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South Asia Regional Integration-Challenges and Prospects.....2
While India’s Economy has turned the Corner,Wider Reforms
are Needed to Boost Economic Growth:TheWorld Bank’s India
South Asia, now the fastest-growing region in the world,
could take greater advantage of cheap oil to reform
May-June 2015, Volume 3, Issue 5
Message from Mr Chandrajit Banerjee, Director General, CII
South Asia has positioned itself as a strong consumer market base with a quarter of
the world’s middle class consumers residing in the region. It has the largest working-age
population; right culture to foster entrepreneurship and a dominating service sector, and
geographical proximity of the member countries. More importantly, South Asia has the
right combination of resources to boost agriculture, industry and investment.
On the other hand, the core challenges that South Asian economies share are well known
– poverty, poor per capita income, dependence on low-productivity agriculture, low levels of industrialization,
weak export performance, insufficient job creation, and poor performance in crucial social sectors among
It is a well-established fact that countries individually cannot overcome these formidable challenges. Integration
through increased trade and investment within the region and with the outside world will provide the
economies of the region access to new markets to sell its products and exchange high-tech and low-cost
goods, investments and innovative technology to improve and enhance productivity. Adopting of right mix of
internal and cross border economic policy reforms, physical regional connectivity are some of the measures
that can bring a measurable bent in poverty and promote development in the region.
This edition of the Multilateral Newsletter attempts to capture some of these insights as well as cover key
happenings from the World Bank, Asian Development Bank (ADB), UNCTAD and OECD.
Asia Must Lift Productivity to Improve Growth andWell Being......6
UN agencies strengthen cooperation for trade facilitation
Low oil prices and monetary easing triggering modest acceleration
of global recovery..................................................................9
2 Multilateral Newsletter
Since early 2000, the pace and scope of globalization has been unprecedented. Integral to the expansion of
global trade and investment flows has been the rise of dynamic South- a new breed of dynamically growing
developing countries taking a more significant place in world trade and investment. With consistent GDP growth
rate of 5-6% over the past couples South Asia is one of the fastest growing regions of the world. The eight
countries that constitute the South Asia-Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri
Lanka are well connected by air, water and land within the region as well as with the rest of the world carries
an immense potential to be the frontrunner of growth and prosperity in the 21st century.
World Bank’s 2015 growth forecast provides a positive outlook for major South Asian economies. According to
the report, India will grow at 6.2% in 2015, 6.8% in 2016 and 7% in 2017 respectively. Bhutan is expected to
grow at 7.9%, 8.4%, and 8.6% in 2015, 2016 and 2017 respectively while Bangladesh will grow at 6.4%, 6.8%
and 7% in 2015, 2016 and 2017 respectively.
South Asia has positioned itself as a strong consumer market base with a quarter of the world’s middle class
consumers residing in the region. It has the largest working-age population; right culture to foster entrepreneurship
and a dominating service sector, and geographical proximity of the member countries. Countries share common
geological history, climate, culture and political system. More importantly, South Asia has the right combination
of resources to boost agriculture, industry and investment. A number of factors have driven and supported the
expansion of trade in the South Asia region; these factors include the substantial increase in demand for natural
resources, new markets particularly for exports of manufactured goods and increased access to market information
network from rapidly growing developing countries in Asia; growing interest across the South to integrate their
economies through new bilateral, regional or interregional trade agreements and increased access
Regional Integration in the form of economic cooperation and political harmony are mutually reinforcing. The
establishment of SAARC in South Asia aimed to bring stability to South Asia by enhancing regional cooperation.
SAARC was the first formal initiative that sought to bring the countries of South Asia to the same platform
with the aim of promoting the welfare and quality of life of its people through accelerated economic growth,
social progress and cultural development in the region. In addition, SAARC aims to strengthen cooperation of
member countries in international forums on matters of common interests and to cooperate with international
and regional organizations with similar aims and purposes.
