Select Committee on Foreign Affairs Written Evidence

Written evidence submitted by Dr Lawrence Sáez, London School of Economics




  Although facing common developmental obstacles, South Asia is one of the most dynamic economic areas of the world. Rates of economic growth—measured as percentage change in gross domestic product (GDP) at market prices—in the four major countries of South Asia (India, Pakistan, Bangladesh, and Sri Lanka) all exceeded 5.5% in 2005. Growth in South Asia has been sustained with two key sources of real expenditure growth, namely private consumption and fixed investment. Likewise, in addition to increases in economic growth, South Asia's developmental panorama has improved markedly. Although the economies of South Asia are predominantly low-income, human development indicators have also improved impressively. With an adult literacy rate of 90.4%, Sri Lanka has a Human Development Index (HDI) value of .751, the highest in South Asia. India had a score of .602, equivalent to a middle-income country like Bolivia. Three other South Asian nations (Pakistan, Nepal, and Bangladesh), had a nearly identical of .527, .526, and .520 respectively, low by international standards, but fast improving over the last decade.

  The economic gains in South Asia have been offset by numerous developmental challenges. They include an overall weak physical infrastructure (roads, ports, etc) and wide divergence in the delivery of social infrastructure (health, education, etc). Whilst these challenges have not scuttled the prospects for sustained economic development in the region, they could jeopardise potential sustainability in economic growth and human development. Taking into account South Asia's current developmental challenges—but future economic prospects—the European Union, in general, and the United Kingdom, in particular, have began to engage with South Asia on the basis of a strategic partnership.

  The level of engagement has taken many forms, it has emphasised a broad array of economic, political, cultural, and military dimensions. To date, the major evidence for a shared partnership between Britain and the Indian subcontinent includes the India-UK Joint Declaration. At an European level, the EU has just finalised the seventh round of the EU-India summit. Although the scope of bilateral relations with South Asian countries, other than India, are at a formative stage, the EU has repeatedly expressed its interest in building its links with the South Asia Regional Cooperation (SAARC). What is certain is that the United Kingdom and the European Union would benefit from further engaging with South Asia in a more systematic manner.

  This report will outline the roles that the United Kingdom and the European Union ought to take in order to best engage with South Asia. The emphasis of this report will be on collaborative engagement in the field of development, more concretely on how the United Kingdom and the European Union can most optimally assist South Asia. For reasons of space, the focus of this report will be narrowed to an examination of developmental collaboration, particularly in the energy field. This report will argue that British and EU collaboration with South Asia on the energy field will help South Asia meet its energy security requirements. This level of engagement, where Britain and the EU help South Asia move away from development assistance towards assisting development, will be mutually reinforcing.


  Historically, the UK has been the leading provider of development assistance and technical aid to South Asian nations. India is the leading recipient of development assistance from the UK. In 2005-06, development assistance to India reached £280 million. Other South Asian nations also were recipients of sizable development assistance packages from the UK. For instance, Bangladesh and Pakistan received £125 and £70 million respectively. The UK is the second largest provider of development assistance to Nepal, reaching £30 million in 2005-06.

  The EU has also been a recent contributor to development assistance to South Asia. As Table 1 shows, Bangladesh, India, and Pakistan are the leading recipients of development assistance from the EU.

Table 1


Recipient country
Amount (€ millions)
Primary purpose

Health, education, food security, and rural development.
Health, education, and economic cooperation.
Health, education, and economic cooperation.
Poverty alleviation.
Sri Lanka
Rural development and post-tsunami relief.
Rural development and poverty alleviation.

  Source: European Parliament.

  As Table 1 shows the development assistance patterns have shifted away from development assistance guided by concerns for rural development and poverty alleviation and technical aid towards development assistance in the form of technical assistance and economic cooperation.


  Over the next 30 years, South Asia faces two critical challenges that may alter its ability to sustain long-term economic growth. These two challenges are population growth and growth in energy demand needs.

  Several facets of South Asia's population growth patterns are worth considering. With an overall decline in child mortality rates and an increase in life expectancy, India and Pakistan are projected to have the first and fifth largest populations in the world by 2030.  As Graph 1 shows, India far outdistances its neighbours in terms of projected population growth. According to the medium variant population projections undertaken by the United Nations' World Population Prospects, India will surpass China as the most populous nation in the world by 2030.  Likewise, Pakistan's growth is noteworthy. Pakistan is projected to surpass Brazil to become the fifth most populous country of the world by 2025.

Graph 1


  Source: United Nations.

  The figures in Graph 1 suggest that the projected population growth of India (using three projections, namely high, medium, and low variants) suggests potentially unsustainable population size. Likewise, with a projected medium variant growth, Pakistan will nevertheless become one of the most populous nations in the world. The impact of such levels of population growth on energy consumption and economic growth are worth examining.


