The central thesis of the 2001 Report on Human Development in South Asia is that globalisation, though an inevitable process and an imperative for nations to participate in this process in order to draw its potential benefits, is by no means without its risks. It requires many enlightened policies on the part of national governments, international organisations, private sector and civil society to translate the benefits of economic growth that result from globalisation into enriching lives of ordinary people.

The report comes up with several messages:

The first message is that during the globalisation phase about half a billion people in South Asia have experienced a decline in their incomes. The benefits of economic growth that did take place were limited to a small minority of educated urban population. In South Asia, income inequality has increased. It is argued that at the initial stage of opening up the economies to a competitive global market, income inequality will rise, but eventually everyone will gain. With continuing reforms, productivity and efficiency will rise and the country’s shares in global trade, finance and services will increase. But who bears the burden of short-term costs? The record so far shows that it is the poor who bear the heaviest burden, and they are the ones who do not have any means to support themselves in bad times.

The second central message, which follows from the first, is that economic growth and human development must move together, otherwise neither growth nor human development can be sustained. This requires much more investment in human development, particularly universal quality basic education as well as higher levels of education and skill training to enable the countries to compete in the global marketplace. In order for economic growth to be job-led, focus should be on labour-intensive as well as knowledge-intensive patterns of production.

The third message is that South Asia must reinvigorate its regional economic cooperation mechanisms already in place (SAARC and SAFTA) to enhance the region’s ability to gain from regional as well as global trade, and to improve the negotiating capability of South Asia in global forums.

Globalisation, in the ultimate analysis, is to be seen as only a means to enhance people’s wellbeing. All policies and programmes must focus on people. So, first, we need to understand the process that is at work here in South Asia as well as around the world. Secondly, we need to assess globalisation from the point of view of human development and poverty reduction. The mission of this Centre is to approach every issue from the perspective of the people. How globalisation is impacting on the majority of people? How are they participating and benefiting from globalisation? And, how national and global institutions of governance are responding to the needs and concerns of people? These are the questions that we raise and try to answer in this report.

The globalisation process in South Asia has focussed on integrating markets without improving the condition of the vast majority of South Asians.

To understand the globalisation process and its outcome, one needs to deconstruct globalisation. Not all the components or flows of globalisation are moving in the same direction. While capital moves freely, and information and communication are getting freer, labour movement, mostly the unskilled, is restricted, and trade is not fully liberalised, especially of goods of particular interest to developing countries. The balance sheet of gainers and losers in the globalisation process shows the uneven burden borne by the poor within and among nations.

During the globalisation period, income inequalities have widened in South Asia. The number of people in poverty has increased. The levels of human development, though improved since 1960s, have started to stagnate or even decline. The poor are being marginalised.

The opening up of markets has suddenly thrown the domestic industries to face a highly competitive world, resulting in the closure of many industries. On the other hand, trade barriers erected by the developed countries have hampered the growth of exports of labour-intensive goods from South Asia. The skilled labour, especially workers in the information/communication technology sector, has been the main beneficiaries of globalisation in this region. The provision of social safety nets has also been weakened in the region, as the governments’ ability to help the victims of globalisation has been eroded.

South Asia’s integration with the trade and capital markets have expanded considerably, yet South Asia remains among the least-integrated regions in the world.

By the end of the 1990s, average tariff rates fell rapidly in all countries, with the regional average falling to 20 per cent. In Bangladesh, the average tariff fell from 114 per cent to 22 per cent, and in India, from 82 per cent to 32 per cent. Yet South Asia’s average tariff rates remained much higher than, for example, Korea or Malaysia where the average tariff rate was 9 per cent or less.

Depreciation of real exchange rates, among many other export promotion measures, led to export growth rate of about 10 per cent per annum during the 1990s. Exports structures have also changed from primary commodities towards more manufactured goods and services. Within manufactures, labour-intensive goods, such as garments and textiles, jewellery and leather goods dominated manufactured trade. Exports remain concentrated in a limited number of products such as clothing and textiles, and destinations such as United States and European Union. Nepal’s export is concentrated in only one product, carpets. India is the one country in South Asia with the fastest growing share of high technology exports.

South Asia has also become more financially integrated over the past decade. Aggregate net resource flows to the region have expanded rapidly during the 1990s, however most of these flows are composed of foreign direct and portfolio investments. Despite this increase, South Asia’s share of total private capital to developing countries has declined over the past decade, falling from 7 per cent during the 1980s to 3 per cent in the 1990s.

