SOUTH ASIAN OUTPUT, TRADE AND POVERTY PATTERNS

Key characteristics of the South Asian economies

The World Development Report 2010 (World Bank, 2010) indicated that the South Asian subregion has approximately 23 per cent of the world’s population and 15 per cent of the world’s arable land, but contributes only about 2.7 per cent of global gross GDP, 1.8 per cent of global trade and less than 4 per cent of global foreign investment flows. The South Asian subregion is tremendously diverse in terms of country size, economic and social development, geography, political systems, languages and cultures.

South Asia consists of a single large country, India, which is surrounded by a number of smaller countries, including Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. India’s dominance in the subregion is apparent; the country accounts for more than 78 per cent of the subregion’s GDP and 73 per cent of its population (World Bank, 2010). India also commands a leading position in international trade while maintaining a relatively low level of trade openness (35.5 per cent) with the rest of the world. Today, South Asia as a subregion is generally characterized by low per capita incomes, high incidence of poverty and poor infrastructure. Bhutan, India, Maldives and Sri Lanka are classified as lower-middle-income countries, and Afghanistan, Bangladesh, Nepal and Pakistan are low-lower-middle-income countries (World Bank, 2010).

Economic growth and sectoral compositions of GDP

Recent economic growth in South Asia has been impressive. From 1995 to 2004, the subregion’s GDP grew at a rate of 6 per cent per annum – nearly twice the growth rate of the global economy (World Bank, 2005). Between 2004 and 2009, average GDP growth in South Asia was 7.1 per cent, which was higher than that in South-East Asia (5.6 per cent) but below that in East Asia (10.4 per cent) (World Bank, 2009a). Much of this surge in growth can be attributed to increasing globalization and the opening up of South Asian markets to the rest of the world (World Bank, 2009b).

Concomitant with this growth have been changes in the sectoral contributions to GDP in each economy. As indicated in table 1, all five countries listed have experienced similar adjustments. The importance of the service sectors in each economy has increased considerably, while the contributions of the agricultural sectors have declined, particularly in the last two decades.

These figures, however, belie the indispensable role the agricultural sector plays in South Asia, particularly in employing the vast majority of the labour force. The World Bank (2010) reported that, in 2009, almost 55 per cent of the labour force was engaged in the agricultural sector.

Average tariff rates in South Asia

Historically, South Asia has been a relatively protected subregion, with individual countries imposing high tariff barriers in order to foster industrial development through import-substitution policies (Bandara, 2011). Sri Lanka was the pioneer in South Asian trade liberalization in the late 1970s, and by the early 1990s all of the countries in the subregion had, to various extents, begun implementing trade liberalization policies. A number of these countries have demonstrated a commitment to tariff reductions.³ For example, the simple average ad valorem tariff in India fell from 35 per cent in 2002/03 to 15 per cent in 2007, while in Bangladesh the average protective rate fell by 20 per cent over the same period (WTO, 2007). Simple average 2013 tariff rates for the individual South Asian countries presented in table 2 indicate that tariffs were the lowest in Afghanistan and the highest in Bhutan.

Table 1. Sectoral composition of GDP, 1980, 1990 and 2012

Agriculture as Manufacturing as Services as a percentage of a percentage of a percentage of

Country GDP GDP GDP

1980 1990 2012 1980 1990 2012 1980 1990 2012

Bangladesh 32 30 18 14 13 29 48 48 53

India 36 31 17 17 17 26 40 41 57

Nepal 62 51 37 4 15 16 26 34 47

Pakistan 30 26 24 16 17 22 46 49 54

Sri Lanka 28 26 11 18 15 32 43 48 57

South Asia 35 31 18 16 16 26 41 43 56

Source: World Bank, World Development Indicators database (2012).

Note: South Asia refers to Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka for 1980 and 1990, and for these countries plus Afghanistan for 2012.

