 198510 93.9 25569.5 6319.4 1778.2 Quasi-money 64546.7 4073.9 66548.5 1968.5 2143136 866.6 18162.0 11574.5 11323.4 Money supply (M2) 83444.9 5171.1 100702.3 8019.3 2593185 1131.0 50122.2 20010.6 18958.4
  15. 15. Foreign assets (net) 15991.4 788.2 25885.1 943.3 112395 383.8 35168.6 5094.0 2966.6 Domestic credit 83402.0 5183.3 80559.4 8790.1 3176184 994.5 46465.3 24055.0 11545.2 Claims on government sector (net) 26996.4 920.3 5068.4 4833.3 912850 162.9 1245.0 7710.8 4427.1 Claims on private sector 56405.5 4079.0 69435.2 3802.8 2172076 809.8 43734.6 14625.5 4772.4 Claims on other financial institutions 184.0 6055.9 154.0 91258 21.8 1485.7 1718.7 2345.8 Other items -15948.5 -800.4 -5742.2 -1714.1 -695395 -247.4 -31511.7 -9138.4 4446.5 Money supply (M2) annual change, percent 13.3 17.7 18.3 17.0 18.3 22.7 -1.0 5.0 55.0 M2 percent of GDP at current market prices 83.3 56.3 193.9 39.9 34.2 73.6 51.4 58.6 36.7 Deposit Money Banks Demand deposits 6619.2 510.6 4223.9 243735 91.1 25569.5 6318.7 1778.2 Savings deposits ... … 304.7 11323.4 Time deposits 60895.0 4073.9 1968.5 2554485 297.6 16641.8 11574.6 Domestic credits outstanding 52628.3 4755.1 8790.1 2305613 967.7 ... 21067.1 Interest Rates percent per annum; period averages On deposits Savings 4 0.42 5.69 5 4.28 5 1.88 Time (12 months) 8.85 3.23 8.2 12.5 8.91 8 3.13 Lending Interest Rate 10.6 13 6 12.75 13.28 13 8.67 13 Domestic Credit provided by Banking Sector (% of GDP) 76.6 69.2 155.1 44.5 48.4 67 50.4 70.5
  16. 16. Stock Market Capitalization (% of GDP) 67.4 15.6 44.9 20.3 28.7 23.1 18.1 GOVERNMENT FINANCE percent of GDP Fiscal Balance -5.2 -4.6 -1.8 -6.6 -6.4 -1.5 -1.1 -12.6 -3.2 Tax Revenue 7.4 10.5 19.4 10.2 11.1 13.8 15.0 19.7 3.8 Total Government Revenue 9.1 12.5 22.6 12.8 13.0 15.9 20.7 27.4 22.7 Total Governemnt Expenditure 14.3 16.0 24.2 19.2 19.4 20.8 35.7 41.6 27.4 Government Expenditure on Education 4.1 … 1.8 4.0 6.9 6.0 Government Expenditure on Health 1.4 1.3 1.5 3.0 0.4 Government Expenditure on Social Security and Welfare 0.4 1.7 0.7 2.2 5.9 PRICE INDEXES annual change, percent Consumer price index 10.5 7.3 2.6 11.0 7.5 7.4 10.9 10.8 1.5 Food price index 11.0 8.5 -1.7 11.0 4.7 7.4 ... -1.5 Wholesale price index 7.4 ... 10.4 3.5 6.4 Implicit GDP deflator 8.2 6.5 1.9 5.6 8.9 6.7 4.1 5.0 3.7 EXTERNAL TRADE annual change, percent Exports 11.5 17.3 7.9 -1.0 6.7 15.4 -0.9 -9.2 Imports 14.0 17.0 4.3 16.0 8.9 16.5 0.3 6.1 BALANCE OF PAYMENTS as % of GDP at current market prices Exports 11.6 21.4 25.0 11.5 16.4 5.6 32.6 14.8 14.4 Imports -19.7 -28.5 -21.1 -18.8 -32.3 -31.1 -58.7 -80.0 13.9 Balance on goods -8.0 -7.1 3.9 -7.3 -15.8 -25.5 -26.1 -65.2 0.5
  17. 17. Current account balance -3.8 1.5 2.3 -2.2 -6.6 5.2 -19.2 -27.0 -2.9 Overall balance 0.1 0.4 1.2 -1.5 0.3 9.3 -5.9 -1.7 1.9 Foreign Direct Investment ($ million) 253475 854 92 International Reserves end of year; $ milliion 297807 12751 3340935 13797 318 INTERNATIONAL RESERVES million US Dollars; as of end of period Total 297807 12751.1 13797 6748.1 3630.8 789.6 318.3 7016.5 Gold, national valuation 27220 719.9 3555 500.2 – … – 12.6 Foreign exchange 261656 11393.3 9320 6170.0 3541.8 778.2 304.6 7003.0 Reserve position in the Fund 4494 0.8 0 73.5 0.0 1.6 3.1 – SDRs 4436 637.2 921 4.4 78.6 9.9 10.6 1.0
  18. 18. Periodical Analysis of India and Neighbours India Subject Descriptor Units Scale 1980s 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 240.5847 360.0273 844.0158 1,711.00 1,872.85 1,841.72 Gross domestic product per capita, current prices U.S. dollars Units 316.1784 385.6371 753.3226 1,432.25 1,546.55 1,500.76 Total investment Percent of GDP 22.6545 24.8637 31.3365 36.837 35.002 35.616 Gross national savings Percent of GDP 20.874 23.6622 30.8102 34.152 30.829 30.829 Inflation, average consumer prices Index 27.7561 66.0171 120.2805 179.75 194.833 215.167 Volume of imports of goods and services Percent change 6.1385 9.1701 11.6105 14.858 8.146 1.788 Volume of exports of goods and services Percent change 5.4467 9.1813 13.1786 26.826 8.956 1.448 Current account balance U.S. dollars Billions -4.418 -4.3676 -8.2606 -45.946 -78.154 -88.163 Current account balance Percent of GDP -1.7822 -1.2013 -0.5267 -2.685 -4.173 -4.787 India Macroeconomic Indicators 1980 - 2012 Discussion Economic Growth Rate The annual variation in the growth rate of GDP was highly unstable till the 1980s. The relative stability 1980s onwards is due to reduced level of dependence of the economy on weather changes. The following five major economic crisis are highlighted in the figure below: 1. Crisis of 1965 and 1966 followed by heavy droughts 2. First oil crisis of 1973 3. Second oil crisis of 1979 4. Crisis of 1991 triggered by the Gulf War
  19. 19. 5. Asian Currency crisis from the mid-1997 to 1999 (Sato, 2010) The upward pointing arrows show development strategy which were aimed at economic liberalization, while in the case of strengthened development the arrows are downward sloping. In mid-1960s during the crisis, economic liberalization was given a try but the practice failed. After the failure, the strategy was changed to a radical constriction of economic regulations from late 1960s to early 1970s. There was partial liberalization in 1980s, which followed from the growth crisis in 1979. The economic crisis of 1991 enthused the globalization in 1990s onwards. There has been an increase in the economic growth and per-capita income has increased. 2Economic Growth Rate (Sato, 2010)
  20. 20. Per-capita Income The above figure shows per-capita income from 1950 to 2009. As seen in the figure, the indian economy had entered the high growth phase around 1980. The low growth rate period from 1950 to 1980, was referred to as ‘Hindu rate of growth’. Further, there has been an acceleration in the growth rate since 2003. It is worth noting that rapid growth in Indian economy had started well before the Liberalization policy of 1991, as discussed earlier it was during partial economic liberalization period of 1980s itself that India had started showing signs of hig growth rate. In comparsion to other South Asian countries, India’s gowth rate hass been significantly moderate, but India has also exhibited a stable per-capita growth, without any sporadic changes. 3Per-capita Income at Constant (1999-2000) Price (Sato, 2010)
  21. 21. This stable and steady increase has been effective in alleviating India’s absolute poverty problems since 1970s. As shown in the below figure, the absolute poverty has decreased from 55% in 1973 to 22% in 2004. Although absolute poverty is still a major problem in India, steady economic growth has majorly helped in championing absolute poverty reduction. Inflation Rate India hasmaintained parliamentary democracy since independence. In this respect, there is a tentative law of politics that the incumbent government will be defeated in the next election when the rate of inflation the year before the general election is more than two digits. This ‘law’ can be used to consider the economic influencesof democracy in India. The poor who are are heavily hit by increase in price of food, which subsequently means short term decrease in real income, are politically sensitive to inflation. Politicians are unabel to ignore their voices and thus restrictive macroeconomics policies for moderate inflation are politically supported. 4Poverty Rate (%)(Sato, 2010)
