The idea of economical and political integration in South Asia was first raised

in the year 1980, and formally taken to form the organization called the South
Asian Association for Regional Cooperation (SAARC) in the year 1985. It was
primarily associated with 7 countries namely, India, Nepal, Bangladesh,
Maldives, Bhutan, Pakistan and Sri Lanka, later on joined by Afghanistan.
In the early half of the 20
th
century, South Asia had strong cultural and trade
ties with Pakistan, India and Bangladesh providing a common market for the
same. But, in the second half of the century, ethnic violence and cross border
strife lead to a downfall of the inter-region cooperation. The establishment of
SAARC was initiated by Ziaur Rahman in Bangladesh and carried forward by
Benazir Bhutto and Rajiv Gandhi to promote regional cooperation and
competent economic and social development in member states. These
leaders with time, however, lost out in their respective domestic political
battles and the lack of political power and responsibility towards cohesive
cooperative goals made SAARC fairly directionless not making any
substantial progress in the following years. Despite the common heritage
shared by the member nations, South Asia came out as the least integrated
region in the world.
These eight member states are home to over 20% of the world population,
but the economic development and growth in these countries is rather
disparate, more than 40% of the population is living below poverty line.
Geopolitical trade barriers amongst the member states are creating slack in
SAARCs progress. Intra-regional trade is just around 5% of the total official
trade, as compared to that of 50% in East Asia. When South Asian Preferential
Trade Agreement (SAPTA) was launched in 1995, it was considered to be a
major breakthrough for SAARC, but it did not enhance the intra-region trade
as it was expected to. One decade later, in 2006, South Asian Free Trade
Agreement (SAFTA) was realized. SAFTA faces several challenges but still
remains a source of optimism for the South Asian countries as well as those
taking keen interest in SAARC operations like China, Japan, South Korea, US
and EU. In todays world of globalization, promoting trade constitutes an
important step forward.

Motivations for cooperation
1. Comparative advantages in agriculture, textile and other industries
provide a fine platform to pursue unilateral liberalization ensuring
synergies in production across borders in the South Asian region. If
economies of scale are achieved, the domestic, regional and foreign
investors will be benefited significantly.
2. Regional integration provides basis for improved competition, with
higher investments in sectors enhanced returns and also better
resource utilization and efficiency.
3. SAFTA can drive higher investments towards the member countries,
and if these investments are made in the right sectors for example,
infrastructure, manufacturing and managing natural resources, it will
facilitate long term sustainable growth. Currently, only India, Bhutan
and Nepal do business and trade in electricity. Bangladesh is gifted
with big natural gas reserves, but gas trade has not been implemented
due to infrastructural limitations.
4. Regional trade agreements can also lead to consolidation of peace
and endow healthy relationships with neighbouring countries.
5. At a high level, the South Asian countries have similar developmental
issues for example provision of clean water and energy; building
infrastructure to facilitate utilization of natural resources and optimizing
their use will support collective growth and create a marked
improvement in the social conditions in these countries.
Challenges for regional integration
1. Poor cross border transport and infrastructure
Regulatory environment when it comes to cross border trade in South
Asia is an area of concern. The time taken for exports in transit and is
quite high and this causes high costs for exporters. In South Asia, 7% of
the international calls are regional as compared to 71% in East Asia. This
is an indication of poor connectivity, security concerns and cross
border conflicts playing part in the poor collaboration of this region.
Political constraints and economic grounds pose opposition to
increasing taxes and prices for services because there is a common
notion that the high levels of corruption will not lead to any
development, this creates major hindrances when it comes to
advancement of infrastructure.
2. Challenging business environment
All SAARC nations lie in the lower half of the Doing Business rankings.
The cost of doing business in this region is high mainly because of high
tariffs, slower approvals and elevated corruption levels. Except for
India, other South Asian economies lag in the knowledge indicators.
Only 49% of South Asia enrols for secondary education as compared to
69% of East Asia.
3. India posing challenges to other member countries
This can be viewed in two ways
Comparing tariffs in India with those imposed in Maldives and Sri
Lanka, India comes out as a more protected nation with higher
tariffs on goods. This poses a challenge to other smaller nations
as India being the largest country geographically and
economically creates lags for nations like Maldives and Sri Lanka
having lower tariffs. The sensitive list has reduced over time, but
there is a need to trim it further.
Smaller nations like Pakistan perceive India as a highly
competitive country and hence are unwilling to open up their
core competencies for example textile, to trade, with a fear of
losing out on their national economic growth.

