The upcoming summit of South Asian Association for Regional Cooperation (Saarc) will be held against the backdrop of important global and regional developments. On one hand, it is increasingly clear that the advanced Western economies are unlikely to see off the economic downturn in the short-run. This will have a knock on economic effects on South Asian countries in the form of weakening the demand for their products.
On the other hand, the context in the subcontinent is changing in a manner that augurs well for closer regional economic linkages. Taken together, these trends could provide an opportunity to infuse a muchneeded sense of purpose to Saarc. India should take the lead in re-programming Saarc for
the next decade and ahead.
South Asia is one of the least economically integrated regions of the world. Intra-regional trade is just about five per cent of total official trade. The contrast with other sub-regions of Asia — let alone other parts of the world — is sobering. For instance, intra-regional trade in East Asia accounts for over 50 per cent of total trade.
The current situation in South Asia seems all the more stark when we set it against its past record as well as its future potential. Before 1947, this region boasted of more or less open borders, allowing for easy movement of goods and services. Furthermore, the subcontinent also enjoyed close economic ties with other parts of Asia. The regional arc stretching from Kolkata to Singapore was a vibrant network of trade, finance and entrepreneurs that formed the economic heartland of the British empire in Asia. South Asia does not have to rest on its history. It continues to have tremendous potential to grow through trade. The region has the highest population density in the world. It has a large number of cities close to the borders. And there is considerable cultural, ethnic and linguistic overlap of populations across the borders.
What, then, has prevented closer regional and sub-regional economic integration? At one level, the answer can be found in the economic policies and outlook of the countries of South Asia since independence. The experience of colonialism led the newly independent countries — with the notable exception of Sri Lanka — to regard the idea of an open trading system with some suspicion and to pursue more autarkic economic policies and plans. India and Pakistan also struggled to come to terms not only with the political consequences of Partition but also with its economic implications. The two countries were at odds on economic issues ranging from division of assets to exchange rates — differences that put paid to the idea of free trade between them. The problem was compounded by India’s propensity to treat its borders as fences to keep others out rather than using them as gateways for the movement of goods, people and ideas. The under-development of India’s own border areas, which were
wont to be seen as buffer zones, undermined India’s ability to promote regional trade.
These economic issues have been overlaid by political differences. Reconciling the two is not all that simple. Economic affairs tend to have a win-win logic. It is easy to see how cooperative exchange could work to the material benefit of all parties. But in politics moral considerations such as identity and honour can outweigh material interests. This is a problem that India faces with almost every one of its neighbours.
What’s more, if political differences have a national security angle to them, it becomes all the more difficult for the logic of economic integration to assume primacy. Economic affairs are about absolute advantages accruing from interchange, but security affairs are about relative advantages gained by one side or another. Here too, India’s immense lead in size and power as well as outstanding political disputes have worked to reduce the attraction of closer economic ties in the subcontinent.
The issues will not go away any time soon. But there are some indications that South Asian countries are willing to try according greater importance to economic linkages as opposed to political and security considerations. For one thing, India’s economic growth in the last two decades has positioned it to credibly play the role of a regional dynamo. India’s neighbours are slowly realising the tremendous opportunity that India presents for their growth prospects. India’s free trade agreements with Sri Lanka and Bhutan, and the trade and transit agreement with Nepal have highlighted the potential benefits of regional economic integration. It is not surprising that Bangladesh wants to greatly enhance trade and connectivity with India, or that Pakistan has at last agreed to confer “Most Favoured Nation” status on India. In the context of the continuing economic downturn in the West, India could become rather more important to its neighbours.
For another, India too has understood the fact that allowing its neighbours to partake of its growth is essential both to draw the sting from political differences and to enable India to play a role on the global stage. Once the largest recipient of foreign aid, India now extends aid and developmental assistance to most of its neighbours. These bilateral programmes are important, but India needs to help institutionalise pan-regional economic cooperation and eventually integration. The South Asian Free Trade Agreement (Safta) needs to be worth more than the piece of paper on which it was written. It’s time
India took concrete measures to hasten the implementation and expand the provisions of Safta.

The writer is a senior fellow at the Centre for Policy Research, New Delhi