From the record to date, it is unclear whether greater integration with the world economy has benefited economic growth in South Asia. Comparing the average regional GDP growth rates between pre- and post-globalisation periods, it seems that growth has in fact been lower during the 1990s, despite India’s high growth rates. It appears that greater economic integration has yet to translate into sustained growth for the majority of South Asian countries.

Globalisation has not been accompanied by reduction of poverty or improvement in human development.

Prior to globalisation, South Asia had experienced high population growth rates, high levels of illiteracy, poor health attainments, pervasive poverty and inequitable distribution of income and assets. These initial conditions did not improve much during globalisation as the South Asian average growth rate, which was 5.8 per cent during 1980-89 fell to 5.4 per cent during 1990-98. Also, during the globalisation phase, there were no adequate policies and funding in the social and economic development fields to reduce poverty or to make any meaningful difference in the lives of the majority of the population.

• South Asia, home of the largest number of poor people in the world (515 million) did not make much progress towards poverty reduction. While the incidence of poverty declined both in terms of depth and severity, disparities between rural and urban areas persisted. The income distribution across the various economic groups worsened during globalisation.

• On the educational front, South Asia didn’t fare very well either. Over 40 per cent of children did not reach grade 5 in the 1990s. Sharp gender disparities were observed in the mean years of schooling between male and female students. With globalisation, the demand for highly skilled and specialised labour force increased. However, none of the countries mobilised or provided additional resources to the tertiary education sector.

• Health expenditures were reduced to levels that were lower than those in the pre-globalisation period. Over one fifth of population in the region did not have access to health care services. The globalisation period was thus characterised by declining provisioning of public health facilities, and declining population to health personnel ratio. The region also experienced increasing cases of infectious diseases like TB, malaria and the emergence of HIV/AIDS, which put further strain on the health care systems in the region.

• All South Asian countries have been implementing several poverty alleviation programmes over the past decades, financed mainly by the state. With the onset of globalisation, the resource allocations to these programmes have been declining, reducing their effectiveness. The social security provisions, available to the working population, also decreased with changing employment structures, as more people were pushed into the informal sector.

Most South Asian countries failed to maintain a balance between economic and social development policies during globalisation. An equitable globalisation process requires the integration of the financial, trade and investment policies with those of social development. The stabilisation and structural adjustment programmes of the IMF and the World Bank, and the new trading regime of the WTO, have led to fiscal compression, tariff reductions and cutbacks of public provisioning of social services. The social services expenditures in the post-globalisation period remained stagnant at the prevailing pre-reform levels, reducing the coverage and effectiveness of service delivery.

Economic reform programmes have failed to increase growth substantially or achieve macroeconomic balance.

In Bangladesh and Nepal, the growth rates during globalisation have been modest and in Sri Lanka the growth rate has faltered during the second-half of the 1990s. In Pakistan, growth has declined. Only India has been able to achieve a growth rate of above 6 per cent.

The sequencing of reform measures, such as reducing tariffs before expanding tax base and improving collection, or curtailing government borrowings from the banking system before restructuring the public sector expenditure, was not well-tailored to achieve the desired results.

Agriculture has performed badly during globalisation. Not enough policy focus was given to this sector either to protect it from the vagaries of the market or to make it more competitive to face globalisation.

Trade and current account balances have remained negative in all countries during the 1990s. India’s position has been relatively better, and Nepal’s worse. Despite increased inflow of FDI to India and Sri Lanka, South Asia has not been a preferred region for attracting FDI.

Employment expansion in none of the countries has been significant. Weak employment creation, low growth and low allocation to social sectors explain South Asia’s slow progress in poverty reduction and human development during the globalisation period.

There is a worldwide movement for forming regional trading blocs, yet intra-regional trade within South Asia is very low compared to such trade in other regional groupings.

There are many advantages for forming regional trading blocs: it promotes economic cooperation among the members; improves the competitive position of the group in a globalised world; facilitates political harmony within the group; and forges a collective bargaining position in global negotiations. Yet in 1999, trade among the South Asian countries was less than 5 per cent of the region’s total exports, compared to 22 per cent in ASEAN and 55 per cent in NAFTA.

In South Asia there are enough economic reasons for promoting intra-regional trade and cooperation. Direct trade in goods that are being diverted through third countries will benefit all countries. Besides, many goods being imported at higher costs from outside the region can be made available from within the region.

If South Asian countries remain aloof in a world of trading blocs, they stand to lose. In a world that is headed towards free trade, regional agreements would facilitate the entry of smaller nations in the multilateral trading system on a preferential basis. It is important for South Asia to acknowledge the welfare gains from their own regional arrangements which would at the same time prepare the domestic producers for the rigours of multilateralism.

