2012- 13

Trade and Investment Prospects of the IOR-ARC in the New Millennium: New Economic Frontiers of the Region 
Research Team: Dr. S.K. Mohanty and Dr. Priyadarshi Dash
This study was conducted on the request of the Ministry of External Affairs and the Indian Ocean Rim Academic Group (IORAG). The study empirically examined the synergy existing between the member countries in trade and investment, and the possible ways through which the IOR-ARC could deepen regional economic integration in the future. In this study, regional integration is envisaged in the framework of open regionalism since most of the member countries are engaged with the regional process within their respective sub-regions. Taking into account the trade and investment linkages between different sub-regions within the broad regional caucus, the study provides estimates of trade potential for the member states at the aggregate as well as the sectoral levels. The empirical findings suggest that potential gains from regional liberalisation could be substantial in invigorating trade and investment flows within the region. Sectoral cooperation is the key driver of region’s economic prosperity in future. The COM has come up with 10-point recommendations for promoting economic integration that range from trade facilitation, harmonising regulations, global value chains, sectoral cooperation, etc., among others. The key recommendations are referred to the trade and investment committee to examine feasibility of their implementation. At the same time, the study attributes the slow progress in the regional process in IOR-ARC due to lack of a strong institutional mechanism and little progress in time-bound projects agreed at different high level meetings. This study was in continuation of the RIS ongoing research programme on Indian Ocean Rim Association for Regional Cooperation (IOR-ARC).

Regional Cooperation for Infrastructure Development: Towards an Institutional Framework for Investment in the IOR-ARC 
Research Team: Dr. S.K. Mohanty, Dr. Priyadarshi Dash and Ms. Ramita Taneja
Infrastructure development is key to economic growth and development. In the context of regional integration, better stock of physical infrastructure facilitates cross-border trade and enables efficient utilisation of regional resources by improving connectivity among the resource-rich regions to the resource-scarce regions. Evidence from the EU, Asia and Latin America suggests that improved physical infrastructure in the form of roads, railways, airports, ports and seaports has lowered transaction costs, reduced transit time, enhanced mobility in the lagging regions and helped integrate the periphery to the core. In fact, regional infrastructure investment initiatives are new to the world economy. Though these regional initiatives suffer from challenges than opportunities at the beginning, the process becomes rewarding as the region matures. Moreover, carrying out of such regional infrastructure projects is relatively easier for developed countries than developing regions as we have experienced during the past decade.
 IOR-ARC represents a heterogeneous group of countries that are characterised by varying levels of access to infrastructure and its use for promotion of regional trade and investment. In view of this unequal and asymmetric stock of physical infrastructure in the member countries, this study was undertaken by the RIS with funding from the Committee of Ministers of IOR-ARC.
The study was based on the premise that infrastructure development is pivotal to strengthen the ongoing regional process of economic integration. While doing so, emphasis was given to the role and importance of infrastructure investments. The objectives of the study was: (a) to assess and analyse the role of infrastructure in regional integration, (b) to examine policies of the member countries on infrastructure development, and (c) to devise a regional institutional framework for infrastructure development in IOR-ARC with respect to identification of priority sectors, project conception and design, sources and modes of project financing, and implementation and governance issues. Based on best practices in the EU, Asia and Latin America, the study delineates a pyramidal institutional structure for infrastructure development in the IOR-ARC with special emphasis on smooth flows of investments into the priority infrastructure sectors.

Economic Aspects of Fisheries: A Framework for Regional Cooperation in the IOR-ARC 
Research team: Dr. S.K. Mohanty, Dr. Priyadarshi Dash and Mr. Manu Singh Rathore
Fisheries is a major economic sector for most of the member countries of the IOR-ARC providing income and livelihood security to millions in the region. It has been identified as one of the priority sectors for regional cooperation in the IOR-ARC Charter. The IOR-ARC covers large fishing areas and is endowed with rich fisheries resources, particularly marine fisheries and migratory species. Although the volume of fish catch in the region has increased significantly over the years, the member countries face a number of challenges such as overfishing, overcapacity, illegal fishing, environmental pollution, differences in licensing and regulatory regimes, and so on. This not only affects the prospects of sustainable fishing in the IOR-ARC waters but also raises the risks of hunger and malnutrition among the people dependent on fishing especially indigenous fishing communities and perpetuates the fear of extinction of rich fish species.
Against this backdrop, this study, the first of its kind for the IOR-ARC, aims to contribute to the existing understanding in the region on the economic aspects of fisheries and integrate the role of fisheries to livelihood, nutrition and the economies of the member countries at large. The study involves four major components: (a) analysis of secondary data on fisheries to identify trends and patterns in regional fisheries production, consumption and trade, (b) examining the issues of livelihood, nutrition and food security,  (c) examine and suggest policies with respect to sustainable fishing, harmonisation of rules and regulations on licensing, participation of foreign fishers, overfishing, etc., and (d) present a framework for regional cooperation among the Member countries to optimise conservation of aqua species and livelihood security of people in the region.

