Improved transport connectivity in South Asia must for boosting intra-regional and inter-regional trade

Better connectivity in this region would facilitate the establishment of trade linkages with other regions through platforms such as the BIMSTEC, SAARC, and ASEAN, writes Partha Pratim Mitra for South Asia Monitor

Partha Pratim Mitra Jul 23, 2021
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Improved transport connectivity in South Asia

Economic analysts over the years have pointed out that growth rates in South Asia have hidden the underlying regional economic rigidities that lead to slow growth in the medium term. One such major economic rigidity has been the phenomenon of South Asia remaining one of the least economically integrated regions, with intra-regional trade accounting for only 5 percent of the region’s total trade. The corresponding figures are 50 percent for East Asia and the Pacific and 22 percent for Sub-Saharan Africa.

Some important barriers coming in the way of low regional integration have been non-transparent and protective tariffs, non-tariff barriers, and high costs of connectivity. These barriers have combined to deny South Asian economies significant growth gains from their trading partners within the region. (World Bank, A Glass Half Full, The Promise of Regional Trade in South Asia, 2018,https://openknowledge.worldbank.org/bitstream/handle/10986/30246/978146481294P )

Transport connectivity is one of the basic requirements to strengthen regional cooperation and integration to accelerate economic growth and social development. A well-established transport network brings out the benefits of a free trade area, including the promotion of trade and investment, which also facilitates the growth of other sectors such as tourism, people-to-people contact, and cultural exchange.

This is the reason transport and communication have been made one of the foundations of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), a Dhaka-headquartered regional multilateral organization established in 1997 to facilitate accelerated growth by utilizing regional resources and geographical advantages of member countries.

BIMSTEC shortcomings

Nearly twenty-five years have passed since the formation of BIMSTEC, but gaps do exist in transport connectivity in the Bay of Bengal region which comes in the way of the development of regional cooperation and integration. The Bay of Bengal, which is the world’s largest bay, makes the region a natural link to connect South Asia and Southeast Asia.

Five member states from South Asia — Bangladesh, Bhutan, India, Nepal, and Sri Lanka, and two from Southeast Asia —Myanmar and Thailand, constitute BIMSTEC. It also serves as a forum for intra-regional cooperation between the member states of the South Asian Association for Regional Cooperation (SAARC) and the Association of Southeast Asian Nations (ASEAN).

Although the BIMSTEC countries have been able to achieve an average annual economic growth rate of about 6 percent in recent years, the Bay of Bengal region is less developed and less integrated as compared to other regions. Representing almost 1.7 billion people who constitute over 20 percent of the world population, the USD 3 trillion BIMSTEC economy accounted for only about 4 percent of global GDP, and the entire BIMSTEC trade constituted only about 3.7 percent of the global total in 2016. Moreover, intra-regional trade — an important indicator to gauge the level of regional cooperation and integration — was only 6.16 percent for BIMSTEC in 2019, compared to 22.88 percent for ASEAN in the same year (see the following table). ( Li Dongxiang, Building Seamless Transport Connectivity in the Bay of Bengal Region, 12 April 2021https://development.Asia/insight/building-seamless-transport-connectivity-bay-Bengal-region)

Trade in ASEAN, BIMSTEC, and SAARC (USD million)

Trade in ASEAN, BIMSTEC, and SAARC (USD million)

ASEAN = Association of Southeast Asian Nations, BIMSTEC = Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, SAARC = South Asian Association for Regional Cooperation.
Source: International Monetary Fund’s Direction of Trade Statistics (IMF DOTS).QUOTED FROM Li DongxiangBuilding Seamless Transport Connectivity in the Bay of Bengal Region, 12 April 2021https://development.asia/insight/building-seamless-transport-connectivity-bay-bengal-region

India-Bangladesh trade

India and Bangladesh constitute two important countries of the BIMSTEC economy. Estimates show that It is more costly for Bangladesh and India to trade with each other than for either of them to trade with Germany. As a result, bilateral trade represents only an insignificant proportion of the two countries’ trade with each other. The East Asian and Sub-Saharan African economies have a much higher proportion of intra-regional trade which accounts for 50 percent and 22 percent of total trade, respectively.  

High tariffs and non-tariff barriers are some of the problems facing trade between India and Bangladesh. Problems also exist in transport and trade infrastructure, besides policy and regulatory barriers.

Lack of transport integration between Bangladesh and India implies that Indian trucks are not permitted to easily transit through Bangladesh. As a result, India’s Northeastern states are connected with the rest of India only through the Siliguri (West Bengal) corridor, a 27-kilometer wide tract of land commonly known in the region as the “chicken’s neck”. The transit restriction leads to long and cost-intensive routes between Northeast India and the rest of the country and the world.