  22. 22. In the figure above, there is noticeable fluctuations of inflation rate aroound 1980. After that, there is decrease in fluctuation of inflation. This is in tandem with stability in annual growth rate observed from 1980s onwards. There are three observable phases in the indian history of inflation as follows: 1. Low level of inflation with high variability from 1950 to 1980 2. High level of inflation with low variability fro m 1980s to late 1990s 3. Low level of inflation with low variablity from late 1990s onwards The third phase can be considered as a moderate inflation phase, the bacdrop to this is the institutional independence gained by Reserve Bank of India since the late 1990s. 5Inflation Rate of GDP Deflator (%)(Sato, 2010)
  23. 23. China Subject Descriptor Units Scale 1980s 1990s 2000s 2010s Gross domestic product, current prices U.S. dollars Billions 326.8153 709.9557 2552.428 7157.798 Gross domestic product per capita, current prices U.S. dollars Units 308.9243 584.4748 1944.892 5309.499 Total investment Percent of GDP 35.878 39.0544 41.2817 48.446 Gross national savings Percent of GDP 35.2321 40.7082 46.3169 51.18533 Inflation, average consumer prices Percent change 0 7.77 1.8693 3.797333 Volume of imports of goods and services Percent change 10.8165 15.0424 15.1199 12.14167 Volume of exports of goods and services Percent change 8.6315 16.5487 15.5688 13.98367 Unemployment rate Percent of total labor force 2.65 2.77 4 4.1 Current account balance U.S. dollars Billions -1.2312 12.0389 156.6569 189.0153 Current account balance Percent of GDP -0.3107 1.6538 5.0353 2.739333 1China Macroeconomic indicators 1980 – 2012 (Source: IMF, Calculation done by averaging out the entries in each decade, done by author) Discussion Analysts often describe the exceptional rise of China as a major economic power within a period of three decades as one of the greatest economic success stories of the modern age. 1970s The first phase of economic reforms was introduced in 1978 when Den Xiaoping came into power. These reforms provided liberalization to an otherwise closed economy. Before the economic reforms, Chinese economy was centrally controlled and the government had control of the major chunk of the economic output. The production goal, resource allocation, price control were all in the hands of the central government. Almost 3/4th of the industrial production output came from state owned enterprises (SOEs), the targets being decided by the central government. Since not much deliberation was put on profitability, the country’s economy remained stagnant and inefficient for a long period of time. This subsequently resulted in the Chinese standard of living being lower than many other developing countries. (Morrison, September 2013)
  24. 24. The core of the reform movement was based on agricultural production system in the rural areas. Farmers were given price and ownership incentives and hence for the first time, farmers were allowed to sell a share of the output in free market. Some of the other features of the reforms were to increase exports, increase import of high technology products, attract foreign investment and decentralise economic policymaking in several sectors including trade. 1980s The wonders of the reforms continued and the government selected new coastal regions and cities as open cities and development zones to test more free market reforms. Trade incentives were also offered to attract investment from foreign. Additionally, price controls were gradually eliminated on a variety of products. Agricultural output doubled from the previous decade. Industries especially in coastal regions close to Hong Kong gained majorly , where foreign investment played a crucial role in stimulating both domestic and export goods. (Morrison, September 2013) 1990s – 2000s In late 1993 even more reforms were introduced by the Chinese leadership in the form of long-term reforms. These reforms allowed the continued domination of the state enterprises in many sectors. The new market scenario was called ‘a socialist market economy’. This transition of the economic system to a market based economy led to high average growth. In the period between 1978 and 1995, the GDP growth was at an average of 8% per fiscal year. In 1999, china was declared the second largest economy in the world. Although there was a huge difference between the GDP per capita as compared to USA, which was the world’s largest economy. Chinese GDP per capita stood at USD 3,800.
  25. 25. The trade and investment reforms and incentives resulted in an exponential increase in Foreign Direct Investment (FDI). Increase in FDI was considered one of the major contributors to the increase in China’s growth. Utilized FDI in a year grew from USD 636 million in 1983 to USD 45.6 billion in 1998. Though there was a drop in 1999, when the figure came down to USD 40.5 billion. This overall increase in this indicator made China the second largest FDI destination in the late 1990s. Two-thirds of the FDI came from Hong Kong and Taiwan. USA came at third position with 8% of total FDI in China from 1979 to 1999 with a total investment of USD 24.6 billion. Poverty and saving had doubled, while the poverty rate had declined. This was majorly due to the big measures in improving the social welfare of the country. According to the World Bank, around 200 million were raised from below the poverty line. And only approximately 10% of the entire population were illiterate. (Morrison, September 2013) Some of the major hurdles in the path were the difficulties faced in collection of revenues from provinces, businesses, individuals. Struggle in reduction of corruption, other economic crimes and maintaining the day-to-day activities of large state owned enterprises. As majority of these state owned enterprises had not participated in this expansion plan and some of them had lost the capacity to pay full wages and pensions. 2010s In 2012, the real GDP grew at annual rate of approximately 10%. The figure of people who have been uplifted from poverty has increased to 500 million. China is the world’s largest manufacturer, exporter and foreign exchange reserves holder.
  26. 26. 6Chinese Real GDP Growth: 1979-2013 (in percent) (Morrison, September 2013) Note: * Data for 20013 is the IMF’s projection made in July 2013
  27. 27. Pakistan Subject Descriptor Units Scale 1980 1990 2000 2010 2011 Gross domestic product, current prices U.S. dollars Billions 38.0823 71.7477 118.1315 177.622 213.725 Gross domestic product per capita, current prices U.S. dollars Units 404.4892 587.6277 767.8236 1,034.31 1,219.16 Total investment Percent of GDP 16.1622 16.1878 16.4558 15.805 14.115 Gross national savings Percent of GDP 15.1333 13.2846 15.7665 13.583 14.215 Inflation, average consumer prices Index 18.0465 41.059 79.6336 128.849 146.451 Volume of imports of goods and services Percent change 2.792 3.0646 6.785 -1.887 2.794 Volume of exports of goods and services Percent change 8.9715 6.539 7.107 0.641 7.751 Unemployment rate Percent of total labor force 2.3904 5.5253 6.8797 5.55 5.95 Current account balance U.S. dollars Billions -0.912 -2.268 -2.7713 -3.946 0.214 Current account balance Percent of GDP -2.3616 -3.1118 -1.2983 -2.222 0.1 2Pakistan Macroeconomic indicators 1980 – 2012 Discussion The economy of Pakistan is very intricately related to the political scenario of the country. Therefore, it is unavoidable to discuss the economy of the country independent from the influence of the ruling party.