3 Bangladesh, India, Maldives, Nepal, Pakistan and Sri Lanka remain committed to freer multilateral trade as members of the World Trade Organization.

Table 2. Simple average tariff rates in South Asia, 2013

Afghanistan N/A 5.9 N/A 7.1 N/A 5.7

Bangladesh 169.2 14.4 192.0 17.2 37.3 14.0

Bhutan N/A 21.9 N/A 40.0 N/A 22.0

India 48.6 13.7 113.1 33.5 34.5 10.4

Maldives 36.9 20.5 48.1 18.3 35.1 20.8

Nepal 26.0 12.3 41.5 13.9 23.7 12.0

Pakistan 59.9 13.5 95.5 15.5 54.6 13.2

Sri Lanka 30.2 9.9 50.0 25.8 19.7 7.5

Sources: World Trade Organization, Statistics database (2013). Available from http://stat.wto.org/Home/

WSDBHome.aspx (accessed 10 January 2014); and United Nations Conference on Trade and Development, UNCTADstat database (2013). Available from http://unctadstat.unctad.org/wds/

ReportFolders/reportFolders.aspx (accessed 10 January 2014).

Notes: The latest tariff data available for Bhutan are from 2007 and those for Bangladesh are from 2011.

MFN – most favoured nation.

The 2007 simple average bilateral tariff rates on selected traded commodities presented in table 3, and the 2009 average effective bilateral tariff rates on agricultural products listed in table 4 highlight that agricultural products are typically subjected to high levels of protection.

It is evident from the tables that there is a reluctance by South Asian countries to instigate commensurate tariff cuts on agricultural commodities. Agricultural trade in the subregion is characterized by similar export and import commodities, with high concentrations of a few products. The top five export commodities account for more than 60 per cent of total agricultural sector exports from South Asian economies. For example, milled rice, frozen beef and sugar are among India’s top five agricultural exports (World Bank, 2010). India’s applied tariff rates on these products are 70 per cent, 33 per cent and 60 per cent, respectively (Serletis and Allen, 2009). Such heavy weightings of agricultural exports with their high import tariff rates seriously inhibit intraregional trade (Sawhney and Kumar, 2008), as does the increasing prevalence of non-tariff barriers, including sanitary and phytosanitary measures (Hoekman and Nicita, 2008; Nanda, 2012; Bellanawithana, Wijerathne and Weerahewa, 2009; Keane and others, 2013; Mohan, Khorana and Choudhury 2012). Furthermore, as

Table 3. Simple average bilateral tariff rates on selected traded commodities in South Asia, 2007 India (IND)Pakistan (PAK)Sri Lanka (LKA)Bangladesh (BGD)Rest of South Asia (XSA) Commodity PAKLKABGDXSAPAKLKABGDXSAPAKLKABGDXSAPAKLKABGDXSAPAKLKABGDXSA Rice (paddy0.0024.604.970.000.0025.405.002.230.000.000.0011.800.0010.000.000.000.000.000.000.00 and processed) Wheat, cereal8.677.280.420.25100.003.005.002.50.000.000.0015.000.009.980.000.000.005.880.000.00 and grains Vegetables and7.534.6116.2012.8028.209.0419.907.980.400.485.6715.0039.200.000.002.5016.0014.400.0025.00 fruits Oilseeds and9.029.121.340.2028.9019.100.793.50.001.8210.209.8723.800.000.000.0045.606.110.000.00 vegetable oils Plant-based5.4023.408.325.1627.307.771.064.040.030.1823.6019.607.555.460.002.5019.405.0127.6024.90 fibres and crops Sugar10.0021.6013.502.470.0021.900.004.870.000.000.001.6110.000.0025.800.0025.300.000.000.00 Dairy products23.9017.5024.901.670.000.000.008.490.000.000.0010.8020.700.000.000.0025.800.000.000.00 and milk Fish5.0012.9024.806.1230.0013.200.002.50.000.0023.7019.700.110.000.000.000.000.0012.300.00 Meat5.1121.5013.402.5823.100.0020.806.220.000.000.0019.807.600.000.000.000.000.000.000.00 Food products18.3014.8015.208.5132.9011.4014.604.60.004.9013.8016.2023.2011.8014.4042.4035.8015.0011.6025.00 necessaries Beverages and24.60158.0023.908.2454.90143.000.0016.967.100.0025.0023.2022.700.000.0040.5032.500.000.000.00 tobacco Textiles12.800.2515.403.9914.200.79518.707.0211.404.3222.5026.106.8210.201.0624.507.5321.700.540.00 Wearing apparel22.904.4324.0010.8014.3010.123.3010.210.2017.7024.0023.307.4918.0010.2028.400.000.0014.200.00 Metal products9.342.208.674.8316.004.7612.003.430.003.3518.1022.5011.5013.6011.3017.706.9912.5020.200.00 Source:Center for Global Trade Analysis, GTAP database, version eight (2012). Note:XSA – rest of South Asia (Bhutan, Maldives and Nepal).

