Despite strong linkages in the past during the colonial period and strong ethnic and traditional ties, South Asian countries have become increasingly more diverse since their independence. While they are geographically closely connected, this does not mean that they are well integrated. Countries in the region have vastly different sizes, populations, and topography, and there are significant differences in their economies and income per capita. The conditions, however, might be ripe for a boost in regional integration. Implementing highly visible and symbolic transport connectivity projects, which have long been considered as dream realizations, would trigger the acceleration of regional integration for the benefit of all.
The underlying hypothesis of any transport connectivity investment is that, with improved infrastructures and easier border-crossing procedures, goods and passenger traffic by land will grow. Empirical studies have confirmed that trade costs and infrastructure quality are strongly correlated with trade volumes and gross domestic product. See the contributions of Limao and Veneables (2001), De (2007), Edmonds and Fujimura (2008), Banik and Gilbert (2010), Stone and Strut (2010), Brooks (2010), Strut and Hertel (2012), and perhaps more importantly, the recent ADBI–ADB (2015) book, Connecting South Asia and Southeast Asia.
India is a dominant force and pivot in South Asia, being a neighbor to all the other countries, except Afghanistan. With a gross domestic product of $2 trillion, India’s economy accounts for 80% of the whole of South Asia, 75% of the population, and 80% of the merchandise trade in the region (IMF 2014, 2015). Gross national income per capita has been increasing steadily in all countries, but remains at the lower end for most, especially for Afghanistan, Bangladesh, and Nepal.
With all the differences outlined above and with the central role played by India, has regional integration been able to progress? One indicator of regional integration is intraregional trade intensity, measured by the percentage of intraregional trade over total trade. South Asia’s intraregional trade is estimated to be around 5% and has remained constant over the years, being the lowest among economic grouping blocs.1 The average figure could be misleading as it hides the high dependency of landlocked countries on regional trade. This does not mean that intraregional trade has not increased in the last 15 years. It has in fact increased significantly, but trade growth with external partners, under better a comparative advantage, has been growing faster.
Intraregional trade intensity is only one measure of regional integration. Looking at other possible indicators, however, presents mixed results. Regional integration implies building a common market with no tariffs or trade barriers. Despite the overall trend toward duty reductions and regional preferential agreements through a series of trade agreements, tariffs and non-trade barriers are estimated to be twice as high as tariffs in the rest of the world. Overall trade costs, on the other hand, are reputed to be far higher than in the rest of Asia.
Against this mixed performance in regional integration, Wignaraja (2016) points out that there are now new factors showing positive signs for a more rapid integration process. Among these positive factors are the existence of an untapped market, the forecast of high economic growth, and a favorable political environment and demography.
Transport connectivity is somewhat the driving force and the necessary condition for regional integration. This is especially true for landlocked countries, like Nepal, Bhutan, and Afghanistan. And despite progress, road and rail regional integration remains deficient. This is due to a combination of factors, such as heavy congestion, bad road and track conditions, or sometimes simply a lack of government priority. Therefore, potential demand for connectivity related projects is huge and almost never ending, and the projects command high costs. For instance, an ADBI/ADB (2015) study found that $73 billion of infrastructure projects were required to link South Asia to Southeast Asia, and under the ADB South Asia Subregional Economic Cooperation (SASEC) 2025 program, the cost of regional integration transport projects may be between $37 and $40 billion.
Improving transport connectivity for domestic, intraregional, and interregional cooperation and integration remains a long-term challenge. However, its acceleration and the development of a greater sense of common belonging could be achieved by concentrating first on the realization of a few highly visible and symbolic transport projects. These projects are not new but they have not so far received legitimate priority. They are expensive dream projects and are sometimes contentious, but all of them are key pivot realizations that could boost regional integration and bring long-term economic and strategic benefits.
The first one consists in establishing a land connection (bridge or tunnel) between India and Sri Lanka through the Palk Strait. Until 1964 there was a railway roll-on/roll-off service between Talaimannar and Dhanushkodi in Tamil Nadu. The port facility was destroyed by a typhoon, but up to 1982, a passenger ferry was operating between Talaimannar (Sri Lanka) and Rameswaram (India). The service was terminated when the internal conflict started in Sri Lanka. With the end of the civil disturbances in northern Sri Lanka and the availability of funds to finance such a challenging dream infrastructure construction, the project has received the support of the two governments and should be implemented for an approximate cost of $5.2 billion.2 Sri Lanka’s imports from India are now $4 billion with 40% coming from Tamil Nadu with exports to India being $735 million. The economics of the project might be questioned by some but would be successfully rebutted, and the realization of this dream project would become a landmark of South Asia integration.