4. Lack of commitment and exposure from SAFTA
SAFTA is thought to be a free trade agreement, but it has many
restrictions, that effectively condense the scope of integration. SAFTA
does not include trade in services even though the South Asia as a
whole is emerging as a strong exporter of commercial services across
the world. There are many goods still lying in the negative list on which
there are no concessions provided whatsoever.
5. Small individual domestic markets
Demographically as well as geographically the size of most of the
SAARC nations is small. The domestic markets in these regions are small
and under-developed. Hence, when it comes to trade, the demand
for big volumes of goods and services is scanty.
6. Conflict prone region
South Asia comes out to be a conflict prone region. India over the
period of time has developed disparity with the other smaller member
nations. India has had a history of conflicts with most of its neighbouring
countries, which include Bangladesh, Nepal, Sri Lanka and Pakistan.
Not just inter-state, intra-state issues within India are also significantly
associated with the instability around SAARC.
INDIAs role in SAARC
India constitutes 70% of the SAARC region geographically and more than 80%
economically (80% of the South Asian GDP comes from India). The other
member states are practically land-locked and share borders with India, if
not with each other which makes India the centre for facilitating trade.
Following points indicate the reasons that make Indias position crucial in
SAARC -
Inter-state conflicts have created a major setback in SAARCs progress,
and potential troublesome tensions come from the biggest region of
SAARC India and the second biggest Pakistan. The political tension
between these two regions has held back the full implementation of
SAFTA.
Chinas mammoth growth and its recuperating relationships with other
South Asian countries have created a major influence on Indias
outlook towards SAARC and its associations with its member countries.
India being the biggest country in terms of size and resources creates
an acute sense of insecurity amongst the neighbouring countries. This
insecurity provokes external interference in the South Asian conflicts.
India with a new stable government lies in the centre and is capable to
make available the necessary political support and leadership that
would ensure a concrete integration of South Asian countries avoiding
any external intervention.
For the above reasons, India should take lead and employ strategies to form
strong allies with the SAARC member countries so that South Asia can utilize
and provide ample opportunities to build a common market facilitating
resourceful trade. India can play a role in aligning all member states with the
SAARC objectives in the following few, of many other possible ways
The extensive informal interactions India has with its neighbouring
countries can be formalized under the SAFTA agreement guidelines.
FDI in India has shown an increasing trend in the past, and if India can
provide an integrated open market of South Asian countries under
SAFTA, it will lead to creating superior and plentiful opportunities for the
investors as well as the several South Asian countries associated with it.
India can facilitate to create new opportunities and avenues for trade
and doing business, as the things that were not achievable before will
be possible in the open market of South Asia.
It is likely, that India can try to seek regional security along with regional
trade agreements. Large countries, in this case India, can create
geopolitical alliances with smaller countries providing them with
discriminatory access to bigger markets and in turn enter diplomatic
ties in order to ensure regional stability and security. On the other hand,
smaller countries can get access to learn through multilateral
negotiations and work in bigger trade blocs.
Opening up of the smaller economies will ensure that intra-country also
moves to an advantageous place.
Creating regional integration will make the SAARC member countries
achieve better a stand in Asia in terms of facilitating trade and
achieving sustainable economic growth.
India can assist in creating greater social cohesion and the ethnic
diversity will be strengthened leading to a much more culturally
enriched region.
India being the larger and more resourceful country can provide
support and boost to other smaller and least developed countries.
Conclusion
In this swiftly altering global environment, regional integration in South Asia is
being thought of as a new strategic significance. It has transformed the
prospective economical and political gains from SAARC for all the country
partners. As the prevalent economy of the South Asian region, it is essential
and an appropriate time for India to encourage an environment of
confidence among SAARC countries, which would in turn promote better
obligation to regional integration among the member countries.
India would positively develop from this economic integration in the South
Asian region. Indias emergence in the global scenario is unlikely until she
makes certain a steady and secure regional economy, and leading SAARC
holds the door of opportunity for her to exhibit the commitment to regional
cooperation and integration.


