Answer

Introduction

Despite initiatives like the South Asian Free Trade Area (SAFTA), South Asia remains one of the least economically integrated regions globally, with intra-regional trade constituting only 5-7% of total trade. This is far below blocs like the EU (45%), ASEAN (22%), and NAFTA (25%), reflecting deep integration challenges in the region.

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Factors Responsible for Low Intra-Regional Trade in South Asia

• Political Conflicts and Trust Deficits: Persistent tensions and border disputes, especially between India and Pakistan, have disrupted trade flows.
  Eg. India-Pakistan bilateral trade fell from $2.41 billion in 2018 to $1.2 billion in 2024.
• High Trade Costs: Intra-SAARC trade costs are as high as 114% of the value of goods, making regional trade less competitive.
  Eg. Trading between India and Pakistan is 20% costlier than India trading with Brazil, a country 22 times farther away.
• Inefficient Trade Mechanisms: Complex customs procedures, documentation, and poor infrastructure cause delays and spoil perishable goods at borders.
• Fragmented Policy Making and Weak Dispute Resolution: SAFTA’s sensitive lists and ineffective dispute mechanisms limit its impact on trade facilitation.
  Eg. Bangladesh, Maldives, and Pakistan have unexploited trade potentials of 93%, 88%, and 86% respectively.
• Security and stability concerns : Rising trade deficits and declining trade-to-GDP ratios along with exacerbating security concerns hampers economic stability in the region.
  Eg. Sri Lanka’s economic crisis sparked mass protests and  the Pahalgam terror attack in Kashmir severely affected tourism and business.
• Lack of Regional Value Chains: Limited cooperation in complementary sectors leads to missed opportunities for integrated production networks.
  Eg: India’s pharmaceutical sector, Bangladesh’s garment industry, and Nepal’s hydropower potential remain disconnected, reflecting missed opportunities for developing robust regional value chains.

Way Forward

• Address Trust Deficits: Promote Track II diplomacy and strengthen people-to-people ties to rebuild trust among SAARC nations.
• Enhance Sectoral Cooperation: Leverage complementary exports like Indian pharma, Bangladeshi garments, and Sri Lankan tourism for integrated growth.
• Streamline SAFTA Implementation: Reduce non-tariff barriers and introduce a robust dispute resolution mechanism to facilitate smoother trade.
  Eg. Simplifying customs via single window clearance can reduce delays.
• Invest in Infrastructure and Connectivity: Build multimodal transport corridors and improve digital connectivity for seamless cross-border trade.
• Promote Regional Value Chains: Encourage joint ventures and investments in key sectors like textiles, agriculture, and IT services to foster economic interdependence.
  Eg. Cross-border agribusiness collaboration can improve supply chain efficiency.
• Shift Discourse Towards Shared Prosperity: Move from zero-sum political mindsets to cooperation based on mutual economic and security benefits.
  Eg. The EU’s post-war integration model demonstrates the benefits of prioritizing common goals.

Conclusion

South Asia, home to 25% of the world’s population, holds immense potential for economic growth through deeper integration. Overcoming political, infrastructural, and procedural barriers can unlock this potential, leveraging the region’s demographic dividend for shared prosperity and stability.

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