Is South Asia ready to develop a robust Regional Value Chain?
Dr Sreeradha Datta, Centre Head & Senior Fellow, Neighbourhood Studies, VIF

The first transhipment cargo between India and Bangladesh was received at the Agartala (Tripura) Integrated Check on 23 July 2020 morning. The Indo- Bangladesh Coastal Shipment agreement signed in 2018 led to the cargo movement on the first trial container ship from Kolkata on July 16. This cargo destined for Agartala travelled reached Chittagong Port in Bangladesh to then move across roads in Bangladeshi trucks to Agartala. The consignment of the trial movement included two container ships carrying TMT steel bars destined for West Tripura district and two containers carrying pulses destined for Karimganj, Assam.1

This new route will reduce time and logistics cost for cargo movement connecting from India to its Northeast states through Bangladeshi ports. India and Bangladesh had reached an understanding on Standard Operating Procedures for the use of Chattogram and Mongla ports for movement of goods to and from India earlier in 2019. The latest development is a huge step forward in realising the multimodal transport system that India and Bangladesh were trying to establish ever since the two sided signed the framework of cooperation in 2010. Towards that, the neighbours had earlier signed agreements for transportation of goods from India to reach its North-eastern states using Bangladeshi ports and roads.

This coastal transhipment will complement the recent inland water protocol agreement signed between India Bangladesh on 20 May 2020 that was followed up by Tripura announcing readiness of the inland water protocol route from the lower segment on the Gomati River between Sonamura (Siphajila, Tripura,) and Daudkandi (Comilla, Bangladesh) district of Bangladesh within another few months. This route proposed between Ashuganj river port in eastern Bangladesh and Sonamura in Sipahijala district of Tripura through rivers Gomati and Meghna will facilitate cargo movement between Tripura and Bangladesh through a short distance of 60 kms.
Small boats and ferries capable of carrying 50-ton goods are expected to run through this route as soon as the temporary jetty is ready within the next 3-4 months. This is certainly a significant progress for bilateral trade, especially between Bangladesh and India’s Northeast. Thus coastal and inland water transport along with road and railway will enable cost effective cargo movement hopefully spurring robust bilateral and regional trade in the days ahead. The Northeast region along with West Bengal will in days ahead see cross border transportations with the neighbours, Bangladesh, Nepal and Bhutan.

With Bhutan, a new trade route was opened between West Bengal's Jaigaon to Ahlay, Pasakha thereby closing the physical gaps between India and Bhutan. The new land route for movement of industrial raw materials and goods for Pasakha Industrial Estate in Bhutan is expected to not only boost bilateral trade & commerce but also lead to decongestion of vehicular traffic along the Jaigaon-Phuentsholing route. The motor vehicle agreement signed amongst the sub-regional group of India, Nepal and Bangladesh did lead to few trial runs and hopefully will see cargo movement on the route shortly.

These are all small steps towards the transformational changes taking place in the region, leading to more efficient ways to trade and commerce within the region. Through the initiation of multimodal transportation being built in the South Asian region the neighbours will be closely linked to not only benefit from regional public goods. Expectedly, the regional trade and commerce also will improve with more facilitation being undertaken at borders and within each neighbour. The simple argument being, that with easier cross border movement, costs will drop and spur growth. The thrust in growth of cross border multimodal transportation growth largely also supported by multilateral institutions and banks has led to plans being implemented through building of road networks, cross border railways and coastal agreements within the region enabling a cobweb of transport networks in the sub region of South Asia.

This coupled with that the lessons of Covid-19 that necessarily points to an understanding that geography plays a key role in safeguarding against global value chain shocks as was seen during the pandemic. The pandemic created both supply and demand-side shocks to global trade. Creation of production centres within geographical proximity has many benefits. The disruptions in supply chains and lack of raw materials and production of goods can be minimised when they are in closely adjoining areas, leading to the assumption that the region will benefit from developing regional value chains. It has been suggested that companies with localised industries and supply chains were able to mitigate the shocks better.2 This is not to suggest that bilateral value chains do not exist, but they are not robust enough and are often subjected to domestic vagaries and several other regulatory mechanisms.