Prospect of Promoting Regional Value Chain in South Asia 
Research Team: Dr. S.K. Mohanty
South Asia has been emerging as one of the fast growing regions of the world, since 2003 until the emergence of the present episode of global recession. The region has faced the downside risk of growth slowdown because of ‘global financial crisis’. Strategic initiatives through regional cooperation can drive the region to high growth path since the region has strong potential in diversified sectors. Experiences of several fast growing regions indicate that intra regional trade could be enhanced with Global Value Chain (GVC) approach.  While examining benefits accruing from the regional cooperation, some studies indicate that economic gains from regional value chain (RVC) could be much higher than alternative initiative like PTAs/FTAs.
In South Asia, regional value chain has been weak though several regional countries are engaged in GVC in number of sectors. India is already into GVC in the production and export activities in textiles & apparel and auto component sectors. Some of the local firms in Bangladesh and Sri Lanka are into the Global Production Network (GPN) in apparel sector. Similarly, Nepal and Pakistan are also into other GVC sectors. The region has the potentiality to integrate itself with several GVCs, particularly competitive sectors like textiles & apparels, leather, food processing, automobiles, pharmaceuticals & traditional medicines, cement, IT software, etc. Some of these sectors have received attention from certain national governments in liberalising sectoral policies to facilitate the RVC process.
For the main study, several country-studies were launched, covering numerous sectors including various dimensions of RVC to present potentials of the RVC in South Asia. The sectors considered under the study are: (a) readymade garments (b) automobile (c) processed food (d) parts and components and (e) leather. For understanding importance of the sectors in RVC, we launched similar sectoral studies in India and several other countries in South Asia. The study was conducted with support of lead institutes from Bangladesh, Sri Lanka, Pakistan and India.
It follows from the outcome of the study that the regional economies are already engaged in global value chain in diversified sectors. However, scale of operation in most of these sectors has been low and final assembling of product is taking place in other regions of the world. South Asia has strong potential to promote RVC activities in several sectors. The study is sponsored by ADB, and the draft report is submitted to the sponsoring agency.

India-China Bilateral Trade Relationship 
Research Team: Dr. S.K. Mohanty
The Sino-Indian bilateral trade relationship took an impressive turn during the last decade as China gradually ascended to become the largest trading partner of India since 2008. This novel relationship between the two Asian giants can be linked to a new trend where both countries have expedited their economic engagement with developing countries by withdrawing systematically from the industrialised countries in trade. The Sino-India bilateral trade witnessed rapid growth at the cost  of rising trade imbalances against India. As an emerging economy, India can neither afford to limit its economic engagement with China nor continue with such a huge bilateral trade asymmetry for a long period. The study analyses empirically some of the options available to cope with the current situation.
The study finds several important results, which has significant policy implications. India’s bilateral export is less diversified than its imports from China and this is partly due to India’s inability to materialise its existing export potential in diversified sectors, mostly in manufacturing exports. Several export products of India, having global competitiveness, have been unsuccessful to achieve market access in China despite having strong ‘trade creating’ effects. India bilateral trade deficit can be pruned significantly by suspending wistful uncompetitive imports from China. India can meet large Chinese global import demand in several sectors. In that case, India needs to make tailor-made export-oriented production to access Chinese market in five resource-based and technology-intensive sectors. In the trade policy liberalisation, India has made significant headway in liberalising its manufacturing sectors where India is becoming more liberal than China in the manufacturing sector, which is considered stronghold of China. Econometric models suggest that yuan depreciation has significant effects on India’s exports in terms of making market access in third countries. Rapprochement with China would benefit India from the RCEP process to the extent of $ 75.4 billion per annum though the RCEP is likely to gain to the extent of $ 502.8 billion per annum.
The study was funded by the Reserve Bank of India. The final study was accepted by RBI and was posted on their website.

Study on India-COMESA Joint Study Group 
Research Team: Dr. S. K. Mohanty, Dr. Priyadarshi Dash and  Ms. Surajita Rout
For setting up a Joint Study Group (JSG) to examine the feasibility of a comprehensive economic cooperation arrangement between India and COMESA, RIS is approached by the Ministry of Commerce and Industries to undertake the study. The mandate of the study is to focus on different dimensions of economic engagement between India and COMESA for deepening the bilateral economic cooperation. COMESA is emerging as an important destination of India for trade and investment. Bilateral trade linkages grew faster in recent years as compared to pre-recession period. It is one of the large trading blocs in Africa, extended from East to North of Africa, covering twenty countries from the continent.
The study may identify the strategic and economic interest and mutual cooperation; proposing a policy framework for enhancing trade in goods, services and investment; reviewing the existing institutional framework, infrastructure and mechanisms in bilateral trade and economic relations; identifying opportunities to expedite the expansion of trade in services, and progressively liberalise trade in services on a preferential basis with substantial sectoral coverage; evolving modalities for investment cooperation with a view to creating a favourable climate for encouraging investment flows across borders; explore the possibilities and scope of a CEPA, covering all areas of the bilateral economic relationship including trade in goods; investment; Intellectual Property Rights; Non-Tariff Barriers, in particular Technical Barriers to Trade and Sanitary and Phytosanitary Issues; Mutual Recognition Agreements; trade facilitation and customs procedures; Competition policy, monopolies and State enterprises; dispute settlement; etc. A Computable General Equilibrium (CGE) model is to be presented to examine the welfare effects of the proposed arrangement under different scenarios. It may take a year for completion of the study.
For conducting the study, RIS is designated as the knowledge partner of the Ministry of Commerce and Industries. The first phase of the study is completed and the interim report is submitted to the MOC&I. The interim report has covered discussion on core sectors of both economies. After receiving similar draft report from the COMESA secretariat, the second phase will be commenced. For the remaining chapters, work is in progress.