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Dr. S. K. Mohanty, Professor

2013- 14


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
Since its inception in 1997 the Indian Ocean Rim Association (IOR-ARC) underwent comprehensive changes in terms of trade, investment, diplomatic engagements, people-to-people contact and cultural exchanges. Against this backdrop, it was considered imperative to undertake this study in continuation of the RIS ongoing research programme on Indian Ocean Rim Association for Regional Cooperation (IOR-ARC). The study broadly aimed at examining the progress made in the areas of regional economic cooperation particularly with respect to intra-regional trade, cross-border investment flows and other forms of economic cooperation. Further, the study assessed 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 processes within their respective sub-regions. Besides capturing dynamics in trade and investment flows, estimates of trade potential for the member states were generated at the aggregate as well as at the sectoral levels. These estimates suggested that potential gains from regional liberalisation could be substantial in invigorating trade and investment flows within the region. Sectoral cooperation was found to be the key driver of region’s economic prosperity in the future. Despite significant lead in many areas of regional cooperation the pace of regional processes was relatively slow. The study attributes this slow momentum to lack of strong institutional mechanisms and little progress in time-bound projects agreed at different high level meetings. The study came up with 10-point recommendations for promoting economic integration that range from trade facilitation, harmonising regulations, global value chains, sectoral cooperation, etc., among others which was subsequently referred to the Trade and Investment committee of IOR-ARC to examine feasibility of their implementation.

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 pivotal to economic growth and development. In the context of regional integration, a healthy stock of physical infrastructure facilitates cross-border trade and enables efficient utilisation of regional resources by improving connectivity between the resource-rich regions and 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 substantially lowered transaction costs, reduced transit time, enhanced mobility in the lagging regions and helped integrate the periphery to the core. In that respect, sustained flows of infrastructure investments is central to the regional infrastructure development. There are a number of regional initiatives for promoting infrastructure investments. 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 RIS with funding from the Council 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
Fishery is a major economic sector for 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 and 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 and apparels, leather, food processing, automobiles, pharmaceuticals and 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.

Expanding Trade and Investment Linkages between India and Africa: Towards a New Strategic Economic Partnership 
Project Leader: Prof. S. K. Mohanty
India emerged as a vibrant economy before the onset of global financial crisis and the onset of global recession had an adverse effect on the growth prospects of the Indian economy by constraining its export sector. After a prolonged period of slumps in the global economy, several African countries have gradually returned to comfort zone in recent years. In this context, multi-layered engagement of India with these vibrant trading partners may facilitate speedy recovery of Indian trade. It may be recalled that the regionalism has been taking the driving seat following failure of the multilateralism to steer the global trading system. India’s renewed focus on regionalism has contributed to its rising share of high-tech products in exports, leading to change in the composition of its exports, moving gradually away from primary and resource-based exports to more technology-intensive sectors. Simultaneously, India is looking for alternative arrangements to diversify its growing export sector through the regional process. Indian exports are becoming more technology intensive through regionalism than the normal process of trade. Such structural change in the export sector has picked up fast through the regional process during the past decade. These developments suggest that India’s future engagement with regionalism could be worthwhile but with a selected set of RTAs. Since African economies are emerging and recovering speedily from recession, India’s engagement with these economies could lend support to its efforts to achieve early recovery from the present global impasse. The study is to focus on normalisation of trade engagement of African states with India by reducing trade gaps at the bilateral level; examining trade opportunities existing in the region; exploring the nature of protectionism in African countries; identifying and prioritising selected countries and RTAs for improving India’s market access in the continent, among others.

Economic Interest of India to Consider Joining Trans Pacific Partnership Agreement in the presence of RCEP and TIPP 
Project Leader: Prof. S. K. Mohanty
India has been pursuing the policy of regionalism since the 1970s although country’s support for multilateralism has been undisputed. During the past four decades, India has been engaged with number of regional trading arrangements which are at different stages of negotiations, but efficacy of these regional groupings is under scrutiny for minimising the risk of over exposure of the external sector. The 21st century mega RTAs like TPP, TTIP and RCEP are likely to dominate the global trading system in future and the TPP has already subsumed seven Members of the RCEP and a few of them have shown interest to join the caucus. The TPP is the 21st century RTA which has a stringent agenda of undertaking sweeping reforms in the Member countries. India is already a Member of the RCEP and many countries from the grouping including India, China, South Korea, Thailand, Indonesia, etc., are yet to join the TPP. Joining of China in the TPP is a most important consideration for the grouping since the hidden objective of the TPP is to limit the expansion of Chinese trade and political influence in the Global economy. In this situation India joining the TPP means critical for the country as it has to undertake enormous country-wide reforms to be part of the grouping. At the same time, India has to take the risk of losing large trade opportunities if not joining the mega regional caucus. Timing of joining and loss of trade opportunities are empirical questions which need to be examined for complementing the policy making process.