Traditionally, the districts between the western borders of Bangladesh with India and the Jamuna River that flows through Bangladesh have lagged behind the eastern parts of Bangladesh, largely because of the limited connectivity resulting in restricted market access for the products of this region. (Herrera Dappe, Matias; Kunaka, Charles. 2021. Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia. International Development in Focus; Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/34916 License: CC BY 3.0 IGO.https://openknowledge.worldbank.org/handle/10986/34916)

Given the constraints of road connectivity in the region, Bangladesh has taken major steps to upgrade the railway network of the country. As part of the 30 years revised master plan (2016-2045) of Bangladesh Railways, Cox’s Bazar, Mongla Port, Tungipara, Barisal, Chattogram Hill Tracts, which cover much of the southern and eastern parts of Bangladesh and other regions of the country, will be brought under the railway network. The plan is in keeping with the aspirations of Bangladesh, having graduated to become a middle-income nation, to take the next concerted steps that will make the country more prosperous.

Under the master plan, 230 projects will be implemented in six phases at a cost of Bangladesh Taka 553,662 crore – about the size of the entire national budget passed recently for the fiscal year 2021-22.

Projects have also been taken up to establish the Padma Bridge Rail Link, to link up the Trans-Asian Railway and Regional Railway Network, so that important cities like Dhaka, Chattogram, Rangpur, Dinajpur, Sylhet, get connected through the introduction of improved commuter train services.

The Trans-Asian Railway network, which was initiated in the 1960s, comprises 114,000 km rail routes of international importance. It aims to establish efficient rail transport services for goods and passengers within the ESCAP (Economic and Social Commission for Asia and the Pacific) region and between Asia and Europe (Bangladesh Rail Master Planhttps://www.maritimegateway.com/bangladesh-rail-master-plan/,july 18,2021)

India-Nepal trade linkages

Nepal is also an important part of the BIMSTEC framework. The second amendment to the Railway Services Agreement (RSA) between Nepal and India took place recently. RSA is a bilateral arrangement that governs and facilitates Nepal’s transit trade-related issues with India. The recent RSA amendment is a breakthrough as it helps open up business opportunities to a wider section of stakeholders. Any authorized cargo train operator (ACTO) from India, be it from the public or the private sector, can now carry cargo from Nepal.

Similar business opportunities also open up for any authorized operators from Nepal intending to engage in the evacuation of cargo belonging to Nepal to and from Indian seaports. The amendment is likely to also facilitate railways to carry all types of cargo in any rolling stock. The new provision includes container, reefer container, break-bulk, bulk, bagged cargo, liquid or oil cargo, automobile traffic, and parcel traffic. Likewise, the provision consists of an array of rolling stocks, including flat wagons, covered wagons, open wagons, box wagons, tank wagons and parcel vans.

However, some issues are yet to be resolved. Under the present arrangement, Nepal-bound cargo could be taken by rail in only certain segments such as from Kolkata, Haldia and Visakhapatnam to Birgunj-Raxaul near the Indo-Nepal border. The present agreement excludes other border points such as Biratnagar-Jogbani, Bhairahawa-Nautanwa-Belahiya, Nepalgunj-Rupaidiha, and Kakarvitta-Panitanki. Bhairahawa and Biratnagar are likely to be opened following the amendment in the Treaty of Transit between the two countries.

The prospects for rapid development of trade and industrialization would improve if direct rail connectivity is established with Indian seaports and different parts of Nepal.

The extension of the rail network to include more segments would facilitate the linkage between the flow of raw materials and production for export markets by Nepal through India. It would also establish a strong foundation for Indo-Nepalese economic and trade cooperation which is so critical for the development of the region.

During the commerce secretary-level meeting in 2018 between the two countries, both sides agreed to do a comprehensive review of transit-related treaties taking into consideration Nepal’s transit needs. More work needs to be done in this direction.(Streamlining Nepal’s trade competitiveness
https://www.maritimegateway.com/streamlining-nepals-trade-competitivenessJuly 19, 2021.)

Easing supply chain bottlenecks 

The development of transport connectivity and linkages for ensuring a robust and efficient transport infrastructure is a prerequisite for greater economic cooperation among the countries of South Asia. They help in creating opportunities for more intra-regional trade and easing supply chain bottlenecks. These bottlenecks have emerged as important stumbling blocks in the pandemic affecting millions of livelihoods that are dependent on trade and commerce in the South Asian region.

Better connectivity in this region would facilitate the establishment of trade linkages with other regions through platforms such as the BIMSTEC, SAARC, and ASEAN, thereby helping South Asia overcome traditional regional rigidities which exist in the form of the low economic integration of the region with the world.

(The writer is a retired Indian Economic Service officer who worked in the labor ministry. He can be contacted at ppmitra56@gmail.com)