Chandigarh
November 9, 2005

Ladies and Gentlemen,

I am happy to be here today for more than one reason. I have fond memories of my association with the Centre for Research in Rural and Industrial Development and my association with each one of you. I am proud of the good work being done by this Centre and compliment Rashpal Malhotraji for the dedication with which he has built this institution. 

I am also very happy to be here today because this Conference is dedicated to the memory of a very revered and respected friend of CRRID, and of all of us, the late Shri P N Haksar. CRRID benefited immensely from his advice and guidance as the first Chairman of its Board of Governors and his role as Editor of the journal Man and Development.

Your Conference is discussing a wide range of issues that reflect the many pre-occupations of Haksarji. He was a remarkable civil servant and diplomat who had a deep understanding of the world as well as of our complex polity. He was a scholar, statesman and a passionate believer in the role of science and technology in transforming India. He was, above all, a truly pan-Indian personality, perhaps one can even say a truly South Asian personality. His deep understanding of the region enabled him to reflect on the complex challenges facing South Asia.

I hope CRRID will devote itself to a comprehensive research project on how we can take forward the process of development and regional cooperation within South Asia. The history of the 20th Century is behind us, and its consequences are with us. We have all come to live with the reality of the new political, economic and social realities of South Asia. Positioned as we are, geographically and economically, India has a pivotal role in the region. This position brings with it both privileges and responsibilities. 

It has often been said that one can choose one's friends but not one's neighbours. That, in itself, is not a satisfactory proposition. One must endeavour to ensure that our neighbours are also our friends. But, as they say, it takes two hands to clap. I do sincerely hope that this region shows the wisdom and foresight required for all of us to work together to reclaim for it the glory that makes us all proud of our inheritance.

I have often said that we have, in South Asia, not just shared boundaries and shared civilisational roots, but also a shared destiny. It is not just our past that binds us together, but our future too. As the two recent natural disasters - the tsunami of last year and the recent earthquake - have proved, even nature has ordained it so.

Given all these links and inter-connections, I do believe we need to invest more time and energy in working together to deal with the great challenges of our time. Be it the challenge of eliminating poverty or the challenge of fighting terrorism. The fight against poverty and terrorism in South Asia is an indivisible fight. These are threats to the life, peace and security of all our peoples and we must deal with them as such. No country can any longer pretend that some one's terrorists could be some one else's freedom fighters. No government can any longer pretend that what happens across the border is not going to hurt it internally. Be it poverty, be it disease, be it natural disasters or be it terrorism, the destiny of South Asia is inter-linked and we must learn to work together to deal with these challenges.

I hope we can all approach the SAARC Summit later this week with this perspective in mind, a perspective of inter-dependency that strengthens our collective security and secures our collective prosperity. I am aware that we in India will be expected to take the lead in many areas. This is the privilege and responsibility I referred to earlier. I do believe that we must work with our neighbours to ensure that all nations benefit from the growth process in the region. Our neighbours must see us as a land of opportunity. Be it in education, in health care, in tourism, in trade and investment opportunities, India has the capacity and the tradition to be welcoming of its neighbours. Provided, of course, that those who visit us come as our friends and our well-wishers and bear no ill-will towards our people and our Nation.

I am happy that the South Asian Free Trade Area, SAFTA, is on the anvil. This SAFTA is the first step in the evolution of SAARC as a regional trade bloc and an economic union. Most of the discussion on SAFTA centers around its favourable effect on intra-regional trade. Regional economic integration, however, is more about finding an engine of growth rather than just for promoting trade. Countries - developed as well as developing - have looked to regional economic integration as a means of strengthening their international competitiveness and as an engine of economic growth in recent years. 

Thus, European countries began with a single Common Market that keeps expanding and has gone as far as to give up their national currencies. North American countries have formed NAFTA and are moving ahead with plans for a larger Free Trade Area of Americas (FTAA). Nearer home in Asia, we have ASEAN that is emerging as an important regional grouping with the implementation of the ASEAN Free Trade Area (AFTA). In fact, ASEAN expedited the implementation of AFTA in the wake of the East Asian Crisis of 1997 and have now set before themselves a goal of creating an ASEAN Economic Community in the coming decades. The ASEAN countries are also getting integrated with the economies of countries in the neighbourhood, namely, Japan, Korea and China and also India, through free trade agreements. 