References
SOUTH ASIA Growth and Regional Integration The World Bank report
http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/
448813-1171648504958/SouthAsiaGrowthandRegionalIntegration.pdf
http://aygrt.isrj.net/colorArticles/3748.pdf

SAARC Development Goals India Country Report 2013
http://mospi.nic.in/mospi_new/upload/SAARC_Development_Goals_%20I
ndia_Country_Report_29aug13.pdf
http://www.eastasiaforum.org/2011/01/19/why-is-saarc-gridlocked-
and-how-can-it-be-revitalised/

http://www.newindianexpress.com/states/tamil_nadu/article1468089.e
ce

https://www.linkedin.com/pulse/article/20140805182418-10751259-
saarc-far-away-from-cooperation

Rejuvenating SAARC: The Strategic Payoffs for India - Aparna Sawhney
and Rajiv Kumar


INTRODUCTION
International trade has often been referred as the engine of growth that enhanced the development of
today's economically advanced countries during the nineteenth and early twentieth centuries. The
developing countries pursued on import substitution and industrialization strategy from 1950's but failed
to achieve rapid economic growth and eradicate poverty (Venables, 2001). A few developing countries,
especially in East-Asia, which undertook trade policy reforms had adopted and export oriented growth
strategy specifically in line with regional integration (Association of South East Asian Nations, Asia-
Pacific Economic Co-operation) Succeeded in achieving rapid economic growth and industrial
development(Wilson, 2002).
During the economic reforms, trade liberalization has increased with the rise of regionalism. It is argued
that trade liberalization and regional economic co-operation can help a region to increase inter-regional
trade by exploring the size of the markets. This may in turn yield efficiency and bring benefits not only
by exploration of economies of scale but also by dynamic and upward shifts in production function. The
domestic firms become more competitive and develop the confidence to enter into global competition
after exposure to a regional market. Driven towards integration by the pressure of socio-economic
interests of the region, seven South Asian countries namely Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka formed the South Asian Association for Regional Co-operation (SAARC)
in 1985. They also formed the SAARC Preferential Trading Agreement (SAPTA) in 1993 and
transformed it into South Asian Free Trade Area (SAFTA) in 2004 with a view to enhancing their
productive capacity and region's trading interests. As a eighth member, Afghanistan joined the
organization in 2005. However, since the establishment of SAARC, the achievement has been
considered insignificant and the level of intra-regional trade among SAARC Countries is still very low.
With the present low level of intra-regional trade and the perceived competitiveness among the SAARC
Countries, a question arises whether regionalism would benefit in this region.
To accelerate the process of socio-economic development in member countries is one of the major
objectives of formation of SAARC forum. Thereafter, trade promotion was also pursued as an area of
economic Co-operation. It is in this context, the present study has been undertaken to study the India's
trade with SAARC countries from 2000-01 to 2011-12.
DATA AND METHODOLOGY:
To study this topic secondary data were collected from RBI, Handbook of Statistics, World
Development Indicators and UNCTAD.
Table-1
Socio-economic Development indicators in the SAARC Countries:2000
Particulars India Pakistan SriLanka Nepal Bangladesh Bhutan Maldives
Life expectancy at birth
(years)
62.9 64.4 73.3 57.8 58.6 61.2 65.0
Adult literacy rate
(% age 15 and above)
55.7 44.0 91.1 39.2 40.1 42.0 96.0
Gross enrolment ratio (%) (includes
primary,
secondary and tertiary)
54.0 43.0 66.0 61.0 36.0 33.0 75.0
Human Development
Index (HDI) value
0.563 0.522 0.733 0.474 0.461 0.483 0.725
GDP per capita (US $) 444 511 802 217 348 493 1247
Source: UNCTAD : 2000
Table-2
Share of India's Exports and Imports to SAARC Countries (US $ million)
Exports % Share of SAARC
countries in Indias
Total Exports
Imports % Share of SAARC
countries in Indias
Total Exports
India SAARC India SAARC
4456.0 1928.5 4.33 50536.5 465.8 0.92
43826.7 2026.0 4.62 51413.3 571.5 1.11
52719.4 2724.1 5.17 61412.1 512.0 0.83
63842.6 4148.1 6.50 78149.1 668.8 0.86
83535.9 4440.7 5.32 111517.4 950.2 0.85
103090.5 5547.5 5.38 149165.7 1413.3 0.95
126414.1 6469.5 5.12 185735.2 1507.2 0.81
162904.2 9617.2 5.90 251439.2 2111.4 0.84