Chinese Trade Engagement with the South Asia: Implications for the Regional Economies
Project Leader: Prof. S. K. Mohanty
South Asia has emerged as a vibrant region in the world economy during the past decade, with external sector as the driver of growth for most of the regional economies. This has attracted the global interest for trade and investment with the region including China among others. As an immediate neighbouring country, Chinese engagement with South Asia has been impressive during the last decade. China is deeply engaged with the South Asian regional economies, particularly more with exports than imports, leading to widening of trade gap with many economies. With many of them, China has emerged as the most important partner in recent years. Empirical evidences suggest that large number of products, exported by China to India, are not competitive as compared to many other competitive foreign suppliers in the domestic economy, because of numerous trade strategies adopted by Chinese exporters supported by their state. Chinese exports and imports are more becoming more technology intensive in nature. China is seizing the export opportunities, which are created for the regional economies and losses of such trade opportunities meant for the South Asian regional economies are putting pressure on intra-regional trade to grow. China’s aggressive exports to the region is a natural phenomenon as the country has entered into the bracket of upper middle income group, reaching the threshold of losing global competitiveness in diversified sectors on the face of rising domestic wage rates and depletion of domestic reserve of natural resources.
China continues to sustain certain industries with the support from the state with the compelling social objectives of maintaining livelihood security for those working in the sector. Such production requires market access for its exhaustion and South Asia has been used as a backyard for these Chinese products. Implications of large exports to South Asian economies by China can be seen in two distinct areas. Firstly, Chinese exports are reducing space for exports within the regional economies as these export opportunities are grabbed by China, and this may end up with reduction in IRT. Secondly, Chinese exports to South Asian countries are rising without any commensurate imports from these economies, resulting in widening of trade gaps with them. The study is to examine empirically these broad issues in the context of China’s growing economic engagement with the South Asian region

Expanding Investment Cooperation in South Asia: Feasibility OFDI from the Region
Project Leader: Prof. S. K. Mohanty
The South Asian region has strong potential to grow, but it has been unable to optimise its growth potential due to its inability to attract sizable FDI. The region is not only a recipient of FDI but also engaged in OFDI. Mobilisation of FDI within the region may help the region in its endeavour to move from shallow to deep integration in a reasonable timeframe. There is a need for a comprehensive regional approach toward balanced flow of FDI in the region considering the investment potential in the region for industrial restructuring. Recent studies show that the region has large potential in Regional Value Chain (RVC) in diversified sectors. Building new institutional set up, particularly South Asia Investment Area could promote production integration. Intra-regional investment (IRI) flow has been very low as compared to several other regional groupings in Asia. India being the largest source of OFDI in the region, has very little stake in the region. The study is to examine the reasons for the low FDI flows to the region; to estimate levels of IRI for number of comparable RTAs over a period of time; to explore the reasons for low Indian OFDI to the region and suggest measures to improve investment climate in the region.

Empirical Assessment of Trade Effects of Non-Tariff Measures: A Cross-Country Analysis 
Research Team: Prof. S.K. Mohanty; Dr. Priyadarshi Dash; and Mr. Monu Singh Rathore
With gradual lowering of tariffs, non-tariff measures (NTMs) are perceived to be the most formidable impediments to global trade in the future. At the same time, NTMs, which were traditionally considered as non-tariff barriers, are increasingly being accepted as trade-promoting measures from the angle of its disciplining effects on streamlining trade procedures and minimising distortions in market access. Since NTMs have substantial descriptive content, it is often found difficult to precisely quantify the severity of different NTMs and their impact of trade. Further, data on many of those NTMs lacks consistency for inter-country and inter-sectoral empirical analysis in order to gauge the differential impact of NTMs on trade. Moreover, it is in the interest of developing and less developed countries for clear understanding of various NTMs and associated costs and benefits in promoting cross-border trade. In that light, a study on the trade effects of NTMs is timely and highly relevant for ongoing policy discussions on trade policy reforms. This study will attempt to analyse recent data on NTMs and methodology concerning impact assessment, and empirically examine the impact of NTMs on trade across different country categories and measures.

Diversifying Technology-intensive Export Products through the Regional Process 
Project Leader: Prof. S.K. Mohanty
Trends in global trade indicate that there has been proliferation of trade in technology-intensive manufacturing products. RIS has initiated a study to identify the globally dynamic products of trade, with high and medium technology intensity. India has been diversifying into technology intensive products with a fair amount of success with export of high technology and medium technology product growing faster than the total exports of India. Further, diversifying India’s exports to include more technology-intensive product groups is of vital importance. Export potential in medium and high technology-intensive products varies across different RTAs. Initial empirical evidence suggests that Indian can diversify its exports of technology-intensive products to RTAs. The European Union (EU), North American Free Trade Agreement (NAFTA), RCEP, Asia-Pacfic Trade Agreement (APTA), South African Development Community (SADC), East African Community (EAC), Economic Community of Western African States (ECOWAS), Economic Community of Central African States (ECCAS), Association of South East Asian Nations (ASEAN), South Asian Association for Regional Cooperation (SAARC), Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), Common Market for Eastern and Southern Africa (COMESA), etc., could be some important export destinations with sizeable trade opportunities.

India-COMESA Joint Study Report 
Research Team: Dr. S. K. Mohanty, Dr. Priyadarshi Dash and Ms. Surajita Rout
RIS has been approached by the Joint Study Group (JSG) to examine the feasibility of a comprehensive economic cooperation arrangement between India and COMESA. The mandate of this 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 the recent years as compared to the pre-recession period. It is one of the large trading blocs in Africa, extended from the East to the North of Africa, covering twenty countries from the continent.
The study aims to identify the strategic and economic interests for 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 (MOC&I). 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. Recently, a joint meeting between the India and the COMESA study team was held in New Delhi for preparation of the rest chapters of the Report