It’s relatively easy to go from low income to lower-middle income. Now things will start becoming more difficult: Dr Sanjay Kathuria

Dr. Sanjay Kathuria is writing a book, tentatively titled Trade, Trust and Peace: Nudging the Future of Two Billion South Asians. After it is published, it will become required reading.

Dr. Kathuria has led thinking on the economic future of South Asia for more than a decade. His innovative research at the World Bank, where he served as a lead economist, defined trade, investment, and connectivity opportunities that are now tantalisingly close for South Asians. 

Today, he is a senior visiting fellow at the Centre for Policy Research in India, and nonresident senior fellow at the Institute of South Asian Studies in Singapore. He also teaches at Ashoka University in India and Georgetown University in the US. 

In this interview with Adam Pitman, Dr. Kathuria discussed two pressing issues in Bangladesh: a US trade promotion scheme and the pace of domestic reform. 

The General System Preferences (GSP) is a sore point in the US's relationships with both India and Bangladesh. How receptive are Americans to reinstating the GSP for India and Bangladesh?

I think there are many people who empathize and sympathize with the argument of reinstating GSP – especially those who have studied, or understand, the role of trade in ameliorating poverty, which is massive. We know that. And Bangladesh is often cited as a country that has benefited hugely from trade and poverty linkages. I think there are lots of people who get it. 

We know the impact of reinstating GSP will be a fraction of the current export volumes of India and Bangladesh. It's going to be [the equivalent of] roundoff errors. But the impact on perception in India, and even more so in Bangladesh, will be big. And it seems to be such a no-brainer.

But in terms of political priorities [in the US], it just doesn't make the cut. 

The problem is that domestic politics increasingly takes primacy over everything else. And it often works at cross purposes with sensible trade policy. 

The [US'] midterm elections are coming up in November. Before that, I hope Congress will reauthorize the broader GSP program. I doubt the administration will even propose GSP access for Bangladesh and India, let alone test the waters. They're not going to venture along those lines before midterms.

What will happen after November? It is hard to say, with a likely change in the balance of the House. However, both India and Bangladesh are important for the US' agenda in the Indo-Pacific, so I hope there will be bipartisan discussions on a way forward to reinstate the two countries into the GSP. 

Should the US government be using the GSP to press concerns over labour rights and workplace safety in Bangladesh?

I'm not a great fan of making those kinds of linkages between GSP and labour rights and workplace safety. As economists say, 'we should have one policy for one goal.' 

GSP is meant for trade concessions to promote trade – let's stick to that. There are other ways to address the issues that you cited, which are very concerning, no doubt about it. 

After Rana Plaza, there has been global pressure to address workplace safety and labour rights. There is consumer pressure. There is NGO pressure. The ILO is involved. 

Labour rights and workplace safety are being addressed, for example, through the setting of standards with buyers and suppliers. The government is involved in that process. 

This has been happening since Rana Plaza. So, I think these forums and accords are the appropriate place to address workplace and safety issues. 

Dr Sanjay Kathuria. Sketch: TBS

My point is: why should we punish workers for the fault of, say, a factory owner? Those who have been at fault will be punished. Let's not mix up too many things. 

At what point does Dhaka need to embrace tough reforms to sustain Bangladesh's growth?

I would say, 'yesterday.' I really worry about complacency, which is induced by stable and solid growth. The talk of a Bangladeshi miracle is deserved. But the job of policymakers, and the planning commission, and intellectuals, is to think of tomorrow. 

I think intellectuals are talking about it. But I think there is a great deal of complacency among policymakers. In Bangladesh, it's been infrastructure-focused development. So, there has been what could be called 'the hardware of growth,' but 'the software of growth' has really been missing. 

The hardware relates to capital investments— like in roads, bridges, digital infrastructure, and so on. But I think a lot of what is missing relates to software of growth – policies that create a business-friendly investment climate, and the right mix of incentive and trade policies. 

There are other reforms that involve both a hardware and a software component – like skill development. There will be a capital investment component to getting workers ready for a more demanding market, and addressing the skills needed for the very different world unfolding before us. 

Relatively speaking, it's easy to go from low income to lower-middle income, which is what Bangladesh has done. Of course, it's relative – many other countries haven't been able to do that. 

But now things will start becoming more difficult, not only because of LDC graduation, and the loss of preferential trade markets, and access to cheap capital, but just simply because that's the nature of development. Once you have achieved growth by pouring in capital and investment, the harder part comes next. You have to start reallocating resources to improve productivity. 

There is also a real anomaly in Bangladesh's development pattern: Bangladesh has not gone beyond garments into other labour-intensive sectors in a big way. There is no other country that I know of which is so dominated by a single product in terms of its export basket. 

What we need now is policy making for the next phase of development. This is the tougher part. 

Reforms are called for in many areas, such as: trade policy; making it easier to do business; developing skills needed for a more complex and demanding world; addressing the costs of climate investment; developing growth hubs outside of Dhaka and Chittagong; developing accountable institutions. 

These are all serious issues, which should be exercising policymakers. 

Every country has its own particularities. Bangladesh has to draw on economic history, and lessons of development, from those that are further ahead on that path, and apply them to its own experience. 

The steps that Bangladesh will have to take will affect vested interests. It will affect those who currently gain from the regulatory dispensation. So, the reforms are not going to be easy.