“Despite the presence of institutional mechanisms like SAFTA, South Asia remains one of the least economically integrated regions in the world.” Discuss the reasons for low intra-regional trade in South Asia and suggest measures for economic integration.(250 words)

South Asia, home to 25% of the global population, remains one of the least economically integrated regions globally, with intra-regional trade accounting for only around 5% of total trade. This is despite frameworks like SAFTA (South Asian Free Trade Area), which came into force in 2006 under SAARC to promote regional trade.

Reasons for Low Intra-Regional Trade:

1. Political Tensions and Historical Animosities:
   1. India-Pakistan rivalry, especially over Kashmir, continues to hinder trade. For instance, India-Pakistan trade fell from $2.4 billion (2018) to $1.2 billion (2024).
   1. Legacy of Partition and colonial borders created enduring mistrust.
2. High Trade Costs and Infrastructure Deficits:
   1. Intra-regional trade cost is 114% of export value—higher than India–U.S. trade costs (109%), despite geographic proximity.
   1. Poor logistics, limited connectivity, and non-tariff barriers (NTBs) further obstruct trade.
3. Implementation Gaps in SAFTA:
   1. Rules of origin violations (e.g., India’s concerns over Nepal’s refined oil).
   1. Lack of enforcement of tariff concessions and weak dispute resolution mechanisms.
4. Strategic Paralysis and Weak Regional Institutions:
   1. SAARC is largely inactive, due to bilateral tensions, especially after the 2016 Uri attack which led to the postponement of SAARC summits.
   1. Lack of consensus on common goals impedes cooperation.
5. Economic Asymmetries and Trust Deficits:
   1. India’s economic size (GDP $3.7 trillion) dwarfs its neighbours, creating fears of dominance.
6. Underutilisation of Trade Potential:
   1. According to UNESCAP’s Gravity Model, intraregional trade is less than one-third of its potential.
   1. Nations like Bangladesh (93%), Maldives (88%), and Pakistan (86%) have the highest unutilised trade potential.

Measures to boost economic integration:

1. Revamp SAFTA:
   1. Expand scope to include services, digital trade, and investment flows.
   1. Streamline Non-tariff barriers (NTBs) and build transparent customs and logistics protocols.
2. Strengthen Infrastructure and Connectivity:
   1. Implement initiatives like BBIN (Bangladesh-Bhutan-India-Nepal) Motor Vehicle Agreement.
   1. Develop regional corridors under India’s Act East Policy and South Asia Subregional Economic Cooperation (SASEC).
3. Foster Political Dialogue and Confidence-Building:
   1. Encourage Track-II diplomacy and people-to-people contact.
   1. Separate trade from geopolitics, as ASEAN has done effectively.
4. Build Regional Supply Chains:
   1. Promote value chain integration in textiles, agriculture, and pharmaceuticals to lower costs and enhance competitiveness.
5. Encourage Private Sector and SMEs:
   1. Incentivise cross-border investments and joint ventures.
6. Institutional Reforms:
   1. Re-energise SAARC or create alternate platforms focused on trade and economy, possibly under BIMSTEC or IORA.

Conclusion:

Regional economic integration can be a force multiplier enhancing growth, resilience, and strategic autonomy. For this, political will, trust-building, and structural reforms are critical to translate the vision of SAFTA into tangible progress.

‘+1’ value addition:

• 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.
• South Asia’s trade-to-GDP ratio declined from 47.3% (2022) to 42.94% (2024).
• EU (5.8% of population) has GDP of $18 trillion compared to South Asia which has $5 trillion with 25% of world population

https://www.thehindu.com/opinion/op-ed/the-sorry-state-of-south-asian-economic-integration/article69728619.ece

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