  28. 28. The Bhutto Regime (1973-1977) Before the Bhutto Regime is discussed, the premise of policymaking in this era needs to be established, for this reason the Ayub Khan regime is discussed first. During the Ayub Regime from 1958-69, there was deliberate attempt to concentrate the wealth in the hands of the upper income group. The assumption behind this policy was that the rich save a higher proportion of their income and therefore a higher national saving could be achieved through this unequal distribution of income. Savings were targeted to be 25% of the GDP. Though the policy was affective in distributing income to the elite, the second phase based on the assumption that would lead to increase in domestic savings did not materialize. (Hussain, 2012) There was direct impact on the requirement of debt saving as a measure to counter the failure of the policy. There was a seven fold increase in the requirement of foreign aid, this led to rise of debt- servicing burden. Debt-servicing increased from 4.2% of foreign exchange earnings in 1960-61 to 34.5% in 1971-72. The repercussion of policy failure were seen for the next three decades.. While there was a mass accumulation of wealth by one section of the society, the majority of the population was suffering from an absolute decline in its living standards. By the time Mr. Z.A. Bhutto came to power, there was a radical shift in the ideology of the government. The latent aspirations of a democratic society based on equity and justice were unleashed during his mass movement against Ayub Khan. The nationalisation of 43 large industrial units in 1972 was one of the most important initiatives carried out by the PPP government. These were largely in the capital and intermediate goods sector such as cement, fertilizers, oil refining, engineering and chemicals. Three years later, second phase of nationalisation was initiated by the government, in this phase cooking oil industry, flour milling cotton ginning and rice husking mills were nationalised. There was a diabolical contrast in the impacts of the two phases, while the first set of nationalizations impacted the ‘monopoly capitalists’,
  29. 29. the second phase hit the medium and small sized businesses. Therefore, the goal of greater equality was lost to rapid increase in the size of the public sector, this served as a base for the government to wield power through traditional form of power by amassing resources. There was an overall increase in the investment to GDP ratio which reached to 15.5% and was higher than in previous regime. Yet there was decline in the GDP growth rate to 5% in 1973-77 as compared to 6.3% in 1960-73. The decline in the GDP is indicative of the drop in productivity of investment, this in turn was caused by the following factors:  Public sector investment was majorly focused on less productive sectors like defence and administration.  Investment decisions in public sector industries were not economically efficient, in reference to technology choice, geographic location and production management. The decrease in productivity of investment due to the aforementioned points, the fiscal deficit of the government increased even further from where the Ayub Khan government had left it. This caused a two-fold burden on the common people as:  There was a slowdown in employment due to a reduction in development expenditure  Inflation rates exponentially increased which restrained the real income of the middle class household. The distortion of the real income due to nationalisation led to widespread resentment among the urban petit bourgeois and this led to widespread demonstration against Bhutto by the same people who had fuelled anti-Ayub agitation. The demonstrations led to the downfall of Bhutto’s regime in 1977. The Zia Regime (1977-1989) The new government, in complete opposition to the traditional Pakistani society ideology decided to institutionalize military rule. New mosque schools (madrasas) were opened in small towns and rural
  30. 30. areas through financing received from the government. Many of these schools were linked with militant religious organisations which were engaged in the Afghan war. These organisations would later surface to cause extremist violence and challenge the writ rules of the state in the subsequent years. The economic condition in which the Bhutto regime had left power would have put crippling fiscal and political pressures on the newly instated Zia ul Haq’s government, but they were saved because of the following two factors:  The financial support received from the US following agreement to play a front line role in US financed under cover war against Soviet troops stationed at Afghanistan  The foreign remittances received from the Middle East increased from USD 0.5 billion in 1978 to USD 3.2 billion in 1984. These financial gifts eased the balance of payment pressures and also benefitted about 10 million people particularly from the lower middle class. The increase in inflow of foreign aid helped increase the GDP growth rate from 4.9% in the previous regime to 6.6% in the present regime. (Hussain, 2012) The increase in GDP growth however, was not meant to be a long lived phenomena, this was mainly due to continued poor performance in the following three strategic factors:  Domestic savings rate continued to be below 10%, far below the required rate of 20% or above.  Export as percentage of GDP continued to be below 10% without any concrete increase  Lack of investment in social and development program as a result of increased expenditure on defence and debt servicing programs. It is not surprising that at the culmination of the Afghan War, when the inflow of foreign aid was withdrawn, the constraints to GDP growth began to be highlighted. The factors mentioned earlier came into play and the economy was pulled into recession in the 1990s.
  31. 31. The Democratic Interlude (1989-1999): the 1990s were marked by democratically elected regimes who wanted to carry out practices of authoritarian form of governance in an apparently democratic order. The public office was also used to store private wealth. These characteristics intensified as the years progressed, the three main threats to the state were:  The economy was crumpling  The advent of militant groups supported and funded by religious extremists caused widespread threat to lives and properties of citizens  Many institutions of effective governance were demolished During the 1990s, there was an adverse effect on the GDP growth rate and private investment due to political unpredictability, unprecedented amount of corruption and the deterioration of the law and order scenario. The government adopted a Structural Adjustment Program under the IMF, under this scheme the government reduced the expenditure on development projects. There was a marked decrease in Development expenditure as a percentage of GDP from 7.4% in 1970s to 3.5% in 1990s. At the same time the government’s unproductive expenditure remained at the same high level. These factors merely added to the declining growth which was present even in the 1980s. The severe cutback in investment in infrastructure and poverty alleviation projects further added to the woes. The Musharraf Regime (2001-2008) The crisis which affected the economy, society, and state reached its pinnacle by the end of the 1990s. This led to the downfall of the democratic system of governance and contention for power between military and elected leadership had been conducted in 1990s. Soon after coming into power, President Musharraf’s government became pro-active in comprehensive set of reforms which were aimed at revitalising the economy and improving the state of governance on an
  32. 32. institutional level. Parallely, the political system was being restructured through constitutional amendments. During the regime of President Musharraf, there was a considerable improvement in macroeconomic indicators which was a result of changes in economic policies and the international turbulence after the 9/11 attack in the US. In the period the GDP had grown to over 6%, the debt servicing burden had come within manageable range, the budget deficit had reduced significantly and the State Bank reserves had reached record levels. Despite the rise in the GDP there was continued widespread poverty and shortage of basic services. The GDP grew more than double to $144 billion since 1999. The sustainability of the GDP growth was contested due to the following factors:  The investment rate requirement (28%) to sustain a GDP growth rate of 7% was still much higher than the prevalent investment rate which stood at 20%.  The pressure on balance of payments was intensified due to slow growth of export earnings  Severe shortage of infrastructure and trained man power. The expenditure on defence reduced from 7% of GDP in early 1990s to 3.8% in 2003-04. The last five years The economy continues to face a number of challenges on multiple fronts like energy shortages, floods, poor law and order situation and a plethora of administrative impairments; that have kept the investment and growth in the country at low. The economy has an average growth rate of 2.9% per year for the past five years.
  33. 33. Power shortage, due to crumbling of the power sector has been a detriment in the annual GDP growth, where it has resulted in a decline of GDP by 2%, which accounts for about half of Pakistan’s long-term trend of GDP of 6.5%. Pakistan has completed the re-basing process 2005-06 is now the base year replacing the old 1999- 2000 base year. The re-basing has resulted in the estimates of GDP for 2005-06 to improve from Rs. 7159 billion to Rs. 7716 billion, leading to an increase of 7.8% over the old base estimates. Further results have been improvement in agriculture sector by 21.8%, industrial sector by -16% and the services sector by 14.5% over the old base. (Highlights of the Pakistan Economic Survey 2012-13) Real GDP growth for the fiscal year 2012-13 has been estimated to be 3.6% as compared to 4.4% in 2011-12, after re-basing National Accounts at constant prices of 2005-06. (Highlights of the Pakistan Economic Survey 2012-13)
  34. 34. Sri Lanka Subject Descriptor Units Scale 1980s 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 5.9558 12.4315 25.7681 49.552 59.164 59.408 Gross domestic product per capita, current prices U.S. dollars Units 385.5686 718.2352 1313.3239 2,428.87 2,880.34 2,875.80 Total investment Percent of GDP 27.9716 26.0299 25.266 27.578 29.954 30.633 Gross national savings Percent of GDP 18.0083 20.5515 21.8199 25.409 22.154 24.043 Inflation, average consumer prices Index 10.936 32.9266 85.5555 141.933 151.467 162.892 Volume of imports of goods and services Percent change 2.0821 8.7844 2.3457 16.52 35.263 -19.591 Volume of exports of goods and services Percent change 3.9873 7.0902 1.9955 13.785 -11.017 -9.573 Unemployment rate Percent of total labor force 0 12.4125 7.3373 5 4.1 4 Current account balance U.S. dollars Billions -0.5563 -0.6564 -0.9807 -1.075 -4.615 -3.915 Current account balance Percent of GDP -9.9632 -5.4784 -3.4462 -2.169 -7.8 -6.59 3Sri Lanka Macroeconomic indicators 1980 – 2012 [Source: IMF (decade wise average taken out by averaging out the entries in each decade, done by author)] Discussion After attaining independence in 1948 the main focus of development policy was on achieving equity and economic growth. To achieve this, the government restricted import of goods from foreign countries and domestic production was highly encouraged. In order to achieve equity, numerous welfare programs were instated, the welfare programs comprised of price subsidies on food, statutory price controls on consumer goods and the facility of free education and health services. The welfare programs were successful in bringing about significant improvements in the field of human development. However, the down side of this was the restriction on capital growth and reduced ability of investment, which consequently resulted in slowing of the economic growth and, high unemployment and low wages. (Economy - Sri Lanka info, 2013) One contributing factor for Sri Lanka has been that the growth has been higher that all of its South Asian neighbours with the exceptions of Pakistan. This however, is not true if the comparison is done with East Asian and Southeast Asian countries.