  South Asia's energy mix is highly dependant on oil imports. Sharp increases in oil prices have a devastating effect on fiscal stability. For instance, in 2004, India imported 1.94 million barrels of petroleum a day. A year later, it imported 2.39 billion barrels a day, a 23.4% increase from the previous year. Nevertheless the fiscal impact from a sudden increase in oil prices has been notable. In 2004-05, India spent $29.26 billion in crude oil and petroleum products imports (nearly 4.4% of GDP), a year later it spent $44.63 billion (over 5.7% of GDP).

  South Asia has one of the world's lowest levels of known oil reserves. For that reason, the domestic exploration and production of petroleum is not likely to increase dramatically. India has the largest known proven crude oil reserves of 5,919 million barrels. Exploration and production in the country has resulted in an increase in proven crude oil reserves of 6.4% since 2001.  India's crude oil production exceeded 651 thousand barrels a day in 2005.  Nevertheless, at present, India's total proven crude oil reserves constitute 0.51% of world total.

  The portrait for the availability of natural gas reserves in South Asia is also abysmal. India has proven natural gas reserves of 1,101 billion standard cubic metres. Pakistan and Bangladesh have proven natural gas reserves of 963 and 436 billion standard cubic metres. The proven natural gas reserves from these three South Asian countries constitutes 1.38% of the world's total proven natural gas reserves.

  As such, South Asia's closest source of crude oil and natural gas is Iran. Iran has proven crude oil reserves of 27,580 billion barrels and natural gas reserves of 136,270 billion standard cubic metres. Likewise there has been a lot of interest in developing a pipeline from Myanmar to India via Bangladesh. However, Myanmar only has proven natural gas reserves of 500 billion standard cubic metres.

  Given the constraints posed by crude oil importation from Iran, South Asia's energy demand needs are likely to be satisfied from other sources. The likely options for South Asian countries will be in one of the following energy generating sources:

    —  Coal

    —  Hydroelectric power

    —  Nuclear power

    —  Renewable energy

  The roles that the United Kingdom and the EU are likely to play in South Asia will be examined from each of this energy generating sources.

  As is illustrated in Table 2, South Asia's indigenous energy production is concentrated in thermal sources of energy. However, as Table 2 shows, there is a wide variation in the region's energy mix.

Table 2


Source of energy

240,457 (51.5%)
29,588 (50.1%)
9,544 (54.3%)
7 (0.08%)
177,887 (38.1%)
2,052 (3.4%)
7 (0.08%)
23,429 (5.1%)
3,486 (5.9%)
9,345 (53.2%)
39,141 (8.3%)
24,050 (40.7%)
102 (0.6%)
7,285 (1.5%)
2,208 (3.6%)
97 (0.5%)
201 (2.5%)
4,433 (0.9%)
728 (1.2%)
214,375 (45.9%)
26,468 (44.8%)
8,006 (45.6%)
7,858 (97.4%)
Geothermal solar
323 (0.06%)
Total (100%)
466,873 TTOE
58,993 TTOE
17,549 TTOE
8,066 TTOE

  Source: International Energy Agency (2006). Figures represent thousand tonnes of oil equivalent (TTOE). Figures in parentheses represent percentages.

  As Table 2 shows, there is wide inter-regional variation as to the dominant source of indigenous energy production. India—the largest economy in the region—has an installed energy capacity heavily dominated by coal, which accounts for nearly 40% of its domestically produced energy capacity. Aggregate thermal energy production is also the largest source of indigenously produced energy for Pakistan. However, it is worth noting that renewable energy is the largest single source of domestically produced energy for Pakistan. For Bangladesh, natural gas is the dominant source of indigenously produced energy, however renewable energy also amounts to a sizable component of the country's domestically produced energy capacity. Finally, Nepal and Sri Lanka produces almost all of its domestically produced energy in the form of renewable energy.


  Coal is the dominant source of installed energy capacity in India. As Table 2 shows, it is less prevalent in other areas of South Asia. India has large proven reserves of coal (92,445 million tonnes) Nearly 97.4% of India's coal reserves are in the form of anthracite and bituminous coal, types of coal with a high carbon content and comparatively low calorific content. Pakistan also has substantial proven coal reserves, almost exclusively in the form of sub-bituminous coal and lignite. The reliance on coal to generate energy could have an adverse effect on global warming.

  In addition to the environmental effects, productivity of coal mines in South Asia is low by international standards. For instance, although nearly encompassing 10.2% of the world's total proven reserves of coal, India only produces the equivalent of 6.9% of world's commercial coal production. The UK and the European Union can assist India and Pakistan with increased levels of mechanisation and improved mine design. Likewise, both the government of India and Pakistan have expressed an interest in developing coal-related sources of energy, such as coal-bed methane.

Hydroelectric power

  Given its abundance of rivers, hydroelectric energy ought to be a natural source of energy in South Asia. As can been seen in Table 2, though, an insignificant portion of domestically produced energy is accomplished through this energy generating method.

