The sorry state of South Asian Economic integration

The sorry state of South Asian Economic integration

• PYQs linkage:
• What are the impediments in the development of South Asian Free Trade Area (SAFTA)? 10 (2017)
• Outline the reasons of low volume of trade in the SAARC region. 10 (2020)
• Why South Asia is considered as the world’s politically and economically least integrated region? Explain. 20 (2021)
• Discuss the ways and means to realise greater economic co-operation among the Member states to South Asia. 10 (2022)

• Theory application: (theories of regionalism) functionalism, Neo Functionalism and Neo liberalism,
• Concepts and keywords:

Economic and national security landscapes, reciprocal tariffs, comprehensive regional approach to security and economic stability, intraregional trade, inefficient trade governing mechanism, cost of trading, intraregional trade costs, political diversity

• Important facts:
• South Asia, one of the least economically integrated regions in the world: Intraregional trade of South Asia (SAFTA) accounts for 5% to 7% of its total international trade.
• Current trade among SAARC countries is around $23 billion.
• A study by UNESCAP, South Asia’s potential trade could have reached $172 billion by 2020
• South Asia most populous region of the world and represents a combined market of only $5 trillion in GDP.
• South Asia trade to GDP ratio decreased from 47% in 2022 to around 43% in 2024.
• The trade deficit of the region has widened from $204 billion (2015) to $339 billion (2022).
• Important quotes or statements: “Lesser trade opportunity means lesser capacity for innovation, production and investment in the people of the country”.
• Brief analysis and key points from the news or editorial :
• Benefits of economic integration in south Asian region:

1. Underexploited capacity of the south Asian region
2. The trade deficit of the region has widened, it can be lowered with greater economic integration of the region.

• Potential of economic integration:

1. Over 86% of South Asian intraregional trade capacity remains unexploited.
2. South Asia most populous region of the world
3. Intraregional trade in South Asia is less than a third of its potential. (estimated by UNESCAP South Asia Gravity Model of intraregional trade)
4. High intraregional trade costs create high incentives for interdependence in SAARC region.
5. The potential of trade in services and investments in the region remains untapped.

• Why low integration in south Asian region? (challenges):

1. Inefficient trade governing mechanism
2. Uncompromising political environment
3. Increasing cost of intraregional trade: 114% of the value of the goods being exported. (it makes trading with neighbouring countries more expensive or less competitive, as compared to trading with distant partners)
4. Absence of strategic polices
5. Trust deficits and regional conflicts hinder the full implementation of SAFTA like agreements.
6. Political diversity,
7. Regional disputes
8. Minority issues
9. Terrorism
10. Most SAARC countries are in conflict with each other

• Comparative analysis vis-à-vis EU and ASEAN:

• Suggestions or way forward:

1. SAFTA and other regional agreements have the potential to create greater economic linkage.
2. SAARC members must work actively to enhance intra-regional trade, keeping aside their bilateral conflicts.

• Conclusion: greater regional cooperation could facilitate the development of complementary and mutually beneficial export sectors by focusing on lowering trade barriers.
• Practice question (framed on the basis of PYQs dimensions):

The growing number of regional conflicts in the South Asian region makes a strong case for regional economic cooperation. Comment. 15 Marks. (Probable question in Mains 2025 or 2026)