  35. 35. Between the period of 1951 and 1976, the average per capita GDP growth rate was 0.2% per year. During this period, the trade balance was also in bad shape and the newly created industries operated well below the capacity due to shortage of imported goods. There have been previous records of unusually high growth rates on two accounts, in 1968 and 1978, in both years the GDP was 8.2%. For the period from 1960s – 1980s, the growth rate remained constant at 4%, while the lowest growth rate was recorded in 1950s at 3.4%. 1970s The diversification of the economy in the late 1960s and early 1970s, were mainly in the form of import substitution producing for local markets, the goods that the country could no longer afford to import. There was slight success in exports. In 1978, the government decided to open the country for foreign investment, this step was in contrast to the earlier practice of social orientation of the economy. JR Jayawardene made the change in an attempt to match Singapore’s model of open economy. Policies were designed to accelerate the economic growth by stimulating private investments and also attempted to increase foreign earnings by promoting economic activities which were export oriented. (Economy - Sri Lanka info, 2013) The neo-liberal policies which were introduced in 1977 aimed to accelerate long-run growth. “Contrary to expectation”, it not facilitate high growth performance in the following decade (Cooray, 2011) (Lakshman, 2010). 1980s The policies introduced in 1970s were met with initial success. There was an enhanced inflow of foreign aid and investment. The real growth rate was about 6% per year until 1986. However, during the following five years there was a marked deceleration in growth, which was mainly caused by the disruptions of ethnic conflicts. The average annual GDP growth rate was 2.7% between1986-1989.
  36. 36. There was however marked increase in the export of textile from 0.7% in 1974 to 28% in 1986. In comparison, agriculture, forestry and fishing together made up 27.7% of GNP down from 39.4% in 1975. (Economy - Sri Lanka info, 2013) 1990s The annual average of GDP was 5 % from 1990 to 2000. The per capita gross domestic product increased from US$382 in 1975 to US$802 by 2000. 2000s - present In the decade from 2000-2009, recorded a 5% GDP growth rate in comparison to 5.3% in the 1990s. In 2009 the growth was 3,5% despite global recession. Sri Lankan economy stood at USD 50 billion in 2011, which grew by 8% from the previous year. This growth rate has been the highest in three decades. This number far exceeds the average growth rate of 4.9%, which has been very much constant since the liberal economic policies which were introduced in 1977. The growth rate of 2000s would have been much higher at 5.7% if it weren’t for the dismal performance in 2001, when a negative growth of 1.5% was recorded. This negative growth was an effect of several factors including the political unrest, in particular the Katunayaka International Airport. Other factors included prolonged drought, power shortage, 9/11 US terror attack, and the global recession. After the economy recovered in 2002, it continued to grow slowly and steadily and reached 7.7% in 2007. The situation, however took a downturn since then, because of the unfavourable commodity and oil prices that began in 2007 and the global recession from September 2008. The second half of the last exhibited a pattern of increased growth, implying that the country was heading towards a high growth era. (Cooray, 2011) There has been an increase in the per capita income, in nominal terms. The per capita income has increased from Rs. 68,102 (USD 899) in 2000 to Rs. 271,259 (USD 2,399) in 2010. The per capita income in 1948 was (USD 120).
  37. 37. To put things in better perspective, Sri Lanka was upgraded middle-income status on the list of Poverty Reduction and Growth Trust (PRGT) eligible countries, in January 2010 by the International Monetary Fund (IMF). The structural transformation of Sri Lanka in the past six decades has led to change in sectoral contributions to GDP. The figures of growth contribution, in 2010 are as follows, agriculture accounts for 10.5% (11.9% of GDP), industry accounts for 30.1% (28.7% of GDP) and services account for 59.4% (59.3% of GDP). The data reveals that while service and industy sector have experienced an upward growth trend over the decades, the agricultural sector has undergone a lower growth, which implies lower productivity. 4Doubling Per Capita Income, 1960-2014 (Cooray, 2011)
  38. 38. 5Annual average GDP growth and sectoral shares, 1950-2010 (%)(Cooray, 2011)
  39. 39. Bangladesh Subject Descriptor Units Scale 1980s 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 21.9277 37.7894 63.7034 106.216 114.079 122.98 Gross domestic product per capita, current prices U.S. dollars Units 233.6877 316.7119 446.4993 702.83 747.12 797.159 Total investment Percent of GDP 16.4778 19.4378 23.9637 24.808 25.896 26.701 Gross national savings Percent of GDP 16.1932 20.3078 26.488 29.356 28.996 29.357 Inflation, average consumer prices Index 44.7031 95.3082 160.2512 229.784 254.378 276.612 Volume of imports of goods and services Percent change 7.2993 7.9728 6.3272 12.91 4.997 6.537 Volume of exports of goods and services Percent change 13.0551 13.2132 9.1669 16.494 9.125 9.94 Current account balance U.S. dollars Billions -0.6878 -0.532 0.4278 0.507 -1.553 0.823 Current account balance Percent of GDP -3.0694 -1.4059 0.4209 0.477 -1.361 0.669 Current account balance Percent of GDP -9.9632 -5.4784 -3.4462 -2.169 -7.8 -6.59 6Bangladesh Macroeconomic indicators 1980 – 2012 Source: IMF Data (Calculation done by averaging out the entries in each decade, done by author) Discussion The macroeconomic tends of the country over the span of five decades have been discussed in the following paragraphs. The country had suffered major economic downfall during the Liberation War of 1971. Before the war, the economy was growing at a rate of 4% per annum, but the growth was reduced to one-fifth of the original during the war. People were dislocated on a large scale, which further led to economic slowdown, which lasted for about two decades and then there was a rapid acceleration in the GDP growth rate from 1990 onwards.