185295.0 8440.5 4.56 303696.0 1796.0 0.59
178751.4 8356.5 4.67 288373.7 1651.8 0.57
251136.0 11636.5 4.63 369769.1 2170.2 0.59
305963.9 13084.8 4.28 489319.5 2487.2 0.51
RESULTS AND DISCUSSION
The SAARC region being the most populated part of the world (1.47 billion) is characterized by greater
inequality in distribution of income with 43 per cent of its people living below the poverty line. South
Asia's economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range
of modern industries and a multitude of support services. SAARC, is the world's only region, which has
failed to tap the potential for social-cultural exchange and economic co-operation, with the continuation
of war (Asian Development Bank, 2005) and cold war in the region between India and Pakistan. Intra-
SAARC trade is dismally as low as 4 per cent and the collective share of the region in world trade was
just one per cent.However,recently South Asia's fastest growth in exports has been predicted by a
report published by the World Bank.But according to a recent World Bank report South Asia's
integration into the Global economy, predicts South Asia will have the World's fastest growth in exports
by 2028.
The trade among any group of countries always depends on the level of its socio-economic
development. In case the various indicators of socio-economic development are dismal, the volume of
trade and many other businesses will also be low and vice-versa.
The data presented in Table-1 show that in the SAARC countries, the Human Development Index
(HDI) was the highest in Sri Lanka (0.733) followed by Maldives (0.725), India (0.563), Pakistan
(0.522), Bhutan (0.483), Nepal (0.474) and Bangladesh (0.461). India and Pakistan are the two big
nations of SAARC region. As far as per capita income is concerned,Maldives comes first followed by
Sri Lanka, Pakistan, Bhutan, India, Bangladesh and Nepal. The per capita income of Maldives and Sri
Lanka was high. This was mainly due to the size of these countries. In addition to this, the inflow of
tourists was more in these countries due to locational factors. Nepal and Bangladesh had low per
capita income as compared to other SAARC countries.
India's Exports to SAARC Countries:
The data relating to India's exports to the SAARC countries is given in Table-2. This table shows that
India's total exports to all countries of the world had increased from US $ 44.56 billion in 2000-01 to US
$ 305.96 billion in 2011-12. Similarly the exports to the SAARC countries had increased from $1.93
billion to $ 13.08 in the corresponding period. In percentage terms, the exports had declined to the
SAARC countries from 4.33 in 2000-01 to 4.28 per cent in 2011-12. This decline in percentage share of
exports may be attributed to a number of economic and non-economic factors. In the recent period, the
Indian exports related to Information Technology (IT) have increased very fast to the developed and
developing countries. In india, the Information Technology sector is creating wealth worth more than
Rs.60,000. But the SAARC countries expect India has limited scope to absorb the IT due to low level of
industrial development and infra-structural facilities.
India's Imports
The data regarding India's imports from other SAARC countries has been included in Table-2. India's
total imports from all over the world had increased from $50.54 billion in 2000-01 to $489.32 billion in
2011-12. During the corresponding period, the imports from SAARC countries had increased from $
0.47 billion to $2.49 billion. India's exports to the SAARC countries exceeded very little. In percentage
terms, India's imports from SAARC countries remained less than one per cent in most of the years.
CONCLUSION AND SUGGESTION
SAARC countries are a large regional block with huge potential but achievement in regional co-
operation so far is insignificant. The results show that the region is engaged in trade with the outside
world and not within the economies of the region. India's trade with SAARC countries is not very
impressive. SAARC countries need to have adequate physical infrastructure.Trade policy of SAARC
countries, need to ensure that SAFTA ensures trade creation rather than trade diversion from the
region as observed by many researchers. It is also noticed that while trade promotes growth, GDP
growth also attract more participation in international trade. GDP is the driving force behind the
movement in trade inflows and outflows, once growth is enhanced, foreign trade can be improved.