A global economy has emerged, but the institutions of global governance are not performing either efficiently or equitably.

The Bretton Woods Institutions (IMF, World Bank, GATT/WTO) were created to serve as global institutions for maintaining financial stability and for promoting development and trade. But the impact of policy conditions of these institutions falls disproportionately on the poor.

While the early policies of these institutions were designed in the spirit of building the capacity of the state, over time there has been a trend towards reducing the role of the state and moving towards liberalisation and privatisation. The IMF loans are useful as a certificate of creditworthiness for accessing other multilateral and bilateral loans and grants, but the conditions attached to these loans make it impossible for countries to get out of debt trap.

It is true that the decisions regarding the budgetary allocations for social development are made by national governments. However, in view of diminished revenue and increased costs of debt servicing, the governments in South Asia are finding it increasingly difficult to allocate adequate resources for social sector programmes.

Since the late 1980s, poor economic management of the public sector led both the IMF and World Bank to shift their focus from state-led development efforts towards market and private sector-led development. But the liberalisation policies have yet to lead to efficient allocation of resources, higher growth rates and reduced deficits. Most developing regions, including South Asia, have been running higher current account deficits without achieving higher growth rates. This is primarily due to widening trade deficits as exports are not expanding as much as imports.

It is generally feared that the structural adjustment programmes of subsidy elimination, removal of trade restrictions on agricultural commodities, and an overall unification of local with global prices will leave the poor farmers in South Asia most vulnerable.

As tariff barriers have fallen in developing countries, the world has been further divided along income lines, separating the global rich from the global poor. While developing countries have reduced their tariffs to levels lower than what was required by the WTO agreement, developed countries have not delivered the promised tariff reductions on goods of key interest to poor countries.

Agriculture in most developed countries is sheltered behind high tariff walls, farm subsidies, loan guarantees and non-tariff barriers. Developing countries that are heavily dependent on agricultural exports are at a great disadvantage in terms of competing against the heavily-subsidised agricultural products of the North.

From the human development perspective, institutional policies of multilateral organisations have resulted in increased deprivation of the poor , rising unemployment and unsustainable development practices.

Positive effects of globalisation on economic growth and human development depend on how the process is managed nationally and internationally.

At the national level, South Asian countries need to make sustained efforts in four policy areas: accelerate human development, especially education; reduce poverty; improve economic management; and enhance regional and global integration.

• South Asia must prepare its labour force to face global competition. Central to this is the strategy to provide quality primary education to all school-age children, provide them appropriate skill-training as well as higher levels of education in new technological fields. While governments should allocate sufficient resources for primary and secondary education, private sector should be mobilised to set up technical institutions for imparting training for higher levels.

• Poverty reduction strategies must be built into the micro and macro policies. Globalisation policies to focus on cash crops instead of food crops, and capital-intensive rather than labour-intensive industries need to be analysed to assess their impact on the poor.

• Economic management in all countries needs to be improved. Reforms must continue but with a human face. The focus should be on improving management of resources, reducing corruption, taxing the rich, cutting the non-merit subsidies, and establishing the institutions to implement and monitor reforms. All globalisation policies and strategies must be judged by one yardstick: how are they impacting on people, on poverty reduction, on job creation, on children and on women.

• Integration with the global economic system should be enhanced. But South Asia needs to continue in more traditional labour-intensive low-technology exports, as well as diversify into more high technology goods and services. India’s success in establishing a niche for itself in the fast-growing global software and information technology market demonstrates that such diversification can be achieved.

At the global level, a time may have come to revisit some of the excellent ideas for reforming the institutions of global governance. This report has listed only three: World Central Bank, Economic Security Council, and the Tobin Tax. The developing countries badly need today a lender of last resort at the global level to rescue them from short-term liquidity crisis, without turning it into a long-term development crisis. There is also a need to establish an Economic Security Council at the United Nations to address the economic and human security aspects that threaten the global community, just as the UN Security Council looks at the political and military aspects. Also, in view of the recent volatility of financial markets exacerbating poverty and human crisis, the Tobin Tax proposal to tax speculative movements of short-term capital needs to be considered seriously by the global community.

The roles of civil society in guarding the poor against the disproportionate burden placed on them, and the private sector in playing a supportive and compassionate role in humanising globalisation are essential. Governments alone cannot monitor everything and deliver all the services. But globalisation process requires an activist government to protect the vast majority of South Asians, with the help and active support of the civil society and private sector.