The core challenges that South Asian economies share are well known – poverty, poor per capita income,
dependence on low-productivity agriculture, low levels of industrialization, weak export performance, insufficient
job creation, and poor performance in crucial social sectors among many others. It is at the bottom of the
pyramid in terms of trade, investment, finance, standards of living, and in all possible economic parameters. The
tariff reductions undertaken within the South Asian Free Trade Agreement (SAFTA) has not been quite effective
as the items that were offered concessions were not of trade interest of the member countries.
Economic growth can be a feasible solution to these common challenges. Growth has already lifted millions
out of poverty in the region, raised per capita income, and led to rapid social sector improvement. The average
poverty rate is estimated to fall down to around 23.2% in the region in 2015 from 39.4% in 2005. Countries like
Maldives and Sri Lanka have also made outstanding success in the areas of human development.
According to World Economic Situation and Prospects 2015 by the United Nations, the region’s growth is set
to steadily pick up from an estimated 4.9% in 2014 to 5.4% in 2015 and 5.7% in 2016. While the recovery will
be led by India, which accounts for about 70% of regional output, other countries like Bangladesh and Pakistan
South Asia Regional Integration-Challenges
too will witness robust growth. Despite weakening external demand, growth is expected to be underpinned by
domestic consumption and investment.
It is a well-established fact that countries individually cannot overcome these formidable challenges. Integration
through increased trade and investment within the region and with the outside world will provide the economies
of the region access to new markets to sell its products and exchange high-tech and low-cost goods, investments
and innovative technology to improve and enhance productivity.
Though the issues cannot be completely rooted out overnight, even marginal progress in all these areas can have
significant impact to the existing economic relations. However, traditional approach is not going to transform
things in the region as many similar attempts have been made before without much success.
South Asia needs a whole new approach - a private sector initiative, investment-led approach and cross-border
services sector trade to develop regional value chains through increased trade and investment. The new approach
will nurture and build a shared eco-system to foster people-to-people contact, develop government and policy
link, and support a structured Public-Private-Dialogue (PPD).
Investment can restore trade balance and enable smaller economies to generate employment and economic
growth. Investment can be a game-changer as trade is often stressed out due to balance deficits. Creating RVCs
through investment will make countries inter-dependent and it will bring trade balance as well. Encouraging
intra-regional investment by developing pro-investment climate in the region can also be an important force of
greater regional economic integration.
Regional Value Chains and investment go hand in hand. There was not much intra-regional investment in ASEAN.
The ASEAN regional value chains attracted investment from the outside. While investment potential within the
region can reach $100 billion in short run by lowering tariffs under SAFTA, South Asia can also boost investments
from outside. The larger economies need to play a bigger role to boost investment as they have mature and
strong corporate sector with large and long-term investment capacity.
This can be achieved by adopting the right mix of internal and cross border economic policy reforms, physical
regional connectivity and a range of other measures. By putting the right policies in place and by creating these
value chains, South Asia can make a measurable dent in poverty and promote development in the region.
The time is now ripe to unleash the potential of this region. There is a need to promote regional integration
by creating Regional Value Chains (RVCs) in order to boost the region’s share in global trade, investment and
4 Multilateral Newsletter
India’s Government has announced an ambitious development agenda
supported by a three-pronged strategy – promoting fast and durable
economic growth, especially in manufacturing, together with a stable
macroeconomic environment; involving states as active development
partners; and improving the delivery of social benefits and extending
social safety to the elderly and the underprivileged. The World Bank’s
India Development Update, April 2015, says that if this agenda is
successfully implemented, it carries great promise of an acceleration
in economic growth that is also inclusive and sustainable.
The report points out that India’s government has begun to implement
reforms to unlock the country’s investment potential - to improve the
business environment; liberalize FDI; boost both public and private
investment in infrastructure; quickly resolve corporate disputes; simplify
taxation, and lower corporate taxes. States are set to receive more
resources and spending power, and the government has reiterated
its resolve to implement the GST by April, 2016, a move that is
widely expected to meaningfully increase India’s tax to GDP ratio.
