[Answered] Trust deficits and regional conflicts hinder South Asian economic integration. Analyze how these political obstacles impede the full implementation of trade agreements and impact India’s regional leadership role.

Introduction

Despite shared geography, culture, and history, South Asia remains one of the least economically integrated regions. Political tensions and trust deficits have systematically undermined regional trade cooperation and India’s leadership ambitions.

South Asia’s Economic Integration Deficit

1. Low Intra-Regional Trade Despite SAFTA: South Asia’s intra-regional trade stands at only 5-7% of its total trade, compared to 22% in ASEAN and 45% in the EU. This indicates deep underutilization of regional trade potential despite the SAFTA agreement.
2. Massive Gap Between Actual and Potential Trade: According to UNESCAP, South Asia’s actual trade value is around $23 billion, while the potential is estimated at $67 billion — or even $172 billion under gravity models — leaving over 86% untapped.

Political Tensions and Trust Deficits

1. Persistent India-Pakistan Tensions: Political hostility and security concerns have severely restricted bilateral trade. Trade fell from $2.41 billion in 2018 to just $1.2 billion in 2024, reflecting the impact of unresolved disputes.
2. High Cost of Trading in the Region: Intra-South Asian trade costs are 114% of goods’ value — higher than even with distant partners like the U.S. (109%). This undermines regional competitiveness and deters value chain formation.

High Trade Costs and Structural Barriers

1. Failure to Leverage Geographic Proximity: It is 20% costlier for India to trade with Pakistan than with Brazil, which is 22 times farther away. This highlights how political frictions defeat the natural economic advantages of proximity.
2. Absence of Political Will and Strategic Vision: Most SAARC countries face internal and external conflicts, ethnic issues, or political instability, which overshadow the economic agenda and delay the full implementation of SAFTA.

Impact on India’s Regional Leadership

1. Regional Rivalries Deter Policy Cooperation: Mutual suspicion between major players like India and Pakistan, and concerns among smaller countries about India’s dominance, hinder efforts to deepen trade and integration.
2. India’s Regional Leadership Is Undermined: India’s aspiration to be a regional and global leader is weakened when it cannot foster consensus and cooperation in its immediate neighborhood. This affects its credibility in forums like G20, BRICS, and SCO.
3. China’s Expanding Influence Complicates Integration: China’s Belt and Road Initiative has made inroads in South Asia, challenging India’s leadership. Projects like CPEC in Pakistan and Hambantota Port in Sri Lanka are examples of shifting regional alignments.
4. Missed Opportunity for Shared Prosperity: Lack of integration restricts economies of scale, innovation, and employment. It also blocks opportunities for regional value chains, digital connectivity, and collective development goals.

Way Forward

1. Reviving SAARC with confidence-building measures, separating trade from political tensions.
2. Promote cross-border infrastructure, digital trade, and mutual recognition agreements (MRAs) to reduce non-tariff barriers.
3. India must adopt a cooperative, not coercive, leadership style — echoing “neighborhood first” policy.
4. Leverage BIMSTEC and BBIN frameworks for subregional progress while keeping SAARC viable.

Conclusion

Trust deficits and political tensions stifle South Asian trade integration, undermining SAFTA’s potential. Resolving these issues is essential for regional prosperity and for India to assert effective and inclusive regional leadership.