4.2.4.3 Deregulation
Deregulation has been attempted in many ESAP countries such as India, China, Thailand, and Indonesia; developed ESAP countries (Australia, New Zealand and Japan) have taken the lead. While the impact of fiscal reform on AKST may not be direct, it is important to see that countries that have made structural changes have attracted a significant amount of private investment in AKST—especially in food processing and retailing, biotechnology, and specialized product development like organic agriculture.
Overall the macroeconomic policy reforms in South Asia began by liberalizing trade. The current scenario promises that this trend will continue well into the future with implementation focusing on deregulation and privatization (Kemal, 2007). The degree of openness in the economy will continue to be high in Sri Lanka; India will be the most closed (relatively) for some time to come (World Bank, 2006a). The latter is to be expected until employment growth rates match the growth rates of the economy; unemployment in an economy that is increasingly deregulated will remain a major concern for the Government.
In India, many argue that deregulation with trade liberalization spells doom for the agricultural sector (Ghosh, 2005; Patnaik, 2005). Specifically for AKST, deregulation will imply that poor farmers will increasingly lack the resources to buy essential inputs, access relevant S&T inputs and information and participate in crucial export-market driven agricultural developments. This may lead to an overall increase in hunger and poverty among the already poor in rural areas. Given the growth and diversification patterns in Indian and Chinese manufacturing and trade (including domestic trade) it appears that the apprehension that import liberalization might lead to a large-scale demise of domestic industries is unwarranted (Mani, 2005; Veeramani, 2007). Domestic industry in the Asian region has been able to and will continue to compete and survive by specialization in narrow product lines (Veeramani, 2007).
There is a likelihood of increasing concentration of agricultural input and output actors with a few multinationals converging to control a major share of the global agricultural markets. Given the rate of growth of supermarkets and the increasing openness in Asian economies to Foreign Direct Investment in food retailing, it is estimated that by 2010 there will be only 10 major global retailers of food (Vorley, 2001; Reardon et al., 2003). All food grain trade in the region will be controlled by a few major transnation-als like Cargill, ADM (Archer Daniel Midlands), Conagra, Monsanto, Nestle and Atria (who now control over 90% of global foodgrain trade (Shrivastava, 2006). Cargill will steadily increase its investments in the oilseeds and edible oils market and it promises to increase its share in the Asian vegetable oil market in the future.
Implications for the agriculture sector arising from increasing deregulation of the economy include massive growth of private investment in agribusiness, especially in commodity markets and retail trade, and increasing standardization of agricultural produce from the region. What this implies for the diversity of food systems in Asia is not known yet, though it is likely that some provisions such as "geographical indicators" may enable development of a market niche for select agricultural products like basmati |
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rice, jasmine tea or tussar silk. A direct positive impact of deregulation will be in increasing the linkages of the agricultural sector with other manufacturing and service sectors, thus expanding resources and facilities for growth.
4.2.4.4 Infrastructure
Infrastructure constraints affect economic growth in the ESAP region. If economic growth is considered important and is held as a key to poverty reduction, then all the ESAP countries will invest heavily in infrastructure provision and improvements. Currently there is a major gap between levels of infrastructure investment and access to basic infrastructure between the East Asian economies and South Asian economies. Significant improvements in infrastructure investments can add up to 0.85% per annum to economic growth in China (2005-2014), 0.80% in Indonesia, 1.32% in India, and 0.45% in Bangladesh (Ianchovichina and Kacker, 2005). It is estimated that the Asian economies will have to invest at least 6.5 to 7% of their GDP on infrastructure provision during 2005-2010, without which there will be increasing infrastructure constraint to economic growth (Fay and Yeppes, 2003; Jones, 2006). Currently only China and Viet Nam seem to be investing at these rates. Countries like India, Indonesia and Philippines have fallen behind their own target investment levels, with the marginal increase in private capital investment in infrastructure not compensating for the decline in public investment over the 1990s and early 2000s (Jones, 2006). In all these economies, the overall macroeconomic orientation seems to follow the trend from the 1990s, with increasing foreign direct investment (FDI) in infrastructure development, more relaxed norms and less formal approval regimes, special incentives for technological improvements or export oriented units (in industrial investments) encouraging private infrastructure investments.
Liberalization has had a direct impact on infrastructure development in the ESAP region. Investment levels have been high since the early 1990s in the entire region, with countries investing an average of 30% of GDP in various investments, with much of this (ranging from about 1-14%) share going into infrastructure development (World Bank, 2006b). The growth of rural infrastructure, especially rural roads, has been shown to have a positive impact on the growth of private extension in South India, electronic commerce and crop advisory services in the Deccan Plateau states of Andhra Pradesh, Maharashtra and Karnataka (Dhan Foundation, 2005; Prahalad, 2005). Another key infrastructural investment is in the water and sanitation front, creating immense opportunities for services and achievement of the broader MDGs (Farrington, 2006).
A major development that will transform infrastructure and development opportunities across Asia has been the recent Intergovernmental Agreement on the Asian Highway Network (adopted in 2005) and the Intergovernmental Agreement on the Trans-Asian Railways (see www.unescap. org). These UNESCAP-led pan Asian infrastructure investments will lead to direct road access across South-East-Central and West-Asian countries and will also provide a land link to Europe, as well as dry ports which can consolidate and distribute produce, create employment locally and pro- |