Bilateral/International Relations

KEY POINTS

·         According to World Bank report – A Glass Half Full, trade in South Asian region has the potential to increase three times from its present levels.  

·         Trade between India and Pakistan has the potential to increase from its current value of $2 billion to $37 billion.

·         But, intra regional trade in South Asia is still the lowest among all regions in the world.

·         It is mainly because of the persistent conflict between its two major economies: India and Pakistan.

Conflict and its spill over effects

·         While actual conflict endangers trade transactions between India & Pakistan, expectation of conflict further raises risks of trading within the conflict-prone region.

·         This increases the trade/ transaction costs through, increased possibilities of currency instability, breach of contract, low institutional credibility, and increased government restrictions.

·         These pave the way for increased tariff, para tariff and non-tariff barriers between the governments, thus greatly reducing the scope for profitable trade.

·         Studies have shown that both actual and anticipated conflict, reduces trade by over 65% in general and by 75% in South Asia.

·         Also, when countries make an attempt to establish trading arrangements in spite of unresolved and enduring conflict, the outcome of these is close to null.

·         Both SAPTA, the SAARC Preferential Trading Arrangement, and SAFTA, the South Asian Free Trade Area Agreement, were rendered ineffective on account of the persistent conflict between India and Pakistan.

Road to future

·         Thus, it may be wiser to focus on alternative formulations like sub-regional such as the BBIN or inter sub-regional initiatives such as the BIMSTEC.

·         With India in the lead, these arrangements can take forward the interested partners from South Asia on a more feasible and profitable path of economic integration and trade enhancement.