SAARC bites

In the deep waters of regional economic cooperation, SAARC is very small fish. Those despairing whether its size would ever matter may see ...

In the deep waters of regional economic cooperation, SAARC is very small fish. Those despairing whether its size would ever matter may see 8212; in the Tatas8217;s three billion dollar investment proposal for Bangladesh 8212; the first promise of a growth pill. Indian FDI can take care of a major problem in SAARC economic cooperation. The fear of large trade deficits has come in the way of freer trade with India for many fellow SAARC members. The fear may be economically illogical 8212; free trade benefits all participants 8212; but SAARC members are hardly the only countries in the world to ignore economics when it comes to trade. Politicians8217; grievances about a widening of trade deficit can be addressed by Indian FDI because the latter will add to the host country8217;s volume and value of exports. This has happened with Sri Lanka, and in a lesser8212;and more messy way8212;with Nepal. This can happen with Bangladesh and Pakistan. But FDI can8217;t cure the fear of trade if SAARC members fear FDI, too. And here, India8217;s case for delivering a sermon to its South Asian neighbours is not as strong as South Block may think.

The world8217;s second fastest growing economy is itself afraid of FDI. This, despite more than a decade of reforms. And despite the serial proof that FDI has encouraged domestic economic activity, not killed it. Dhaka can well tell Delhi not to lecture it on the benefits of foreign investment, when tortuous negotiations have to precede a simple matter like hiking FDI limits on telecom in India. Islamabad, if it wants, can recall amusing stories about how FDI in the retail sector has been a victim of a supposed traders8217; lobby. Every bit of resistance Dhaka staged over the Tata investment proposal 8212; over clearances, over supplies of the chief raw material, over incentives 8212; would find an echo in the manner Delhi has chosen to handle dozens of FDI projects. India has been there, done that.

Bangladesh shouldn8217;t go there. Neither should Pakistan, or any other SAARC member. But they can hardly ignore the point that India still doesn8217;t have a simple, transparent policy for FDI: make government clearances redundant for all sectors, barring those figuring in a very small, publicly known negative list. As the Tatas struggles with Dhaka8217;s obstructionism, many in India will recall what Delhi did to the Tata-Singapore Airlines proposal. The worrying thing is Dhaka may remember it, too.