  40. 40. As can be seen in the figure, had the GDP grown at the forecasted growth rate in 1960s, the GDP would have been 10% higher in 2009. On the other hand, if it were not for the acceleration post- 1990, the GDP in 2009 would have been 29% lower than the actual. As discussed earlier, Bangladesh economy had suffered a major setback in the Liberation War. The economy had started showing progress in the 1980s. Steadily, the economic growth also became less volatile over time. GDP per capita also increased steadily in the recent decades and was stabilised over time. In 2009, GDP per capita was 21,000 taka (in 1995 prices). If it were not for the acceleration in growth rate of 1990s, the average Bangladeshi would have been 7,100 takas worse off in 2009. 7Bangladesh Real GDP The solid grey line shows actual path of GDP. Dotted lines are hypothetical trend paths based on: 1960s trend (green); 1970s/1980s trend (red). (Rahman, 2010) 8Bangladesh growth in Real GDP The columns represent annual growth; the black dotted lines represent annual average growth over the 1960s, 1972-90, and since 1990; the red line represents annualised growth over the previous five years. (Rahman, 2010)
  41. 41. The sectoral composition has also changed significantly from 1960 to present. The share of agriculture sector in the economy has nearly halved from about two-fifths in the early 1960s. While the share of industries has more than doubled to 30% in comparison to 1970s. Since 1970s, services have accounted for about half of the share of economy. The acceleration in the economic growth of industry and services has been nearly even over the past couple of decades. There has been a rise in investment, exports and imports relative to nominal GDP in the recent decades, which have had a positive impact on the economy. 9Bangladesh growth in real GDP per capita The IMF data are for calendar years. The ‘consolidated measure’ is derived by dividing the GDP series presented in Charts 1 and 2 above by the United Nations population estimates. (Rahman, 2010) 10Bangladesh Sectoral composition of the economy (Rahman, 2010)
  42. 42. The share of investment in GDP rose sharply after the Liberation War till it stagnated in the 1980s. The rise of investment has been steady relative to GDP since the start of the 1990s, and it is only in the last few years of the last decade that the pace has slowed down a little. The significance of higher investment to GDP ratio is that there is more capital in the economy. In the case of exports, there was a continuous fall in the pre-war period, relative to GDP. While after the war, the ratio of exports to GDP stagnated at a very low level up to the late 1980s. There has been a steady increase in the ratio of the two values since then. There has also been an increase in imports since 1980s. Rise in these two indicators, with all else remaining same resulted in a higher economic growth. This is true because:  Exporting industries face competition from abroad  Imports from abroad open domestic market for foreign competition These two factors lead to higher efficiency which translates into faster productivity growth. 11Bangladesh Share of nominal GDP (Rahman, 2010)
  43. 43. Nepal Subject Descriptor Units Scale 1980s 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 2.8477 4.6047 8.4149 16.002 19.123 18.958 Gross domestic product per capita, current prices U.S. dollars Units 176.5906 225.5306 333.0313 596.058 704.165 690.038 Total investment Percent of GDP 15.5841 21.1568 25.4 36.991 33.17 33.782 Gross national savings Percent of GDP 15.5666 17.4686 28.2856 34.629 32.224 38.576 Inflation, average consumer prices Index 19.546 51.6185 94.8356 139.339 152.733 165.425 Current account balance U.S. dollars Billions -0.1804 -0.1531 0.2619 -0.378 -0.181 0.909 Current account balance Percent of GDP -6.3678 -3.6883 3.3935 -2.362 -0.946 4.794 7Nepal Macroeconomic indicators 1980 – 2012 Source: IMF (Calculation done by averaging out the entries in each decade, done by author) 1960-1970s This was a period of low level of physical infrastructure, human capital and development. 1980s Nepal experienced remarkable acceleration in growth based on unsustainable expansion of aggregate demand due to expansionary monetary and fiscal policies. The following changes were observed: - Sharp rise in Public expenditure and Public revenue which resulted in rise of budget deficits - Development expenditure rose from 8.7% to 12.4% of GDP
  44. 44. - Government revenue rose slightly from 7.7% to 8.7% of GDP - Budget deficit doubled from 3.1% to 6.7% of GDP - Money supply increased with the rise in broad money from 16.2% to 27.2% - Rate of Inflation increased from 7.5% to 10.6% which resulted in appreciation of real exchange rate and depreciation of balance of payments These changes led to the formulation of evolving reforms over the decade. The four distinct reforms include: - Standard Stabilization Programme(1985-86) This reform focussed on standard stabilizing measures, however it wasn’t very successful. Real exchange rate depreciated, irrespective of rising inflation, which raised exports and imports but resulted in worsening of current account. At the fiscal front, the macroeconomic condition remained grim with slight rise in budget deficit from 6.7 to 7.8%. - Steady Tax Reduction Programme(1990) This reform was introduced on the advent of power of popular democratic government. This phase broadened the tax base, improved revenue administration, liberalized industrial policies and interest rates, unified foreign exchange by making current account convertible and facilitated banking sector entry. - Liberalization of Agricultural Sector(1997) Introduction of neutral VAT and strengthening of local governments was brought about by the third reform. - Governance Reform(2000) Government worked towards improving tax policies, administration, financial sector and corruption through medium-term expenditure. (Osmani & Bajracharya)
  45. 45. 1990s These reforms resulted in trade liberalization and incentives to exporters. The following changes were observed: - Cut in average tariff rates from 32% to 14% (2000) and peak basic tariff rate reduced from 200 to 110%. - Fall in effective rate of protection in manufacturing from 114%(1989) to 8.5%(1996). Low agricultural tariffs and reconstructed exchange rate system. - Attract foreign direct investment by allowing 100% foreign ownership in most sectors. Trade Treaty with India (1996) eliminated non-tariff barriers with 25% permitted ownership, liberalizing Indian investment. - More private sector participation under joint ventures in banking, energy and agricultural sectors. Share of private sector investment surged to 14% and public sector investment stagnated at around 7%. - Exports doubled from 5 to 10% of GDP and trade ratio increased from 23% to 38%. - Trade Deficit increased from 13 to 21% of GDP and current account deficit decreased from 6.2 to 4.5% of GDP. Higher export earnings, remittances and tourism earnings led to increase in import of capital goods at 10% per annum. These improvements were analyzed in the long term trend by putting the economy on a higher growth path in the pre-reform period (1965-1985) and post reform period (1985-2000). Manufacturing growth in post reform period averaged around 14% which improved from the 5% rate of pre-reform period. This growth was neutralized by the poor performance of agriculture which improved only in the latter half of 1990s. These effects were a result of the Trade Treaty signed with India and rapidly rising remittances. The macroeconomic indicators like budget deficits, inflation and balance of payments improved in the post-reform period. This sustainability of growth is also analyzed from the total factor productivity which experienced a
  46. 46. positive growth of 0.51% per annum in 1990s as compared to the negative growth of -0.76% per annum in 1980s. (Osmani & Bajracharya) 2000s to Present In recent times, political developments in Nepal have led to economic development. Political instability led to a dip in economic growth by 3.6%. The current account remained in surplus because of remittances and on the fiscal front, the combination of low spending and continued revenue growth led to decrease of government’s stock of debt. The following changes over the years include: - Industrial growth in 2013 decreased from 4.3% (2011) and 3.0 % (2012) to 1.6%. Manufacturing growth reduced to 1.8% from 3.6% of 2012 and construction activity increased to 1.65 from previous year’s 0.2%. - Growth in services sector to 6% from preceding years 4.5% and 3.4%. - Rise in Inflation to 9.9% reversing a trend since 2009. ‘Cost-push’ factors resulted in high prices of food which rose by 9.7% from 7.6% and non food which increased to 10% from 9%. - Deterioration of trade balance to 27.1% with adverse effects on exports and imports. Export growth decreased to 3.6% from 15.4% and imports rose to 20.6% from 16.5%. Irrespective of the current scenario, Nepalese rupee depreciation does not threaten macroeconomic stability because of the buffers against currency shocks. Also, the future macroeconomic progress will depend on political transition. (South Asia Focus: A Wake Up Call , 2013)