The second project is in Nepal along the major trade corridor to India between Kathmandu and Birgunj. The Kathmandu–Mungling–Narayanghat–Hetauda–Birgunj Corridor is the most important route for Nepal, serving the Kathmandu Valley and accounting for 60% of the country’s industrial and trading activities. Much of the road is not in good condition for a distance of 280 km. After much hesitation, the government has decided to go ahead with the construction of a shorter route with a new highway through the Mahatbharat Range referred to as the Kathmandu–Terai (Nijgadh) Fast Track Road.3 The four-lane highway (76 km) on mountainous terrain will be partially financed through World Bank loans. This dream project, when completed, will significantly reduce the transit time from Birgunj to Kathmandu by 4–5 hours and the distance by 155 km. The new highway will join the Mahendra Highway (East West corridor) at Nigadh, where a second international airport is planned to be built. This improved trade corridor between Nepal and India will also be used for Chinese goods originating from the Tibet Autonomous Region. The estimated cost of the new highway is $1 billion.
The third project is also a dream project as it consists of re-establishing a through rail connection between West Bengal in India to the northeastern states through Bangladesh with a saving of 1,000 km. This implies conversion of the meter gauge rail track into a common broad gauge track. This is in fact an ongoing project that would take a long time until completion. Bangladesh, after several policy turnovers, has finally decided to convert its meter gauge rail network into broad gauge. There are currently severe limitations for Indian wagons on the existing Jamuna Bridge. A new Jamuna Bridge is being envisaged and construction has already started on the Patma Bridge. To facilitate entries to Tripura and other Indian northeastern states, the missing link between Akhaura and Argatala needs also to be completed. These improvements to the Bangladesh railway network would first benefit Bangladesh, but by offering through transit facilities, significant economic benefits would also go to India. Allocating the full cost to these railway improvements is not easy. The cost without accounting for the bridge constructions would be in the order $ 1 billion.
The fourth project concerns building rail connections from India to the landlocked countries of Nepal and Bhutan. Beyond the economics of the projects, these new rail connections have long been dream projects regarded as symbols of regional integration for landlocked countries. The Government of Nepal, in an effort to reduce transport costs, is considering a series of rail links between Nepalese border towns and the Indian rail network, similar to the connection in Birgunj. Among the possibilities, the most likely choices would be connecting Jaynagar to Janakpur and Jogbani to Biratnagar. In Bhutan, a series of rail connections with Indian Railway has been studied. The project with the highest chance of realization would be the 18 km Hasimara–Phuentsholing link, with a spur line to the planned new Inland Container Depot at Pasakha serving the existing industrial estate. The estimated preliminary costs are $300 million for Nepal and $200 million for Bhutan.
The last project concerns South Asia–Southeast Asia integration. A few road projects are being planned and implemented in stages to link states in northeast India with Southeast Asia through Myanmar, but, there is a project with more symbolic attraction—the reconnection of Bangladesh with Myanmar by road. The reconstruction of an old existing road from Chittagong to the Myanmar border through Gundum would create a new trade corridor between South Asia and Southeast Asia, and in particular would link Bangladesh with the People’s Republic of China through Myanmar, opening vast possibilities for trade. The cost of this project is estimated to be $500 million.
The five projects described have been the talk and the dream of many generations. Realizing them for a cost of $8 billion would change the landscape of South Asia and would constitute a major milestone in regional integration.
1 ADB SASEC database.
2 http://indianexpress.com/article/opinion/a-bridge-to-sri-lanka and http://tamilguardian.com/print.asp?articleid+15998
3 As quoted in recent media articles from Spotlightnepal and Gulf Times: http://www.spotlightnepal.com/News/Article/Kathmandu-Terai-Fast-Track and http://www.gulf-times.com/story/375255/Nepal-to-undertake-fast-track-road-project.
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Wignaraja, G. 2016. South Asia could be linchpin for regional integration. Asia Pathways. 22 January.