New models of delivering benefits through direct transfers to bank
accounts, together with the biometric identification of beneficiaries,
are expected to reduce leakages.
The report adds that a favorable external environment, particularly
the sharp decline in the international prices of oil, metals and food,
has helped to improve the economic outlook significantly. Growth
has accelerated, inflation has declined, the current account deficit
has narrowed, and external reserves have increased. GDP growth (at
market prices) is projected to accelerate to 7.2 percent in FY2015,
compared to 6.9 percent in the previous year and further to 7.5
percent in FY 2015-16.
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While India’s Economy has turned the Corner,
Wider Reforms are Needed to Boost Economic
Growth: The World Bank’s India Update 2015
India’s new government•
has set an ambitious
and commenced the
implementation of reforms to
A favorable external•
the sharp decline in oil
and commodity prices, has
helped the economy to turn
the corner, and improved
the economic outlook
Nevertheless, the pace of•
reforms will need to be
stepped up to bridge the
yawning infrastructure gap,
unlock private investments,
make Indian firms globally
competitive, and strengthen
the balance sheets of public
Driven by a strong expansion in India, coupled with favorable oil prices, economic growth in South Asia is
expected to accelerate. The region is among the greatest global beneficiaries from cheap oil, as all countries
in it are net oil importers. In the last quarter of 2014 South Asia was already the fastest-growing region in the
world, a World Bank report said.
According to the twice-a-year South Asia Economic Focus report, regional growth is projected to steadily increase
from 7 percent in 2015 to 7.6 percent by 2017 through maintaining strong consumption and increasing investment.
Given India’s weight in regional Gross Domestic Product (GDP), the projections reflect to a large extent India’s
expected growth acceleration, driven by business-oriented reforms and improved investor sentiment.
The decline in oil prices has been reflected in the domestic prices of oil products to different extents across the
region. The pass-through exceeded 50 percent for most oil products in Pakistan, but was nil in Bangladesh.
Together with favorable food prices, cheaper oil has contributed to a rapid deceleration of inflation. South
Asia went from having the highest inflation rate among developing regions to having the lowest in barely one
year. In March 2013, the Consumer Price Index (CPI) of the region had increased by 7.3 percent year-on-year,
compared to 1.4 percent in March 2015.
External vulnerabilities have receded, the report shows. Current account balances are strong in most countries.
Capital inflows to India have increased from 1.9 to 3.4 percent of GDP, although more volatile portfolio investments
account now for a greater share of the total. International reserve buffers have been built across the region,
including in Pakistan which is now out of the danger zone.
However, the export performance of the region has disappointed. After a promising rebound last year, exports
are now slowing down. By end 2014, export growth was close to zero across the region.
“The biggest oil price dividend to be cashed in by South Asia is one yet to be earned, but it is not one that will
automatically transit through government or consumer accounts” said World Bank South Asia Chief Economist
Martin Rama. “Cheap oil gives the opportunity to rationalize energy prices, reducing the fiscal burden from
subsidies and contributing to environmental sustainability”, he added.
The report notes that India has already taken encouraging steps to decouple international oil prices from fiscal
deficits and to introduce carbon taxation to address the negative externalities from the use of fossil fuels. The
challenge will be to stay the course in the event of oil price hikes – something that may well happen in the
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South Asia, now the fastest-growing region
in the world, could take greater advantage of
cheap oil to reform energy pricing
6 Multilateral Newsletter
Asia and the Pacific needs to focus on increasing the overall productivity from its investments in physical,
human, and natural capital, said a new annual review from Independent Evaluation at the Asian Development
“A part of boosting productivity is making the most of human resources which therefore is also good for greater
inclusion,” says Vinod Thomas, director general of Independent Evaluation. “Another part is relying on more high
yielding public investments which is good for environmental sustainability and climate friendliness as well.”