  47. 47. Myanmar Subject Descriptor Units Scale 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 1.7248 17.6322 49.628 56.17 55.273 Gross domestic product per capita, current prices U.S. dollars Units 35.4129 312.772 811.084 899.916 868.086 Total investment Percent of GDP 2.5816 12.6681 16.013 14.907 20.07 Gross national savings Percent of GDP 1.7776 12.8532 23.143 27.48 15.634 Inflation, average consumer prices Index 50.522 867.7884 1,627.33 1,672.34 1,719.67 Volume of imports of goods and services Percent change -0.7141 10.3656 14.559 21.995 17.329 Volume of exports of goods and services Percent change 2.5454 12.4525 6.001 11.748 4.875 Unemployment rate Percent of total labor force 0.812 4.02 4.02 4.02 4.02 Current account balance U.S. dollars Billions -0.1763 -0.0458 -0.952 -1.338 -2.452 Current account balance Percent of GDP -2.1527 0.1778 -1.918 -2.382 -4.436 8Myanmar Macroeconomic indicators 1980 – 2012 Source: IMF (Calculation done by averaging out the entries in each decade, done by author) Discussion Myanmar’s post war history of economic development is divided into the following categories:  Parliamentary democracy period 1948-62  Socialist period under military rule 1962-88  Market-oriented period under military rule: 1988-present 12Chronology of Developments in Myanmar
  48. 48. After independence, a mixture of nationalism, socialism and market system emerged. The government took over the rice trade by nationalization of agricultural land and redistribution to the cultivators. This was followed by the nationalization of the timber industry. These two sectors were previously under monopoly of foreign firms. Then came the nationalization of Irrawaddy Flotilla Company which was also previously owned by foreigners and finally the reorganisation of the Burma Corporation and Burma Oil Company into a joint venture. (Thein, 2004) Simultaneously, on the one hand the government also decided to develop certain industries on a state-owned basis. On the other it also gave room for some private sector participation and free market in many economic activities, including foreign trade. Just as the economy was picking up pace, the ruling Anti-Fascist Peoples’ Freedom League party split into smaller pieces in 1958. The Myanmar army took over the political power through a military coup in 1962. “The Burmese Way to Socialism” was declared as a self-reliant policy of isolation and as a standard for future progress. Under this policy, all enterprises under foreign trade, domestic wholesale, and retail trade were nationalized. Where nationalization was not applicable, the sector was subjected to price controls, example agriculture. In practice, not only were the cultivators commanded to plant planned cops in areas chosen by the government but also had to sell the crops to the state at the prices fixed by the government, at prices far below market prices. Foreign loans were majorly rejected. There was some relaxation in the policy stance in the mid -1970s due to deteriorating economic conditions, this was done by the introduction of the 1974 bicarmel constitution. For example, foreign aid was welcomed after being rejected for long including loans official development Assistance Loans (ODA). There was defined change in the operation of the state-owned economic enterprises (SEEs), wherein they were made to operate along commercial guidelines to improve efficiency. (Thein, 2004)
  49. 49. As a result of the aforementioned efforts, the economy improved but could not be sustained over a long time as there was no change in the basic policy favouring state-led industrial development. The government tried to make the situation of import dependence better by cutting down imports and public investment, while at the same time increasing money supply by printing money. These measures took place in mid-1980s. The eventual result of these policy changes were that while cutting imports and public investment slowed down economy, printing money increased inflation. The government had to finally demonetize kyat in 1985 and 1987, and the socialist regime finally collapsed in 1988. The State law and Order Restoration Council (SLORC), a new military group took over power in September in 1988. One of the first steps taken were the introduction of the Foreign Investment Law along with removal of restrictions in private sector in domestic and foreign trade. The market- oriented policy was officially adopted in March 1989, upon retraction of the Law of Establishment of the Socialist Economic System. There was immediate gratification in many of the economic reforms introduced in the early 1990s. The involvement of the private sector in the economy as a measure of ratio of GDP increased from 68.6% in 1991-92 to 76.4% in 1997-98. With the notable growth of the agricultural sector led to a real GDP growth of over 7% per year during the period 1992-93 to 1996-97. However, this spurt of growth was also not long lasting. One of the major factors was the Asian Currency crisis in the mid-1997, which had negative impact on Myanmar’s economy, while similar effects were not observed in other economies in the region. There has been extreme criticism of the path the economy took, with many of the opinion that the economy took a U-turn to command economy. For example, tax imposition on export goods and regulation on the type of goods imported. In terms of permits granted by the government to conduct business, some companies
  50. 50. such as Myanmar Economic Corporation (MEC) and Myanmar Economic Holdings (MEHL) were treated more favourably. (Thein, 2004) These practices by the government therefore put a question mark on the intention of the government, as for the evolution of market oriented economy, providing a level playing field is one of utmost importance. In the recent past, growth has reached an aprroximate average of 6.5% per year, majorly driven by gas production, construction and services. Inflation reached 4.7% in March 2013. The current account deficit has reached 4.5% of GDP in 2012-13. (Chhor, Dobbs, & Hansen, 2013) There has been a recent decline in the exchange rate. State bank held international reserves have increased to USD 4.6 billion at end of March 2013. The fiscal deficit is said to have declined to 3.75% of GDP recently. This is on account of higher tax revenues and lower than anticipated capital expenditure.
  51. 51. Bhutan Subject Descriptor Units Scale 1980s 1990s 2000s 2010 2011 2012 Gross domestic product, current prices U.S. dollars Billions 0.1981 0.3218 0.8334 1.497 1.872 2.166 Gross domestic product per capita, current prices U.S. dollars Units 400.266 598.1505 1260.6476 2,062.60 2,535.17 2,913.86 Total investment Percent of GDP 37.385 41.308 50.1984 52.255 44.549 46.274 Gross national savings Percent of GDP 12.0058 28.2761 33.4766 33.683 29.178 29.056 Inflation, average consumer prices Index 155.2245 393.4671 710.8776 958.46 1,043.34 1,157.11 Volume of imports of goods and services Percent change 5.4362 -3.0804 10.6651 29.229 28.657 -13.779 Volume of exports of goods and services Percent change 5.042 -4.3401 14.1891 1.108 12.489 -13.749 Unemployment rate Percent of total labor force 0 0 1.97 3.3 3.1 3.2 Current account balance U.S. dollars Billions -0.0607 -0.0041 -0.0602 -0.142 -0.41 -0.35 Current account balance Percent of GDP -30.0852 -3.0926 -9.628 -9.498 -21.921 -16.149 9Bhutan Macroeconomic indicators 1980 – 2012 Discussion Government exhibits prudent macro-economic management with fiscal and monetary stability planning and evolution of the tax base and financial sector. The Bhutanese currency, ‘Ngultrum’, fixed to the Indian Rupee is meant for free circulation with administratively determined interest rates. Though Bhutan is considered among the world’s poorest countries in terms of GDP per capita, it has a medium human development index rating of 0.510. 1985-95 Economic structure was predominantly agricultural with economic growth due to hydropower potential and natural resource based industries. Average growth rate was 6.8%. Bhutan has received $248.27 million in loans and $51.37 million in technical assistance. 10Sectoral Breakdown of GDP (Lhamu, Rhodes, & Rai)
  52. 52. Several initiatives for development of private sector and privatization of public sector to maintain macroeconomic stability and growth have been implemented. Development of Infrastructure, cottage and small industries have been set up. 2000s to Present 12Bhutan Development Indicators (South Asia Economic Focus, 2013)(Asian Development Bank & Bhutan, 2012) 11Bhutan GDP at Factor Cost by kind of activity in 1980 (Lhamu, Rhodes, & Rai)
  53. 53. 13Bhutan Economic Indicators 2008-2013 (Asian Development Bank & Bhutan, 2012) Since 2006, Bhutan has increased its hydropower and renewable energy to support economic growth. This contributes to about one-third of the GDP and one-fifth of economic growth, averaging over 8% annually. These construction and hydropower projects have anticipated growth of the industry sector to 6.2% in 2014.Growth in service sector is new investments in tourism, finance sector and transport and communications. Bhutan in 2011 experienced overheating episode with effects that still prevail currently. Rapid private sector credit growth was crippled by a credit crunch caused by government to halt personal loans and thus reduce demand for rupees. Presently, a higher budget deficit of 3.7% with an off-budget stimulus plan of 4% of GDP is experienced. This was facilitated by projects and grants with India. Inflation reduced to 5.5% (y-o-y) because of higher fuel prices imported from India. Fiscal Deficit reduced to 0.9% of GDP and over- performance of tax collection particularly corporate tax and excise duties is also experienced. Current expenditures remain below the fiscal anchor of staying with the constitutional requirement. Bhutan has high debt but public debt has mitigated the risk of debt distress. Long term development challenges have been faced by Bhutan since the 2000s because of economic volatility with most of the revenues coming from grants and sales to India. Revenues and risk management depend on the timing and seasonality of hydropower developments, lack of economies of scale in several industries and frequent natural disasters.