The new-found interest in such regional arrangements is based not just on trade promotion but on exploiting the potential of efficiency-seeking restructuring of industry on a pan-regional basis. This would have income and efficiency effects and hence could be valuable drivers of growth. The experience of European Union suggests that the formation of the single European market led to a substantial restructuring of industry on a pan-European basis and hence enabled it to exploit economies of scale, scope and specialization. The efficiency-seeking restructuring unleashed by the process of economic integration has helped in convergence of income levels between richer EU members (e.g. Germany) and poorer ones (Spain, Portugal and Greece).

Given the strong trends towards economic integration which go far beyond tariff reductions to gradual economic convergence, any region can ignore the formation of its own scheme of regional integration only at its peril. By removing trade policy barriers, SAFTA would lead to an estimated trebling of intra-regional trade on a conservative estimate. This would make South Asian internal trade more respectable compared to a marginal 4-5 % share as of now. By making it possible to trade directly rather than through third countries, it would also lead to cost savings for the region. 

However, we must see SAFTA as the forerunner of deeper economic integration in the region. The limited experience with trade liberalization that South Asia has had so far in the framework of SAPTA or bilateral FTAs, has already had a beneficial impact. The Indo-Sri Lanka bilateral FTA, for instance, even within a short period of less than three years of implementation, has led to a lot of dynamism in bilateral trade and investment flows. Thus an Indian tyre company set up a large export-oriented tyre plant in Sri Lanka to cater to its growing markets in Pakistan, Middle East and other countries taking advantage of abundant supply of natural rubber in the country. UNCTAD'sThe World Investment Report 2003 has highlighted how Sri Lanka attracted Indian investments of US$ 145 million in a very short period making India the third largest source of investments for the island. Similarly, the India-Nepal FTA of 1996 spurred many Indian companies to shift production of common consumer goods for the north-Indian market to Nepal. As a result, these items emerged as some of the most important items of Nepal's exports to India. 

The other lesson that comes out of recent experiences of regional economic integration in South Asia, as elsewhere, is that the smaller and poorer countries benefit more from RTAs as their trade becomes more balanced. An example is the India-Sri Lanka FTA which has benefited Sri Lanka. This success has prompted Sri Lanka to seek to expand the scope of the India-Sri Lanka FTA to cover investments and services in a comprehensive economic partnership agreement.

Regional economic integration will also make member countries especially the smaller ones more attractive destinations for third country investments by obviating the constraint imposed by a small domestic market. Studies have shown that the opportunity cost of non-cooperation for South Asian countries has been substantial. Regional economic integration in South Asia could generate billions of dollars of new income, employment, trade and could help the region in its fight against poverty.

Thus, SAFTA may help in evolving a horizontal specialization across the region to enable the most optimal utilization of the synergies between member countries for their mutual advantage. SAFTA is a step in the right direction. However, to exploit its full potential we need to complete the process of SAFTA expeditiously, complement it by a SAARC Investment Area and move on to deepen it further by forming a SAARC Customs Union and then gradually to an economic union. 

SAARC could also evolve a forum for annual meetings of economic or industry ministers to facilitate discussion on exploitation of complementarities in their economies for mutual advantage. 

SAARC should also take steps to improve physical connectivity by road, railways, inland waterways and shipping and air links to exploit the advantages of geographical proximity. They could evolve a common SAARC Transport Policy to facilitate movement of goods across the region.

Energy cooperation presents immense potential. To promote regional cooperation in the area of energy a South Asian Energy Dialogue comprising experts, academics, environmentalists, bureaucrats and NGOs could examine the potential for energy cooperation and suggest measures to exploit this potential. These are just some of the ideas that are worth pursuing. There are many more, especially in the sphere of education, health care, tourism and disaster management. 

Institutes like yours must do the required research to work out the costs and benefits of such projects and programmes so that policy makers can take more informed decisions. More importantly, your professional research can help create the required public opinion, and convince skeptics, so that Governments are better empowered in pursuing new initiatives. 

The time has come for a new vision, a new commitment and a new sense of purpose in South Asia and I hope we have the political will and wisdom to seize the moment. I hope your conference will discuss some of these issues freely and frankly, bringing professional opinion to bear on the deliberations. 

Thank you.