Samaratunga, Karunagoda and Thibbotuwawa (2007) noted, South Asian trade negotiations have yielded relatively fewer opportunities for agricultural trade compared with non-agricultural trade because of its politically sensitive nature.

Poverty and income distribution in South Asia

After sub-Saharan Africa, South Asia is home to the world’s largest concentrations of poverty. Notwithstanding its strong economic growth in recent years, the subregion is still home to about 65 per cent of the poor living in the Asian and Pacific region (World Bank, 2010). This is despite the progress made in poverty reduction following the trade liberalizing reforms instigated in the 1990s.⁴ The percentages listed in table 5 demonstrate the poverty and income inequality profiles of the South Asian countries.

The poverty headcount measure indicates the share of the population with a standard of living below the poverty line. The Gini coefficient is the most commonly used measure of income inequality. The coefficient varies between 0, which reflects

Table 4. Average effective bilateral tariffs on agricultural products, 2009

(Percentage)

Exporting Importing country

country

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka

Afghanistan – 19.50 – 34.69 – – 11.54 15.00

Bangladesh 4.38 – 36.67 37.36 23.93 19.29 12.22 24.78

Bhutan – 24.05 – 1.07 – 22.50 15.88 –

India 5.57 14.48 44.48 – 15.51 11.29 9.16 19.60

Maldives – – – 65.00 – – 31.43 25.15

Nepal – 11.34 46.00 39.17 25.00 – 8.67 13.66

Pakistan 6.61 17.76 – 27.29 14.13 8.91 – 11.02

Sri Lanka 7.13 18.27 – 9.13 15.48 18.33 15.93 –

Sources: World Bank, World Integrated Trade Solution database (2012). Available from http://wits.worldbank.org/

(accessed 28 December 2013); and N. Nanda, “Agricultural trade in South Asia: barriers and prospects”, SAWTEE Working Paper, No. 03/12 (Kathmandu, South Asia Watch on Trade, Economics and Environment, 2012). Available from www.scribd.com/doc/195408373/Agricultural-Trade-in-South-Asia (accessed 28 December 2013).

Note: The tariff figures are simple averages of effective tariffs.

4 Poverty in the South Asian subregion fell from 52 per cent in 1996 to about 33 per cent in 2006 (World Bank, World Development Indicators database, 2009).

complete equality, and 1, which indicates complete inequality (in complete inequality, one person has all the income or consumption while all of the others have none) (Coudouel, Hentschel and Wodon, 2002, pp. 35-48).

As an example, Sri Lanka has the lowest incidence of poverty but ranks high in terms of income inequality. As can be seen in table 5, poverty is significantly higher in the rural areas of India than in its urban areas, as is the case in the other South Asian countries. This underlines the importance of understanding the likely welfare impacts from tariff reductions on agricultural products, given the high dependence of the working population on the agricultural sector.