  54. 54. Bilateral Trade between Countries India - China China is India’s largest trading partner overtaking the United States of America back in 2008. India China signed the Most Favoured Nation (MFN) Agreement in 1984, after officially resuming trade in 1978. Before the comprehensive reforms introduced by India in 1991, trade levels were insignificant but it has grown exceptionally well since. However, India’s present trade deficits of USD 26.3 Billion pose a huge threat to the bilateral trade asymmetry between the two nations. Some trade statistics between the two nations are as follows: - USD 66.7 Billion was the total value of India China trade in good at the end of 2012, down by almost 10% mainly because of India’s export to and import from China (Embassy of India Beijing, China) - India stands at the 15th position with respect to China’s trading partners with a share of 1.72%, 7th in export destination and 19th in imports in China’s overall trade - Exports (mainly fabric, copper, stone, salt, sulphur, organic chemicals, boilers, cotton, yarn etc.)stand at USD 18.8 Billion, down by 20% YoY. (Embassy of India Beijing, China) - Imports (mainly nuclear reactors, electric machinery, chemicals, boilers, iron etc.) stand at USD 47.75 Billion, down by 5% YoY. - China’s non-financial direct investment in India stand at a cumulative figure of USD 657 Million till October 2012 while India’s investment in China stands at USD 470 Million (Embassy of India Beijing, China) India – China Strategic and Economic Dialogue (SED) This dialogue was set up in 2010 when Chinese premier Wen Jiabao visited India. It’s meant to be a forum to discuss issues and solves problems regarding the macroeconomic factors impacting both countries due to changing financial and economic landscape internationally, exchange ideas on the
  55. 55. best practices for handling domestic economic issues and specifically to find areas of improvement to further enhance learning and cooperation between the two nations. The first meeting took place in Beijing in September 2011 and issues related to fiscal and monetary policy of the countries, investment climate and policies on conservation of energy etc. While in the second SED meet held in New Delhi in November 2012, they signed 7 businesses and 4 government to government MoU’s on better cooperation in various fields and strengthening macroeconomic communication. (Embassy of India Beijing, China) Join Economic Group The Join Economic Group is a ministerial level dialogue between India China on Economic Relations and Trade, Science and Technology. It was set up by Rajiv Gandhi when he visited China in 1988. So far 10 JEG’s have taken place. (Embassy of India Beijing, China) With the growing bilateral trade a number of Indian companies have set up office in China and around 100 Chinese firms have established operations in India. They are presently resorting to rapid trade liberalization given the potential and the global trade environment and the regional disparity in having international trade access. A trade target of USD 100 Billion by 2015 has been set up by both the countries (Mohanty, May, 2013). Given the conditions it seems achievable, especially since India has great export potential in China based on how it has fared globally and the fact it hasn’t introduced a number of globally competitive products. However, a cause of concern is that the Chinese economy is five times as large as India and China’s export to India beat India’s export to China by three is to one at present.
  56. 56. India – Pakistan India and Pakistan have been at loggerheads for most part after the partition and this reflects in their trade relationship as well as it hasn’t materialized yet. There is tremendous scope for improvement and if all goes well in the near future, the number could scale up to USD 10 Billion. Some reasons why it hasn’t been the way it should be are: - Pakistan hasn’t given India Most favoured Nation (MFN) status as of now and it is unlikely to grant that before the 2014 Lok Sabha elections (Pakistan rules out most favored nation status, 2013) - India has complex tariff and non-tariff barriers which add to the woes - Poor transport contributes heavily as it makes trade costly; this includes, road, railway and port facilities all of which are inadequate and infused with bureaucratic regulations A look at the statistics tells us that, at present (India-Pakistan Bilateral Trade: Past, Present & Future, 2013) - The share of India-Pakistan trade in India’s total trade is around 0.34% (FY 2010-12) which is a decline from the 0.48% (FY 2007-09 ) - India’s exports to Pakistan have reduced from 1.01% (FY2007 -09) to 0.73% (FY 2010-12) - Similarly, India’s import to Pakistan have reduced from 0.14% (FY2007 -09) to 0.09% (FY 2010-12) - While India’s foreign trade showed a CAGR of 17%, India’s trade with Pakistan expanded only by a CAGR of 3% Formal and Informal Trade Informal trade between the two countries is rampant and takes place in the following ways, i) Trade is routed through a third country, ii)A lot of illegal trading occurs through land across borders. This is
  57. 57. mainly due to the tariff barriers and the quota problems in the formal trading sphere. And this kind of trading is showing no signs of slowing down owing to recent problems at the Line of Control. If we take a look at the some aspects historical aspects of India and Pakistan’s trade relations, some fact that draw your attention are. (India-Pakistan Bilateral Trade: Past, Present & Future, 2013) - As compared to now, in 1948-49, almost 70% of Pakistan’s total trade happened with India - A trade embargo was imposed on India and Pakistan between 1965 and 1974 after the war - Trade finally improved when Pakistan agreed on importing 322 Indian items in 1989 and that list has been increasing ever since - India offered Pakistan the Most Favoured Nation status back in 1996, an act that hasn’t been reciprocated till date though it has decided to grant it in November 2011 - Three agreements were initiated in 2011 namely, Redressal of Trade Grievances Agreement, Mutual Recognition Agreement and Customs Cooperation Agreement At this point in time, India and Pakistan should look towards strengthening their trade ties so as to benefit each other to forge the spirit of common market. They should forget their past differences and concentrate on the consumers who’ll in turn avail low cost good and services and enhanced saving capacity.
  58. 58. India - Sri Lanka Trade between India and Sri Lanka has been robust and both the countries share a good bilateral trade relationship with trade growing rapidly over the last decade. The last decade also saw a number of leading Indian companies from the private sector establishing their presence by making investments in Sri Lanka. Sri Lanka went through comprehensive policy reforms in 1977 becoming one the first countries in Southern Asia to adopt export growth strategies while India moved to a liberalized economy since 1980; this led to both the economies opening up giving trade between the two nations a major boost. Sri Lanka is now accounted as India’s largest South Asian trade partner and India holds the position of being Sri Lanka’s large global trade partner. India mainly exports pharmaceuticals, mineral fuel, automobiles, iron and steel etc while it imports poultry feed, paper products and natural rubber from Sri Lanka. Some statistics regarding the bilateral trade relation shared by both countries, (Chakraborty & Sikdar, 2011) In 2012, bilateral trade amounted to USD 4.002 Billion, down by 17.59% when compared to the previous year. While it had amounted to USD 4.86 Billion in 2011, up by about 66% from 2010 India has a cumulative investment of over USD 1.75 Billion (mainly telecom, petroleum retail, tourism, banking etc.) in Sri Lanka making it the fourth largest investor India-Sri Lanka signed the Free Trade Agreement in 2000, which cause trade to quadruple trade by 2006 reaching USD 2.6 Billion Free Trade Agreement The India Sri Lanka Free Trade Agreement (ISFTA) was signed in March 2000 and bilateral trade between the two nations haven’t been the same again, growing rapidly ever since. The agreement eliminated import quotas, tariffs and preferences on most good and services that the two countries dealt in. Exports from Sri Lanka to India rose from USD 68 Million to USD 548 Million while exports
  59. 59. from India to Sri Lanka increased from USD $638 Million in 2001 to USD $238 Million by 2008. Pre- FTA period saw a growth of 14% per annum between 1993-200 while post that they experienced a growth in trade of more than 47% (2001-2008). To deepen the FTA the two countries got into the Comprehensive Economic Partnership Agreement (CEPA) (2005 – 2008) which provided additional market access to both the nations. It enhanced economic cooperation, assessed the investment climate and established trade in services agreements. Recently, they have resumed discussion on CEPA and are taking steps to finalize it. (Chakraborty & Sikdar, 2011) India-Sri Lanka plan to double their bilateral trade relationship to USD 10 Billion by the next three years and are taking steps in that direction. India has made big investments in Sri Lanka in the recent past. They’ll help in expanding the public transport framework along with construction of more than 50,000 houses in conflict ridden and plantation areas. Similarly, Sri Lankan investment into India has also seen a rise in recent times. Example, Brandix is setting up a garment city in Vishakhapatnam , Ceylon Biscuits, Carlsberg, MAS holdings etc. Thus the future looks positive in terms of trade relation for both the countries even though last year saw a decline in trade. (India Sri Lanka Relations, 2013)
  60. 60. India-Bangladesh India and Bangladesh share a strong linguistic, cultural and religious bond along with 4096km of border. It is in the best interest of both the countries to maintain amicable trade relations; more so when both nations are fighting similar problems of infrastructure, governance, sustainability and employment. Thus, it is good news that India trade with Bangladesh has seen rapid growth over the last few years. Though at present, China is Bangladesh’s largest trading partner but this is set to change in the coming years with the way trade with India is growing. Some statistics regarding bilateral trade between the two nations are – (Acharya & Marwaha, 2012) - Bilateral trade stands at USD 4.4 Billion in FY2012, up from USD 1 Billion back in FY2001 and India contributes 86% of that number - India’s exports to Bangladesh stand at USD 3.8 Billion, up by 17% from FY2011 while the imports stand at USD 585 Million, growing by 31% over FY2011 - Between FY2001-2012 the exports increased at a CAGR of 13.75% and between FY2006-12 the imports increased by a CAGR of 29% - India’s top five commodity exports and imports to and from Bangladesh include cotton, vehicles, cereals, residues and waste from industries and nuclear reactors, boilers etc and vegetable textile fibres, fish, textile articles, rags, edible fruits and nuts, clothing accessories etc. respectively Informal Trade Just like Pakistan, there is massive informal trade between India and Bangladesh too. Huge volumes of goods are illegally traded between or smuggled between the two countries. The long border between the countries and the non-tariff barriers can be attributed as major reasons for this. The trade amount is roughly estimated to be the same as the formal trade amount. India has recently signed two major agreements on Prime Minister Manmohan Singh’s 2011 visit to the country, namely: (Acharya & Marwaha, 2012)
  61. 61. i) Framework Agreement on Cooperation for Development ii) Protocol to the Agreement Concerning the Demarcation of the Land Boundary between India and Bangladesh and Related Matters A USD 1 Billion credit line was offered by India to Bangladesh in 2010, the largest single time credit line offered by India to any country. This goes on to show India’s commitment towards resolving economic development issue in Bangladesh. Bilateral FTA India has proposed a bilateral Free Trade Agreement with Bangaldesh and it is under Bangladesh’s consideration. Some of the advantages of having it would be that Bangladesh’s exports would increase by 182% and India’s exports by 134% 1) It would make unilateral trade concessions much more stable 2) Assured access to Indian Market 3) Greater foreign capital flow 4) Improve overall competitiveness of the economy and allow for better division of labour etc. (Dubey, 2013) Both the countries would gain by opening up trade. India would inturn be helping the north eastern economy in helping Bangladesh’s economy grow. Some key problems that remain are non tariff barriers, increasing bureaucracy, inefficient customs and bad trade facilitation. The proposed idea is that trade not only include goods but also be prevalent in the field of services, investments, technology and finance; all this keeping regional cooperation in mind.