Nuclear power

  Among South Asian countries only India and Pakistan are capable of producing energy from nuclear sources. The amount indigenously produced by these two countries is very small. Nevertheless, the United States has taken a prominent role in facilitating the development of nuclear energy for civilian purposes. Under the US-India nuclear deal, India has agreed to separate its civilian and military nuclear programmes over the next eight years in exchange for US expertise and nuclear fuel. India has also agreed to allow its civilian nuclear facilities to be subject to permanent international inspections.

  Although expressing the shared interest in working towards achieving the goals and objectives of universal disarmament and non-proliferation of weapons of mass destruction and their means of delivery, the India-EU Strategic Partnership Joint Action Plan provides for bilateral collaboration in the area of nuclear energy. Likewise, the India-UK Joint Declaration also includes a provision for active collaboration between India and the UK in civilian nuclear activity. According to Article 17 of the Joint Declaration, the UK and India "agree to expand co-operation in the fields of civilian nuclear activities, civilian space programmes, and high technology trade, in accordance with their international obligations".

Renewable energy

  The domestic production of energy utilising renewable energy sources is an important component of South Asia's indigenous energy production. Renewable energy accounts for over 45% of indigenous energy production in India, Pakistan, and Bangladesh. The domestic production of energy using renewable energy sources accounts for over 97% of total energy production in smaller South Asian countries (eg, Nepal and Sri Lanka). Among South Asian nations, India has taken a leading global role in renewable energy. At present, India is one of the world leaders in wind power generation, ranking fifth in the world (behind Germany, Spain, the USA, and Denmark) in total installed wind power capacity. Moreover, India is a world leader in the manufacturing of certain types of equipment for the use of photovoltaic energy conversion. For instance, India is the world's fifth largest manufacturer of silicon solar modules.

  EU and UK collaboration on the renewable energy field, once again, have been enshrined vis-a"-vis India in the Joint Action Plan and the Joint Declaration respectively. For instance, the Joint Action Plan led to the setting up of an India-EU Energy Panel with the purpose of coordinating joint efforts and to discuss energy related matters of mutual interest. Based on the recommendation of the Joint Action Plan, the Energy Panel set up Working Groups in the areas of energy efficiency and renewable energies as well as coal and clean coal conversion technologies. The EU and India have pledged further collaboration in "promoting energy efficiency and energy conservation", in the "development of affordable clean energy technologies", and in the "identification of new technologies in the field of new, renewable, conventional and non-conventional energy sources". Likewise, the Joint Declaration subsumes a discussion about joint collaboration of alternative and clean technologies within the framework of science and technology collaboration. However, potential collaborative assistance that UK firms may be able to provide in the areas of renewable energy technology, particularly in the manufacture of wind turbines, offshore wind farms, and wave technology is rather underdeveloped at present.


  The roles that the United Kingdom and the European Union will take in South Asia will be defined by issues of mutual interest. This report has argued that one critical issue for the sustainability of South Asia development will be the security of its energy needs. The governments of South Asia face an imminent energy crunch and has the principal debate on how to alleviate this gap is via the alteration of their energy mix, either by further increasing oil imports or by moving towards the provision of energy through nuclear technology. As has been emphasized in this report, the security of supply, sustainability, and competitiveness are likely to be the key drivers of South Asia-UK and South Asia-EU energy cooperation.

  As has been shown in this report, the United Kingdom and the European Union can play a decisive role in assisting South Asian countries achieve energy security. This report recommends that the following suggestions be considered to facilitate this collaboration:

  Firstly, it is clear that South Asia, but particularly India and Pakistan, will face developmental and economic challenges as a result of burgeoning populations. The UK and the EU ought to further collaborate with the region in order to further reduce infant mortality and to assist South Asia in primary school teaching. Both of these measures would have a favourable impact in reducing population growth.

  Secondly, India and Pakistan's potential reliance on coal to generate electricity could have severe damaging effects on global warming. For this reason, the UK and the EU ought to collaborate with India and Pakistan in developing carbon sequestration mechanisms and other clean technologies, including nuclear energy.

  Thirdly, South Asia also imports substantial amounts of crude oil, petroleum products, and natural gas. Nevertheless, alternative sources of energy generation, such as a hydroelectric power and nuclear energy have not been developed in South Asia. At present, both the UK and the EU are losing ground to the United States in reaching agreements with key South Asian nations for the development of nuclear technology for civilian purposes. This trend ought to be reversed.

  Finally, the countries of South Asia generate a great deal of indigenously produced energy in the form of renewable energy, mostly in the form of wind generation and solar photovoltaic energy generation. Nevertheless, several potential sources of renewable energy are underdeveloped. The UK and the EU could collaborate with South Asia in the development of tidal power generation and bioenergy.

Dr Lawrence Sáez

London School of Economics

10 November 2006

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