By Bipul Chatterjee and Saurabh Kumar
“Bipul Chatterjee and Saurabh Kumar discuss how India can become a responsible partner in its neighbours’ development through fostering cooperation in regional infrastructure projects”
Introduction
A major concern about South Asia’s economic development and its limited share in the global economy through
trade and investment has been the lack of investment in infrastructure, including that of a regional nature. Lately
the imperative of addressing such an infrastructure deficit has resulted in a boost in connectivity projects in the region, which have long-term geopolitical implications. For instance: the Bangladesh-Bhutan-India-Nepal Motor Vehicles Agreement (BBIN MVA) or the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC).
A study by the Asian Development Bank (ADB) estimated that Asia as a whole needs US$8.4 trillion between 2016-2030 for the improvement and development of transport infrastructure just to maintain its current status of economic growth. South Asia alone will require 24 per cent of this share amounting to an investment worth 8.8 percent of their gross domestic product.
Although India is yet to articulate a clear long-term official policy for regional connectivity initiatives, sub-regional
connectivity through road, rail and inland/coastal waterways involving Bangladesh, Bhutan, India and Nepal presents a sustainable as well as economically viable case for it. It is the right moment for India to show that it can become a responsible partner in its neighbours’ development.
These infrastructure projects present huge business opportunities for firms engaged in infrastructure development and offer opportunities for large-scale employment generation as well. This could immensely benefit India and its immediate neighbours suffering from inadequate infrastructure for their economic development. Apart from this, they will help smaller countries to get better access to the markets of large countries. To a large extent this will address the issue of under-utilisation of abundant natural resources of smaller countries in India’s neighbourhood.
“These infrastructure projects are a possible game changer for fostering cooperation in Eastern South Asia”
Connectivity through inland waterways
The South Asian region in general, and Bangladesh, Bhutan, India and Nepal in particular, have not yet been able to take full advantage of their historical and extensive network of naturally navigable waterways to meet their needs for goods and passenger movements.
This is despite the fact that India has inland waterways of around 14,544 km, while Bangladesh has 5,923 km of navigable inland waterways, and the mountain terrain of Nepal provide waters to some of the major rivers and river tributaries of these two countries.
These deficiencies in utilising existing natural advantages result in reduced economic returns. For example, the
World Bank’s Logistics Performance Index (LPI), a prominent benchmark to identify challenges and opportunities in trade-related activities which takes in to account six major indicators (customs, infrastructure, ease of arranging shipments, quality of logistics services, tracking and tracing, and timeliness) ranks Bangladesh as 87th, Bhutan as 135th, India 35th and Nepal 124th, which are much lower than many other developing countries such as Malaysia. It was also estimated that a 10 per cent increase in overall infrastructure can produce an overall economic return of around 17 per cent in the long run.
Goods transported via inland waterways can be an environmentally friendly and cost-effective way of cargo movements in this sub-region. For example, the comparative operating cost of freight in per tonne-kilometre (TKM) is 1.41 Indian Rupees by railways, 2.48 Indian Rupees by highways and 1.06 Indian Rupees by inland waterways transport. Transportation-related inter-modal connectivity (including inland waterways, road and railways) to the seaport can reduce shipping container costs by 20-50 per cent according to a study conducted in 2015 for this region.
Nevertheless, the share of commercial goods transportation through inland waterways in overall internal cargo
transportation is much less in this region, which is mainly in India (0.4 per cent of total cargo movements) in comparison to 8.7 per cent in China, 8 per cent in the USA, 42 per cent in the Netherlands.
A major hurdle in the development of this sector in India is that it is not organised. States such as Assam and West Bengal, who have fully functional waterways departments, are gaining from the use of waterways, but other large states such as Bihar and Uttar Pradesh, despite having large rivers and waterways, are left behind due to policy inertia vis-à-vis this sector and the non-existence of a separate waterways department.
However, in recent years there has been a significant growth in the cargo movements on National Waterways 1
(NW-1), which is on river Ganga. Cargo movements have gone up to 2.69 billion tonne-kilometres (BTKM) in 2015-16 in comparison to its 2009-10 level of 1.05 BTKM. It is also projected that by the year 2031-32 cargo movements from Varanasi terminal in Uttar Pradesh will be around 2.57 MT, while from Haldia terminal in West Bengal it is expected to reach 17.85 MT, which will include food and agricultural products, coal, fly ash, cement, fertilisers and building materials.
