The sorry state of South Asian economic integration

• The Trump administration’s reciprocal tariffs and the Pahalgam terror attack have significantly impacted India’s economic and national security.

• Economic instability fuels unrest, while security threats disrupt trade and investment.

• South Asia is one of the least economically integrated regions, with intraregional trade accounting for only 5% to 7% of its total international trade.

• Current trade among South Asian Association for Regional Cooperation (SAARC) countries is around $23 billion, below the estimated $67 billion.

• A UNESCAP study suggests South Asia’s potential trade could reach $172 billion by 2020, indicating over 86% of its capacity remains unexploited.

• Despite trade liberalisation under SAFTA, intraregional trade in South Asia is less than a third of its potential.

• Trade between India and Pakistan has seen a significant decline due to terror insurgencies and border disputes.

• South Asia’s trade-to-GDP ratio decreased from 47.30% in 2022 to 42.94% in 2024.

• The World Bank reported a softened growth forecast of 5.8% for 2025, down from 6% in 2024.

• The trade deficit of the subregion has widened from $204.1 billion in 2015 to $339 billion in 2022.

• Despite SAFTA, trading with neighbours is not ‘free’ due to inefficient trade governing mechanisms and an unpromising political environment.

• The low level of intraregional trade in South Asia demonstrates the absence of strategic policies.

• Greater regional cooperation could facilitate the development of complementary and mutually beneficial export sectors by focusing on lowering trade barriers.

• Political diversity, regional disputes, minority issues, and terrorism are major obstacles to regional cooperation.