Doing more trade within Asia makes economic sense
- Asia is increasingly becoming the center of the world economy.
- By 2040, the region could account for more than half of the global GDP and about 40 % of global consumption.
- Total merchandise trade between South Asia and East Asia grew at 10% annually between 1990 and 2018 to $332 billion in 2018.
- This could reach $500 billion looking ahead.
- The handful of free trade agreements (FTAs) linking economies in South Asia with East Asia may rise to 30 by 2030.
- South Asia-East Asia trade is linked to India’s trade re-aligning towards East Asia through its ‘Look East’ and ‘Act East’ policies.
Importance of Enhanced Inter-Asian Trade
- After many crises like COVID-19 and the Ukraine-Russia war, more trade will help in chasing recovery faster than other world markets.
- With a business culture fuelled by technology and innovation, small companies and start-ups are core to future growth in Asia.
- 40% of the world’s “unicorns” are from Asia.
- Unicorns: start-ups worth more than US$1 billion
- It can tap new growth opportunities by exploring fresh possibilities closer to home.
- Asia could reach 50% of global GDP by 2040 and drive 40% of the world’s consumption by properly utilizing the Asian market.
Looking ahead
- Focus on Regional Trade Integration across Asia.
- It will help in gradually reducing barriers to goods and services trade.
- Trade opening should be calibrated with tax reforms.
- Because trade taxes account for much of government revenue.
- Make adjustments in financing to losing sectors to reallocate factors of production.
- Re-training of workers to promote gains from trade and mitigate income inequality.
- Improve the performance of special economic zones (SEZs) and invest in services SEZs to facilitate industrial clustering and exports.
- South Asia has over 600 SEZs in operation
- Example: in Kochi (India), Mirsarai (Bangladesh), and Hambantota (Sri Lanka).
- Ways to improve SEZs
- Ensuring macroeconomic and political stability
- Adopting good practice regulatory policies toward investors
- Providing reliable electricity and 5G broadband cellular technology
- Upgrading worker skills.
- Use Regional Comprehensive Economic Partnership (RCEP) to provide for regional rules-based trade to insure against rising protectionism.
- Larger economies should facilitate gains from trade with smaller economies.
- It will help to mitigate a backlash against regionalization
- Improve tariff preference use by better-preparing businesses in navigating the complex rules in FTAs
- Reinvented trade-focused Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)
- It will help to facilitate stronger trade ties and support the interests of smaller members.
Asia is the world’s largest regional economy and, as its economies integrate further, it has the potential to fuel and shape the next phase of globalization. Establishing good relations with other Asian counties and expanding India’s trade relations can give an excellent boost to India’s economy as well as it can help to tackle many more international problems.
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