An oft repeated phrase is that of the South Asian region remaining one of the least integrated regions. While till few months ago this region was one of the fastest growing one, particularly Bangladesh that recorded the highest growth numbers, the recent Covid-19 pandemic has grounded all the economies. Given this experience, can South Asia by adopting the right mix of internal and cross-border economic policy reforms, physical regional connectivity and a range of other measures be able to safeguard itself from such future jolts? By putting the right policies in place, will South Asia be able to create regional value chains (RVC) for an integrated and more beneficial trade practices within the sub-region to begin with?

Regional value chains consist of various activities such as design, production, marketing, distribution and support to the final consumer within a geographical outline. In several regional economies most of the goods as well as services are produced by states that specialises in different functions and tasks as opposed to the single product being produced within and by a single state. This experience of regional value chain has not been experienced in South Asia substantially. This region has the largest working-age population, a recognised but small entrepreneurs and a growing industry sector. With the cross-border transport connectivity being put in place and more importantly, with the right combination of resources to boost agriculture, industry and investment the possibility of developing regional value chains seems imminent now.

India has been able to participate in a limited way into the global value chains in some items like gems and jewellery, automotive parts and services, but has not been able to develop a regional value chains. While lower wages like in the garment industry of Bangladesh and the high skill levels of Bangladeshi women workers, also other reasons could be logistics, infrastructure and ability to deliver consignments on time due to lesser regulations. It has been seen that while the government to government ties seem in place, the lack of compatible products and limited supply has held back trade integration in the region. The lack of FDI in the region is also instrumental in understanding the low level RVC.

It has been suggested for RVC to take off, India and all others too, will have to improve its cross border infrastructure, remove tariff and non-tariff barriers, and speed up the implementation of rules for harmonisation of regulations and technical standards which could make the trade between countries of the region more fluid. It has been pointed out that Bangladesh doesn’t grow cotton, yet it holds a large share globally in finished goods export market, given its low-cost and quality production. Such experiences can be replicated within the region through harnessing core competence in trade and services. Several studies have recommended the production of bamboo items, including furniture, cloth and artefacts and creating RVC between North Eastern India, Myanmar, and Bhutan, as well as for herbal products amongst Nepal, India and Bhutan. India given its geography shares some value chains including with Bangladesh in few products including like jute, agro and textiles, but the possibility of building RVC amongst Northeast India, Bangladesh, Bhutan and Nepal in a wider range of products has often been discussed but not tapped as yet.

As part from sourcing of raw materials, other outstanding issues like cross border facilitations, standardisation issues and testing laboratories are necessary requirements for such cross border trade to grow and lead the way to regional value chains. Undoubtedly, possibilities exist within the sub- region, but a large number of constraints have held back this process from unfolding more widely. But given the recent experience of disruption in global value chains it seems appropriate to revisit the need to build strong RVC in South Asia. While hard infrastructures are being implemented in the sub-region, the development of corresponding soft infrastructures and more importantly the last mile connection is critical to enabling an environment that leads to greater intra -regional trade and investments. While many of the states including India have recorded better rankings in ease of doing business indices the ground conditions need more attention. To develop a robust RVC we would need to implement all the above and more importantly a political will. Hopefully states of South Asia will able to see dividends in such an opportunity now.

Endnotes
  1. Tripura received the first transshipment cargo under India-Bangladesh Costal Agreement 2018, Northeast Today 23 July 2020 at https://www.northeasttoday.in/2020/07/23/tripura-received-the-first-transshipment-cargo-under-india-bangladesh-costal-agreement-2018/
  2. The Impact of Covid 19 on global supply chains, 24 April 2020 at https://oxfordbusinessgroup.com/news/impact-covid-19-global-supply-chains

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>


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