Paper: GS – II, Subject: International Relations, Topic: India and its neighbourhood, Issue: Economic integration in South Asia.
Context:
India’s economic and security concerns were highlighted by U.S. tariffs under Trump administration and Pulwama terror attack. Though seemingly unrelated, both underscore the need for strong regional economic integration for stability and security.
Key Highlights:
The regional of South Asia:
- Least integrated regions: South Asia is among the least economically integrated regions globally.
- Intra-regional trade under SAFTA: Trade percentage among major blocks.
- SAARC trade volume: Just $23 billion, far below its potential (~$67 billion).
- Combined GDP of South Asia: $5 trillion with 25% of world population. EU (5.8% of population) has GDP of $18 trillion – showing South Asia’s underutilised economic potential.
Unrealised potential of South Asia:
- Unrealised potential: UNESCAP South Asia Gravity Model shows intraregional trade is less than one-third of its potential.
- Top unutilised trade potential: Bangladesh (93%), Maldives (88%), Pakistan (86%), Afghanistan (83%), Nepal (76%).
- India–Pakistan trade:
- Fell from $2.4B in 2018 to $1.2B in 2024.
- Pakistan’s exports to India dropped from $547M (2019) to $480M (2024).
- South Asia’s trade-to-GDP ratio: Declined from 47.3% (2022) to 42.94% (2024).
- Widened trade deficit of subregion: From $204.1B in 2015 to $339B in 2022, despite overall trade growth.
Trade issues in South Asia:
- High trade costs: Average intra-regional trade cost is 114% of the value of goods exported. Comparatively, India–U.S. trade costs less (109%) than India–Pakistan, despite greater distance.
- Strategic Paralysis: Despite agreements like SAFTA, intra-regional trade remains low.
- Bilateral barriers: Trust deficits, regional conflicts, and poor political will owing to territorial disputes, minority issues, and security concerns (esp. India-Pakistan).
- Investment deterrents: Low trade opportunity leads to lesser innovation, private investment, and cooperation.
Way ahead:
- Trade reform: Reform SAFTA and focus on lowering trade barriers and enhancing trade in services and investments.
- Partnerships: Encourage mutually beneficial cooperation over strategic rivalry.
- Regional integration: Promote regional supply chains and value chain integration to make trade cost-efficient.
- Political consensus: Political consensus is essential to make regional integration a meaningful strategy for South Asia’s development.
Conclusion:
South Asia, despite its geographic proximity and large population, remains economically fragmented. A coordinated effort is needed to build trust, address bilateral tensions, and revive regional institutions. Regional economic integration can be a force multiplier for growth, peace, and strategic autonomy in South Asia.
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