Although these figures show a good potential for the inland waterways sector within the country, when it comes to regional connectivity through inland waterways there is a much less than optimal picture about the cross-border movement of cargo. For example, inter-country cargo movement on Bangladesh-India routes as per their Protocol on Inland Water Transit and Trade (PIWT&T) by Indian vessels was 11,636 MT in 2016-17, in comparison to 1,051,262 MT of Bangladeshi vessels. (See Figure 1)
Figure 1. Inter-country cargo transported under PIWT&T routes
Figure 2. Transit cargo transported under PIWT&T routes
Not only this, transit cargo movement was only 352 MT by Indian vessels in comparison to 3,334 MT by Bangladeshi vessels in the same duration (see Figure 2). Indian vessels made only 17 trips but Bangladeshi vessels made 2,632 trips in 20167. This clearly demonstrates reluctance in utilising the protocol routes to enhance regional connectivity through inland waterways.
Impact on sub-regional trade
These regional connectivity initiatives have two primary objectives:
- Trade facilitation in the form of speedy visa and customs clearances, fewer documentations at border points and storage facilities at required places etc, and
- reduction in transportation cost so as to reduce overall trade costs.
Furthermore, in the long-run these initiatives also have the potential to expand into digital, currency and people
to people connectivity. In other words, they will not only affect the volume of trade but can also make a significant
change in its composition.
Another major area where a tectonic shift in these regional connectivity initiatives will bring is existing trade routes. These will be in favour of new pathways instead of existing ones as those are already under severe stress and have become economically expensive.
Such a change in trade routes will also change the nature and pattern of current trade, probably a shift in favour of smaller countries such as Bhutan and Nepal, which, despite having large reserves of natural resources, are struggling to do trade due to sub-optimal nature of their connectivity options.
Therefore, new regional connectivity initiatives will have trade creation effects as prices for various products will go down after reduction in transport and transit costs. Apart from that, the demand for those products, which are used in infrastructure creation, will also go up.
Another major impact will be seen through an economic spill-over effect, which is generally not discussed while
discussing the economic benefits of infrastructure investment and trade policy. Massive investment in connectivity projects will create more and better jobs leading to increasing income and demand for other products.
As far as impacts on big companies and micro, small and medium enterprises (MSME) are concerned, there can be contrasting results from these large-scale regional connectivity initiatives. Big companies engaged in construction business, logistics firms and export trading houses are likely to get more benefits as these initiatives can attract more opportunities in trade and investment.
In contrast, long-term results for the MSME sector can be negative as cheaper products from labour abundant countries may overflow in to smaller countries facing labour shortage.
Conclusions
In an era when trade deals are being renegotiated or are scraped (for example, North American Free Trade Agreement, Trans-Pacific Partnership), trade facilitation and regional connectivity initiatives offers a breath of fresh air to the global trading system.
Together these two can present a combination of policies that can reduce transaction costs and make procedures and standards more sufficient.
Therefore, the development of economically viable regional connectivity initiatives will, among other, require:
- harmonisation of standards and procedures (for example, compatible custom and visa rules; allocation of tax/revenue, vehicle/vessel related regulations);
- construction and management of storage facilities and mechanised amenities for loading/unloading at terminals/ports and at border points;
- digital security and up-to-date state of the art technology-based transportation system; and
- ability to fight illegal trafficking through smart management of trade routes, etc.
While at a macro level it needs to be coordinated through inter-governmental panels/bodies representing the
views of diverse stakeholders, there is the imperative of having a clear long-term operational strategy with analysisof costs, benefits an risks. Financing part of such initiatives also needs to be made more transparent and based on a participatory approach. Incremental multilateralism and involvement of international organisations will give credibility to these initiatives and would also lend easy access to the private sector.
Given the complex nature of these initiatives, policy approach should go beyond the contour of an individual project or mere focus only on one or another aspect of transportation and connectivity. Lessons should also be taken from other regional organizations and agreements for successful implementation of connectivity initiatives in this region. For example, Trans-European Transport Network (TEN-T) – a joint rail, road, water and air transport web within in the European system or the Amazon Cooperation Treaty Organization (ACTO) – an organisation for the sustainable development of the Amazon region.
Bipul Chatterjee is Executive Director and Saurabh Kumar is a Policy Analyst at CUTS International.
Note: This article is based on the findings from CUTS International’s project titled ‘Expanding Tradable Benefits of Trans-boundary Water: Promoting Navigational Usage of Inland Waterways in Ganga and Brahmaputra Basins’. Views are personal.