As South Asia battles COVID-19, time for strengthening regional trade connectivity

Experts feel that the outbreak of the COVID-19 pandemic has brought about new opportunities for regional cooperation in South Asia with the setting up of an emergency fund of $10 million to fight the pandemic with India's initiative, writes Partha Pratim Mitra for South Asia Monitor

Partha Pratim Mitra Jun 16, 2020
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The June 20 Global Economic Prospects brought out by the World Bank describes both the immediate and near-term outlook for the impact of the pandemic and the long-term damage it has dealt with prospects for growth. It states that the per capita income of South Asia will contract by 2.7 percent; East Asia and the Pacific will grow by a scant 0.5 percent; Sub-Saharan Africa would contract by  2.8 percent; Middle East and North Africa by 4.2 percent; Europe and Central Asia by 4.7percent; and Latin America by 7.2 percent.  The downturns are expected to wipe out years of progress toward development goals and put tens of millions of people back into extreme poverty. 

Over a longer time horizon, an economic downturn following the pandemic is expected to have a lasting impact on economies through lower investment. This will result in an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages. In such a gloomy situation, businesses might find it hard to service debt. With greater risk aversion, it will reduce growing borrowing costs, leading to more bankruptcies and defaults, which could ultimately affect the financial sector in many countries. Under this downside scenario, global growth could fall by almost 8 percent in 2020.

On the positive side, the sharp decline in oil prices in 2020 could provide some relief to the region, given sizable oil imports in India and Pakistan, and help cushion fiscal and current account balances. This positive effect may be negated by falling remittance inflows from oil-exporting economies. These flows are expected to decline by about one-fifth in the South Asia Region (SAR) region this year. Although, reported COVID-19 outbreaks in SAR have started later and could remain smaller in per capita terms compared to most other regions, they are expanding in this region at a faster pace. Along with widespread mobility restrictions, which could result in humanitarian consequences, given the region’s high population, large informal sectors as compared to global levels, high inequality, and underdeveloped health systems, as also inadequate fiscal management regimes across the region, which limit the scope and effectiveness of the fiscal stimulus. 

On the foreign trade front, despite the limited integration of SAR into global value chains relative to other regions such as East Asia and Pacific or Europe and Central Asia, the region is still somewhat reliant on countries abroad for intermediate inputs in some sectors, e.g., Bangladesh’s pharmaceutical and textile sector, and India’s auto sector. Economies like Nepal are also vulnerable to sharper-than-expected deceleration in India, an important intraregional trade partner 

Experts feel that the outbreak of the COVID-19 pandemic has brought about new opportunities for regional cooperation in South Asia with the setting up of an emergency fund of $10 million to fight the pandemic with India's initiative. The region is also seeing bilateral cooperation with Bangladesh supplying food and medical equipment to the Maldives and India stepping up its medical assistance to the region. At the same time, many commentators envisage that there could be a new trend with a decline in globalisation and relative strengthening of regional supply chains. India, in particular (and largely the South Asian region), could gain for  firms moving out of China and  India’s importance as a market for its neighbouring countries will also increase. While the shifting focus on localisation of global supply chains provides an opportunity for South Asia region to become better integrated economically, there are existing challenges that must be addressed.

In the recent Brookings India report, India’s Limited Trade Connectivity with South Asia has mapped the trends in India’s low trade connectivity with the region, the gaps that need to be addressed, and recommendations for increasing trade in the region. The report has shown that intra-regional trade in South Asia is among the lowest in the world at 5 percent. To date, India’s trade with the region has ranged from 1.7 percent to 3.8 percent of its global trade, while China has steadily increased its exports to the region from $8 billion in 2005 to $52 billion in 2018. As a result, only Afghanistan, Nepal, and Bhutan now have a higher trade share with India as compared to that with China. However, India continues to be an important market for all its neighbouring countries, except Myanmar and Pakistan.

