Editorial 1. Trading more within Asia makes economic sense
Context:
South Asia should now have a relook at regional trade across Asia after the warning by International Monetary Fund (IMF) that global trade would slow down from 5.4% in 2022 to 2.4% in 2023. This forecast is optimistic with ‘poly-crisis’ risks such as an escalating RussiaUkraine war, a decoupling from global supply chains and tackling variants of the COVID19 virus.
Findings of IMF Research Paper: “South Asia’s Path to Resilient Growth”
- The paper argues that a strong base exists for South Asia trading more with dynamic East Asia.
- Since the 1990s, South AsiaEast Asia trade has gathered pace, which is linked to India’s trade realigning towards East Asia through its ‘Look East’ and ‘Act East’ policies, South Asia adopting reforms, and also China offshoring global supply chains to Asia.
- The total merchandise trade between South Asia and East Asia (in dollar terms) grew at about 10% annually between 1990 and 2018.
- The handful of free trade agreements (FTAs) linking economies in South Asia with East Asia may rise to 30 by 2030.
- In addition, regional trade in Asia is recovering after the COVID19 pandemic and has opened opportunities for South Asia to participate in global value chains and services trade.
Measures that can be taken for increased trading within Asia:
Tax Reforms:
- Regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade.
- Import tariffs and murky nontariff measures have risen in several South Asian economies since the 2008 global financial crisis and never reversed. To get beyond this, South Asia’s trade opening should be calibrated with tax reforms as trade taxes account for much of government revenue in some economies.
Role of Special Economic Zones (SEZs):
- Measures should be taken to 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, in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh) and Hambantota (Sri Lanka). However, these SEZs have a variable record in terms of exports and jobs and fostering domestic linkages.
- Improving SEZ processes and outcomes in South Asia requires ensuring macroeconomic and political stability, adopting good practice regulatory policies towards investors, providing reliable electricity and 5G broadband cellular technology, and also upgrading worker skills.
Role of Free Trade Agreements (FTAs):
- There is a need to pursue comprehensive FTAs that eventually lead to the Regional Comprehensive Economic Partnership (RCEP) to provide for regional rules-based trade to insure against rising protectionism.
- South Asian economies need to improve tariff preference use by better preparing businesses in navigating the complex rules of origin in FTAs and including issues relevant to global supply chains in future FTAs.
- While South Asia is a latecomer to FTAs when compared to East Asia, it has made a start with the JapanIndia FTA, the Sri LankaSingapore FTA and the PakistanIndonesia FTA.
Membership of RCEP:
- Although India opted out of the RCEP talks in November 2019, the door is still open for it to join the agreement. If India joins RCEP, the rest of South Asia may be incentivised to join out of fear of being left out and suffering from trade diversion effects.
- India has also concluded FTAs with the United Arab Emirates and Australia in 2022. The confidence gained from these can help prepare for future Regional Comprehensive Economic Partnership (RCEP) membership by undertaking structural reforms to boost business competitiveness in supply chains and foster greater regulatory coherence with East Asia.
Reinventing BIMSTEC:
- A reinvented trade-focused Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC) can facilitate stronger trade ties and support the interests of smaller members.
- In order to Reinvigorate, BIMSTEC requires better resourcing of its Secretariat, concluding the long-running BIMSTEC FTA, building trade capacity in smaller economies, and introducing dialogue partner status to encourage open regionalism in Asia.
Conclusion:
- Therefore, while the broad South Asia and East Asia trade may be desirable, the advent of increasingly complex geopolitics might rule this out for some time. Accordingly, a narrower geographical coverage between South Asia and Southeast Asia may be a building block for eventual trade integration across Asia.
- Slowing global trade means that trading more within Asia makes economic sense. Having the political will to implement pro-trade policies can improve the lives of Asians.
- India is South Asia’s largest economy and its G20 presidency can be a good platform to initiate these changes.
Editorial 2. A shot for science
Context:
This year’s budget has seen a healthy jump in allocation to the Ministry of Science & Technology.
Impetus on various areas of Science and Technology in the budget:
- The Ministry has received an allocation of ₹16,361.42 crores this year, an impressive 15% increase from the previous estimate.
- The bulk of the hike has gone to the Department of Science and Technology (DST) ₹7,931.05 crores, up by 32.1% from last year.
- It was ₹2,683.86 crore for the Department of Biotechnology, or DBT (a nominal hike of 3.9%), and ₹5,746.51 crores (1.9%) for the Department of Scientific and Industrial Research (DSIR).
- The Deep Ocean mission which includes among other components developing a deep submersible vehicle and the National Research Foundation has got substantially higher hikes than in previous years, a sign that they are the Centre’s immediate focus.
- There were multiple references in the Budget speech for investing in dedicated centres for excellence in ‘Artificial intelligence’ research, initiatives to scale up the technology to produce laboratory-made diamonds and a centre for research in sickle cell anaemia.
Challenges faced by the research ecosystem in India:
- None of the budgetary allocations suggests a significant scale-up of basic research.
- As with previous governments, this government too has not succeeded in increasing the percentage of spend on research and development beyond 1% of GDP.
- While different countries define R&D spending variously, a rule of thumb suggests that developed and technologically advanced countries spend over 2% of their GDP on R&D.
- In India, according to a 2022 estimate by the Global Innovation Index (GII), spending on R&D continues to hover around 0.7% despite being among the world’s largest producers of scientific literature.
- While funds are not the only challenge to research and development in India, the lack of significant raises across departments shows that the absorptive capacity of scientific institutions in the country is limited.
- Another major challenge continues to be research scholars not getting promised funds on time and the wait for the quality equipment required by researchers, continuing to be mired in a maze of bureaucratic whimsy.
- The bulk of research continues to be funded by the government and the participation of the private sector has grown only incrementally.
Conclusion:
Therefore, to improve the research and development ecosystem in the next few years, the government must not only increase the size of the funding pie but also ease the procedures to make the most efficient use of it.