The Annual Evaluation Review 2015 notes that in recent years in Asia and elsewhere, growth in overall productivity
has slowed, particularly since the 2008 global financial crisis. As a result there is need for both countries and
ADB to be more strategic in getting the most from their investments.
“An improvement in productivity of physical investments by just two-tenths of one percent in Asia is like adding
$10 billion to those investments,” says Mr. Thomas.
The report notes that expansion in one area of overall productivity—output per worker—has slowed in recent
years in Asia, including in the three largest economies: the People’s Republic of China (PRC), India, and Indonesia
and this could have a negative spillover effect elsewhere in the region. As the PRC rebalances its economy in
favor of consumption over investment, productivity needs to become a bigger driver of growth.
“Stronger results have to be wrung from investments in physical, human, and natural resources through efficiency
and sustainability gains,” said the study’s principal author Walter Kolkma. “Human development is critical for
raising productivity and this means aggressive commitments to education, training and healthcare.”
The report further notes that ADB has seen improvements in development returns from its operations, with the
success rate of completed ADB-supported projects during 2012–2014 rising to 72%. At the same time, continued
attention to project design, sound safeguards, due diligence, and supervision, will help improve outcomes.
Multilateral development banks can help strengthen the pace and quality of growth. Infrastructure finance would
get a boost from the Asian Infrastructure Investment Bank and the New Development Bank of BRICS nations.
The challenge is to link infrastructure investment to inclusive growth objectives and climate change. The latter
has become an urgent priority given the acute vulnerability to the rise in extreme weather events in Asia and
the Pacific. This change is illustrated most recently by the devastation caused by Cyclone Pam in Vanuatu, and
earlier by super typhoon Haiyan that hit the Philippines in 2013, the 2011 floods in Australia and Thailand and
recurring ones in PRC and India.
The report notes that ADB is in an excellent position to help countries put in place infrastructure incorporating
both climate change resilience and inclusion of lower income strata in the growth process. Such an agenda
would dovetail with the planned combination of its concessional Asian Development Fund lending operations
and ordinary capital resources balance sheet. This will allow ADB to increase its annual financing commitments
to countries to up to $20 billion, and if leveraged one to one with cofinancing, up to $40 billion.
Says Thomas: “ADB is uniquely placed to scale up its program in Asia. In part, it can raise the returns to the
projects it finances with continued improvements in their design and delivery. The far bigger shift would be
that ADB’s infrastructure strategy, along with the region’s, targets the growing income inequality and the reality
of runaway climate change..
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Asia Must Lift Productivity to Improve
Growth and Well Being
Three key UN agencies signed a Memorandum of Understanding (MoU) to strengthen their support for developing
countries as they implement the World Trade Organization's Trade Facilitation Agreement (WTO TFA).
Under the terms of the MoU, the International Trade Centre (ITC), the
United Nations Conference on Trade and Development (UNCTAD), and the
United Nations Economic Commission for Europe (UNECE) will leverage
their unique strengths, products and services to provide a coordinated and
integrated programme of support to developing countries implementing
the WTO TFA, also known as the Bali Agreement.
‘The WTO Trade Facilitation Agreement presents a great opportunity for
developing and least developed countries to enhance their participation
in the global economy, expand trade and create employment at the local
level,’ UNCTAD Secretary-General Mukhisa Kituyi said. ‘By strengthening
our collaboration, we are better positioned to help developing countries
realise these potential gains. This is at the core of the work of the United
Nations and the WTO TFA is an excellent catalyst to help achieve this
The three agencies emphasised their longstanding work in the
simplification and harmonization of international trade procedures,
and the opportunity to enhance trade facilitation implementation in
developing countries and least developed countries.