The COVID-19 pandemic, has, however,  brought out a different story, which requires immediate public policy intervention. For instance, homeworkers in the garment sector, which form more than 60 percent of garment production in South Asia, have faced the brunt of the slowdown. It is well known that to reduce production costs, work is supplied to poorer countries by global brands –  often in South Asia - where cheap labour is plentiful. In these countries, work is often outsourced to homeworkers and they are usually paid on a piece-rate basis by their contractors. Homeworkers are usually contracted through a series of contractors and sub-contractors. They are generally unaware of their primary employer or the retail company for whom they are making the product.  The key issues faced by homeworkers include 1) Lack of recognition of homeworkers as they work from their homes and therefore remain invisible to primary employers, governments, and the public at large. Due to this invisibility, they are the least recognised category of workers – one of the biggest challenges faced by homeworkers in supply chains.

● Lack of labour or legal protection

● Lack of inclusion in minimum wage acts and laws of the country

● No access to social security provided by employers, including provident fund, health and life insurance, old-age pensions, and maternity benefits

● Lack of bargaining power

In response to the pandemic, the World Bank has followed a two-pronged approach for India focused on health and livelihoods. The World Bank approved $1 billion to support India’s efforts at providing social assistance to the poor and vulnerable households, severely impacted by the COVID-19 pandemic. This takes the total commitment from the World Bank towards emergency COVID-19 response in India to $2 billion. 

This new support will be funded in two phases – an immediate allocation of $750 million for the fiscal year 2020 and a $250 million second tranche that will be made available for the fiscal year 2021. The first phase of the operation will be implemented all over the country through the Pradhan Mantri Garib Kalyan Yojana (PMGKY). It is expected to  immediately facilitate scale-up cash transfers and food benefits, using  pre-existing national platforms and programs such as the Public Distribution System (PDS) and Direct Benefit Transfers (DBT); provide  social protection for essential workers involved in COVID-19 relief efforts; and benefit vulnerable groups, particularly migrants and informal workers, who face high risks of exclusion under the PMGKY. In the second phase, the program is aimed at deepening the social protection package, whereby additional cash and in-kind benefits based on local needs will be extended through state governments and portable social protection delivery systems.

Importance of social protection 

The World Bank has stated that social protection is a critical investment since half of India’s population earns less than $3 a day and are precariously close to the poverty line. It becomes all the more important with over  90 percent of India’s workforce employed in the informal sector, without access to significant savings or workplace-based social protection benefits such as paid sick leave or social insurance.

On the migrant workers issue, the World Bank has stated that with over 9 million migrants, who cross their  state borders to work each year, are also at greater risk as social assistance programs in India largely provide benefits to residents within states, without adequate portability of benefits across state boundaries. Importantly, in an urbanizing India, cities and towns will need targeted support as India’s largest social protection programs are focused on rural populations. While the World Bank has highlighted the critical areas in social protection of the vulnerable sections of the workforce, identification and targeting of such workers to enable them to receive the benefits will be a mammoth task and would call for the involvement of government and non-government agencies with their wider outreach and social connectivity among the vulnerable sections of the society. 

The World Bank programme brings out the public policy challenges faced by countries during a pandemic and with the lockdown gradually getting relaxed in most countries including India, health, jobs and livelihoods would become top priorities. However, the limited financial resources available with countries make the question of their optimal allocation of central importance.

(The writer is a retired Indian Economic Service officer who worked in the labour ministry. The views expressed are personal. He can be contacted at ppmitra56@gmail.com)

References:

Global Economic Prospects, June 2020,http://www.worldbank/en/publications

 https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-worldFEATURE STORY JUNE 8, 2020

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https://www.hindustantimes.com/analysis/south-asia-must-now-build-resilient-supply-chains/story-u1Uv8SzbcVnfpbwhtYNVxK.html

WORKING IN GARMENT SUPPLY CHAINS: A HOMEWORKER’S TOOLKIT SOUTH ASIA A HNSA-WIEGO Publication Publication Date: February 2020 Published by HomeNet South Asia (HNSA),  https://hnsa.org.in/sites/default/files/Working%20In%20Garment%20Supply%20Chains%20A%20Homeworker%27s%20Toolkit.pdfAlso seehttps://asia.nikkei.com/Business/Industry-in-focus/Coronavirus-pandemic-tears-holes-in-Asia-s-garment-industryCoronavirus pandemic tears holes in Asia's garment industry APRIL 3, 2020 04:00 JST.

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