Trade Flows in South Asia
Authors: Bhatt P. R. 
Published: July 2017

An important principle enshrined in the Colombo Declaration of the Fifth Summit Conference of the Non-Aligned nations (August 1976) was the reiteration of the need for economic cooperation among developing countries. The resolution on the Seven-Point Plan called for the creation of a confident spirit of collective self-reliance which included the willingness to pursue the possibilities of cooperation among themselves in financial, trade, industrial and other fields.1 Economic cooperation among developing countries has increased considerably during the last decade and it continues to be further strengthened and broadened in the various activities covered, especially, at the sub-regional level. In South-East Asia, the Association of South-East Asian Nations (ASEAN) has made a remarkable break-through in the field of trade liberalisation, industrial collaboration, food security, energy and transport.2 The ASEAN experience can serve as a good example for the formation of other mutual sub-regional groups in the Economic and Social Commission for Asia and Pacific (ESCAP) countries. The increasing interest in the sub-regional economic cooperation is reflected in the initiation that emerged in South Asia in the early 1980's. The regional groups or sub-groups facilitate easy accessibility to each other's market and substantial diversification of the type of goods which they can exchange and hence increase the share of foreign trade in national income.

According to a report published by the United Nations Conference on Trade and Development (UNCTAD), it is observed that in the 1960's trade among developing countries grew at a slower rate than their trade with the developed nations, but between the 1970's and 1980's this trend was encouragingly reversed.3 Trade among the South Asian countries over the last decade has, however, not shown much buoyancy; in fact, for many years it has remained stagnant.

Although South Asia (India, Pakistan, Bangladesh, Sri Lanka and Nepal) claim 20 per cent of the world population (about 927.6 millions in mid-1982), its share in the world Gross National Product (GNP) is less than 2 per cent. The Gross Domestic Product (GDP) of the region was around US $ 193 billion in 1982.4 The region's share in world trade is also meagre; it had been exporting goods worth US $ 14 billion in 1983, which constituted only 0.8 per cent of the world exports, whereas its imports were about US $ 23 billion which represented 1.3 per cent of the world's imports.5 This indicates that the value of imports was nearly double the value of its exports and hence showed an adverse balance of trade of the order of about US $ 10 billion in 1983. This trade deficit accounted for about 5.2 per cent of its GDP.

In spite of the geographical contiguity and proximity of the South Asian region and enormous potential for trade and development, the region remains most backward and has the largest concentration of poverty and low income. The contiguous geographical facilities had never been exploited for the total development of the region.

The income level of all countries of South Asia is very low: the per capita GNP varied between $ 140 to $ 380 in 1982 and the per capita growth rate during 1960 to 1982 was also deplorably low.6 The highest per capita growth rate was shown by Pakistan (2.8%), followed by Sri Lanka (2.6%) and India (1.3%). The per capita growth rate was negative for Nepal (-0.1%) and 0.3% for Bangladesh. The Gross Domestic Investment (GDI) as a percentage of GDP of the countries of the region varied between 14 per cent to 31 per cent, whereas savings as a percentage of GDP varied between −3 per cent to 22 per cent in 1982.7 India topped the list of savings level −22. per cent—and Bangladesh stood at the bottom with −3 per cent of the GDP. The South Asian countries are predominantly agriculture-based with more than 50 per cent of their labour force engaged in agriculture. While India employs 71 per cent of its labour force in the agricultural sector, the percentages in Bangladesh and Nepal are 73 per cent and 93 per cent respectively. In the case of India and Pakistan about 30 per cent of GDP flows from agriculture whereas its share is the order of 47 per cent and 27 per cent respectively in Bangladesh and Sri Lanka.

The gowth of exports exceeds that of imports in India and Pakistan whereas the growth of imports exceeds growth of exports in Bangladesh and Sri Lanka. In the case of India and Pakistan the average annual growth rate of imports was 2.6 per cent and 3.9 per cent respectively in the 1970's, while the average annual growth rate of exports was 4.7 per cent each in the same period. Bangladesh had shown a negative growth rate of 0.8 per cent in exports whereas Sri Lanka had shown a positive growth rate of 0.1 per cent in exports in the 1970's. The high propensity to import, coupled with the obstacles to expand exports, creates a typical situation whereby the exports of most underdeveloped countries lag behind their imports.8 What has been the relationship between the value of imports and exports to the national income of various countries can be seen below. In 1982, Sri Lanka topped the list of exports (27% of GDP) followed by Nepal (11%), Pakistan (10%), Bangladesh (8%) and India (6%). The structure of exports of these countries indicated that over 32 per cent of exports of India, Pakistan and Bangladesh consist of primary commodities whereas in the case of Sri Lanka and Nepal the share of primary commodities to total exports represents 65 per cent.9 On the other hand capital and manufactured goods shared 50 per cent of their total imports for all countries except India in which case its share was only 38 per cent in 1981.10 India exports about 20 per cent of its total exports to developing countries, the rest 80 per cent goes to developed countries. This proportion in the case of Pakistan and Sri Lanka is 37 per cent and 46 per cent respectively. Bangaladesh and Nepal are exceptions since the major portion of their exports—over 50 per cent—is directed to developing countries. Thus it is observed that the South Asian countries' exports to developing countries are at the lowest ebb. This calls for new strategies and policies to boost trade among them. In this context, it will be revealing to analyse in greater detail the trade flows amongst them.