‘Our wide range of UN recommendations, standards and tools in
trade facilitation are freely available to all UN Member States,’ UNECE
Executive Secretary Christian Friis Bach said. "Through this strengthened
cooperation, we will enhance the capacity of countries to cut red tape,
remove regulatory and procedural barriers to trade, and significantly
reduce their cost of doing business."
Cooperation between the agencies will concentrate on helping countries identify, categorise and implement the
measures that they committed to under the WTO TFA.
Actions will focus initially on assisting countries to establish the necessary institutional arrangements for
implementing the agreement – such as setting up national trade facilitation committees – and ensuring that
countries are trained in using the various UN recommendations and tools available for implementing the
measures in the agreement.
UN agencies strengthen cooperation for
trade facilitation implementation
‘Effective trade facilitation is
a win-win scenario for both
trade and governments,’
said Arancha González,
ITC Executive Director.
‘This integrated approach
will greatly strengthen
our capacity to support
the business community
to benefit from the WTO
Agreement. Ensuring that
small and medium-sized
enterprises benefit fully from
the WTO TFA is crucial to
ensuring that the potential
gains from the Agreement
are realized on the ground,
and that they have a real
impact on the cost of doing
business in developing and
least developed countries.
8 Multilateral Newsletter
These include ensuring better and easier access to information for traders; facilitating greater predictability and
reliability of procedures through simplified formalities, documentation and information flows using international
standards; and the adoption of facilities such as single windows for trade – all of this in close collaboration with
the WTO and the donor community.
Specific areas of collaboration include:
Joint missions to assist countries identify trade facilitation needs and approach to implementing the WTO•
Joint development and maintenance of the UN Trade Facilitation Implementation Guide•
Joint publications related to trade facilitation implementation•
Joint maintenance of repositories of Trade Facilitation Committees and related matters•
Collaboration in the development and maintenance of UN Trade Facilitation Recommendations and Standards•
on Trade Facilitation.
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Low oil prices and monetary easing triggering
modest acceleration of global recovery
Low oil prices and monetary easing are boosting growth
in the world’s major economies, but the near-term
pace of expansion remains modest, with abnormally
low inflation and interest rates pointing to risks of
financial instability, according to the OECD’s latest
Interim Economic Assessment.
Strong domestic demand is driving growth in the United
States, which, combined with dollar appreciation, is
adding to demand in the rest of the world. The euro
area should benefit from low oil prices, monetary
stimulus and euro depreciation, which combine to
offer the chance to escape from stagnation.
In Japan, monetary and fiscal stimulus provide the impetus for faster near-term growth, but longer-term challenges
remain. A gradual slowdown in China, towards the new official growth target, is expected to continue. India is
expected to be the fastest-growing major economy over the coming two years, while the outlook is likely to
worsen for many commodity-exporting nations, with Brazil falling into recession.
“Lower oil prices and widespread monetary easing have brought the world economy to a turning point, with the
potential for the acceleration of growth that has been needed in many countries,” said OECD Chief Economist
Catherine L. Mann. “There is no room for complacency, however, as excessive reliance on monetary policy alone
is building-up financial risks, while not yet reviving business investment. A more balanced policy approach is
needed, making full use of fiscal and structural reforms, as well as monetary policy, to ensure sustainable growth
and public finances over the longer term.”
The OECD projects that the US will grow by 3.1 percent this year and by 3 percent in 2016, while the UK is
projected to grow at 2.6 percent in 2015 and 2.5 per cent in 2016. Canadian growth is projected at 2.2 percent
this year and 2.1 percent in 2016, while Japan is projected to grow by 1 percent in 2015 and 1.4 percent in
The euro area is projected to grow at a 1.4 percent rate in 2015 and a 2 percent pace in 2016. Growth prospects
differ widely among the major euro area economies. Germany is forecast to grow by 1.7 percent in 2015 and
2.2 percent in 2016, France by 1.1 percent in 2015 and 1.7 percent in 2016, while Italy will see a 0.6 percent
growth rate in 2015 and 1.3 percent in 2016.
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