South Asia has been the fastest growing region since 1980s in terms of growth in gross domestic product. The region moved from 3 percent GDP growth during 1970s to an average growth of 7.2 percent during 2000s. South Asia is also the region that has collectively seen rising investment to GDP ratio.
Additionally, data between 1960 and 2000 shows a substantial increase in productivity of labour and capital in this region. The change in productivity was in fact higher during these four decades if compared with other East Asian economies including Thailand, Philippines, Malaysia and Indonesia.
It is argued that this rising growth in South Asia has led to reduction in poverty levels seen during 1980s. Taking $1.25 a day definition, poverty headcount ratio declined from 55.6 percent in 1992 to 38.7 percent in 2010. However, if compared with regional neighbours this decline in poverty is certainly not enough. For example, during the same time period China and Indonesia halved their poverty rate. This actually reinforces the argument that growth in South Asia was not as pro-poor as it should have been.
So the question to ask at this point is that why has growth not impacted poverty levels substantially and why growth has been associated with rising inequalities of incomes and opportunities. The most obvious answer will be that sustaining growth (necessary condition for poverty reduction) was difficult in South Asian countries. Second, budget and sectoral reforms have remained incomplete. Third, there has been inadequate attention given to human capital development. All this combined together has kept the population stuck in low wage trap where poor find it difficult to graduate towards decent employment.
One of the reasons for low human capital development (which in fact is an indicator for future productivity) has been the low level of investments made in social sectors in South Asian countries. The governments in this region in fact spend less than sub-Saharan Africa on education and health. There is also a problem of absorption of funds in these sectors. Due to the poor capacity of service delivery machinery (civil service) it is usual to see unspent funds in these sectors at the end of the fiscal year.
It is also important to discuss the project-based approach towards development (instead of reforms-based approach) in these countries. The public sector is still in brick and mortar mode where the emphasis is on building more infrastructure assets. This is despite the fact that the governments lack financing even to maintain the existing infrastructure properly. So while the hardware is in place the main issue of management and co-ordination of existing infrastructure (software) is lacking. We have also seen that now with volatility in global commodity prices, it has been difficult for developing countries to finance infrastructure through indigenous resources. In South Asia, we also saw that investment modes such as public-private partnerships and build, operate and own - have not met the anticipated success. Pakistan's New Growth Framework formulated at the Planning Commission and India's report on Urban growth by McKinsey & Company identify that the key difficulties in making alternate infrastructure financing modes a success, was the badly regulated markets in South Asia. When it comes to real sector growth, South Asian countries (which still follow the colonial legal framework) need to be careful in what to regulate and how to regulate? The current global governance indicators show the heavy footprint of government in productive sectors coupled with lack of property rights.
The Saarc leadership is due to meet in November this year in Maldives. They urgently need to address two key prospects: a) search for South Asia growth model and b) regional approach to fighting poverty.
In case of the former the efforts have to start with highlighting success stories from South Asia. There is substantial stock of knowledge which South Asian countries should exchange amongst each other. In case of Pakistan we see the success of community-led programmes such as Orangi Pilot Project, Aga Khan Rural Support Programme. In Bangladesh we see how the non-governmental sector helped in putting together a national social protection framework and in Sri Lanka we see successful post-conflict resurrection of growth and productivity. Similar case studies are available across South Asia.
Second, South Asia needs to carefully study the projected changes in economies of China and East Asia. There is still very little evidence if growth in China has helped South Asian exports. For example while Indian exports to China have substantially grown recently, however little success has been seen in case of other South Asian partners.
Third, political leaders across South Asia need to be informed about the costs of non-co-operation. These costs now are not only limited to loss of potential merchandise trade. The current sluggish stance by political leadership towards regionalism is in fact leading to loss of co-operation in sectors such as energy, water, agriculture and climate change in South Asia. India now part of G-20 has not advocated interests of South Asia as a whole. We also see Pakistan and Bangladesh protesting with EU for possible preferential treatment with India. It would have been more appreciable if such issues are first thrashed out regionally instead of South Asian countries standing in conflict with each other on a foreign turf.
Fourth, most economies in South Asia have experienced a pre-mature structural transformation towards services sector. However, we know that services-led growth is not sustainable if services cannot be traded. It is hoped that political leadership will work sincerely towards South Asian framework on trade in services. Some issues in intra-regional services' trade are very basic. For example, the visa issues add to substantial transaction costs incurred by business community.
Fifth, food crises are a recurrent phenomenon in South Asia. A collective solution is required towards raising agricultural productivity, reinvigorating SAARC food bank and buffer stocks. This is in fact also linked with the overall climate change agenda, which needs to be pushed at the regional level. Ignoring environmental threats is now costing the region in the form of floods, droughts and related natural calamities.
Sixth, any South Asian (inclusive) growth model will remain incomplete without a regional approach towards poverty reduction. This approach will require three key ingredients. First is the recognition of trade-poverty nexus. The Growth Commission headed by Michael Spence showed that post-World War-II period, there were 13 countries that sustained above 7 percent growth rate across two decade or more which in turn brought down poverty. There was one commonality in these 13 countries. They opened up their economies for import and export. Second is the connectivity between people and places. The dream of seamless border and an Asian highway network across South Asia will remain incomplete if people are constrained to move and interact across borders. Third is about empowering and engaging youth across South Asia. Most of these economies are experiencing a youth bulge. If the young population is not provided education with opportunities and engaged properly in policy and practice stream, it is feared that their energies may end up with social evils. Civil society organisations need to play an active role in giving youth and other excluded segments a voice on the Saarc platforms. Open interaction between youth from South Asia should be encouraged. Initiatives such as South Asia University should help in eliminating negative pre-conceived notions.
(The writer is a Research Fellow and Head of Economic Growth Unit at Sustainable Development Policy Institute. Email: [email protected])
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