  62. 62. India-Nepal India and Nepal have had close relations since ancient times due to geographic proximities and other common religious, cultural and linguistic factors. In terms of bilateral relations, India is Nepal’s largest trade partner and accounts for almost two third of their trade; whereas in terms of trade intensity with India, Nepal is second only to Bhutan. At the end of 2012, bilateral trade between the two countries stood at Rs.21812.8 crores which accounted for 65.1% of Nepal’s external trade. India’s exports amounted to NPR 360 Billion and imports amounted to NPR 52 Billion. Exports from Nepal include the following materials, edible fruits, spics, coffee, residues, soaps, vegetable textile, footwear, iron and steel, copper and articles, aluminium etc. This export basket contains mainly low value products and shows how Nepal hasn’t been able to diversify production. As of now, Nepal is close to exhausting its supply capacity but there exists great potential for intra – industry trade. Some critical barriers to the growth are – (Adhikari, 2013) - Non tariff barriers: Informal payments have to be made to Indian customs due to unpredictable use of NTM’s. Moreover, the customs doesn’t accept test reports for foods by Nepalese labs. Thus, they have either got a certification from the Bureau of Indian Standards or get their product tested from an Indian laboratory. - Para tariff barriers: Additional tariffs like the special additional duty, the education cess, countervailing duty etc coupled with unpredictability on the imposition of such tariffs. - Transport hassles: Nepalese trucks are not allowed beyond Indian border while it is not the same for Indian trucks in Nepal. Moreover, due to this the goods have to be transhipped at the borders to Indian trucks. Indo-Nepal trade treaty The Indo Nepal Trade treat was last signed in 1996 and allowed duty free access of agricultural goods for both markets and for industrial products, India allowed duty free access to almost all good barring a few exceptions. The treaty saw a revision in 2002 where rules regarding origin criteria and
  63. 63. quantitative restrictions were places on some items. It was again renewed in 2007 and then in 2009 when it underwent a few changes including, extension of duration, technical assistance commitment, addition of items to the duty free list and annulment of duty refund procedure etc. (Adhikari, 2013) The problem with such treaties were that they covered only goods, there was fast track settlement of disputes, no promise for mutual recognition were in place and the fact that they needed to be periodically renewed thus placing Nepal in a vulnerable position. Therefore, in conclusion though the bilateral relation seems amicable, India being the larger economy should show some magnanimity. While Nepal needs to strengthen its supply side, the treaties need to renewed based on some of the on ground problems affecting both the countries. Also, these treaties should be implemented with greater vigour and care should be taken to overlook other discriminatory practices. The import-export ratio at present stands at 7:1, not a very favourable figure but Nepal’s working at developing faster. Another area of economic development identified is the exploitation of water resources. Although, India also remains Nepal’s biggest foreign investment source and the investments amount to around Rs.2175.5 crores. (Bhattarai, 2013)
  64. 64. India-Myanmar India started taking interest in bilateral trade with Myanmar after the Look East Policy that was signed off in 1990. Myanmar is of extreme importance strategically as it is the only Gateway to the ASEAN markets for India. The India Myanmar bilateral trade relation has seen exponential growth in recent years. India is Myanmar’s fourth largest trade partner and the second largest export market. Some statistics regarding the same are: (India Myanmar Relations, 2013) - Bilateral trade has increased from USD 12.4 Million (1980-81) to USD 1.92 Billion in 2012-13 - India’s exports to Myanmar include pharmaceuticals, primary steel, semi finished steel, cotton yarn, cement, motorcycles, cement soyabean meal etc. and have reached USD 544 Million - India’s imports from Myanmar include mainly forest based products, pulses and beans, plywood, ammonia, human hair etc. and stands at USD 1.4 Billion at present Even though India and Myanmar share a long border but not much trade happens at the border. The two countries signed the border trade agreement back in 1994 and have been upgrading the list of items allowed ever since reaching around 62 in 2012. Trade mostly takes place mainly through the ocean. Some problems with border trade include informal trade, smuggling, political problems, lack of infrastructure, anomaly in exchange rates etc. Border trade now stands at USD 36.2 Million. Even though the Trade Complimentarily Index is high showing good prospects of bilateral trade, the overall trade intensity has been going down predicting a downward trend. Some agreements signed between the two countries for better bilateral trade relations include the Bilateral Investment Promotion Agreement (BIPA, 2008), Double Taxation Avoidance Agreement (DTAA, 2008), India- ASEAN trade in Goods Agreement (2009). There was also a Joint Trade Committee (JTC) set up in 2003 to further help the bilateral relation between the two countries. (De, 2013)
  65. 65. Recently, India and Myanmar have set a bilateral trade target of USD 3 Billion by 2015. The two countries hope to cooperate in fields like textiles, infrastructure, oil etc. Some of the present infrastructure projects between the two countries include the India-Myanmar Shipping Services, Myanmar Air Services, India-Myanmar Oil and Gas pipeline. (Sharma, 2013)
  66. 66. India-Bhutan India and Bhutan have shared a relationship of mutual trust and understanding. This is even seen in the economic relationship shared between both the nations with a lot of importance given to hydro electric power. Some statistics regarding their bilateral trade are – (India Bhutan Trade Relation, 2013) - Bilateral trade reached INR 56.24 Billion in 2011 - Exports stood at INR 35.2 Billion in 2011 and included petrol, mineral products, vegetables, spices, nuts, chemicals, rubber etc. - Imports from Bhutan stood at INR 26.3 Billion and included hydroelectric power, alcohol, chemical, cement, timber etc. India is Bhutan’s largest trade partner and there exists an India-Bhutan Trade and Commerce Agreement that was initially signed in 1972. This was renewed in 2006 and provides duty free transit for merchandise from Bhutan from sixteen entry points. Apart from this, the India-Bhutan Friendship Treaty was signed in 2007 and promises better bilateral trade relation between the two countries with free full cooperation from governments of both the countries. Bhutan is also looking for more direct investment from India and is doing its bit to create a conducive environment for such investments by permitting Indian Rupee and allowing them to hold majority shares in the company. The current trade of USD 400 million has also been termed below potential as Indian investors can take advantage of the Greenfield projects in Bhutan. Furthermore, Hydroelectric, Information technology, infrastructure and manufacturing have been identified as areas where both the countries can mutually benefit. (Bhutan PM for strengthening bilateral trade with India, 2013)

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