{"id":3583,"date":"2026-08-11T22:12:08","date_gmt":"2026-08-11T16:42:08","guid":{"rendered":"https:\/\/forumias.com\/psir\/notes\/south-asia-as-a-free-trade-area\/"},"modified":"2026-08-12T02:57:03","modified_gmt":"2026-08-11T21:27:03","slug":"south-asia-as-a-free-trade-area","status":"publish","type":"psir_note","link":"https:\/\/forumias.com\/psir\/notes\/south-asia-as-a-free-trade-area\/","title":{"rendered":"South Asia as a Free Trade Area"},"content":{"rendered":"<div class=\"n-wrap\">\n<div class=\"n-shell\">\n<div class=\"n-crumb\"><a href=\"\/psir\/psir-notes\/\">PSIR Notes<\/a><span class=\"sep\">\u203a<\/span><a href=\"\/psir\/psir-notes\/#ii-b\">II-B India and the World<\/a><span class=\"sep\">\u203a<\/span><span>South Asia as a Free Trade Area<\/span><\/div>\n<header class=\"n-head\">\n<div class=\"n-eyebrow\">Paper I \u00b7 India and the World<\/div>\n<h1 class=\"n-title\">South Asia as a Free Trade Area<\/h1>\n<div class=\"n-syl\"><b>Syllabus \u00b7 Paper II-B \u00b7 3<\/b> \u2014 India and South Asia : (a) Regional Co-operation : SAARC-past performance and future prospects. (b) <span class=\"cur\">South Asia as a Free Trade Area<\/span>. (c) India\u2019s \u201cLook East\u201d policy. (d) Impediments to regional co-operation : River water disputes; illegal cross border migration; Ethnic conflicts and insurgencies; Border disputes.<\/div>\n<\/header>\n<div class=\"n-grid\">\n  <main class=\"n-body\"><\/p>\n<h3 id=\"saarc-as-an-economically-integrated-area-the-numbers\">SAARC as an Economically Integrated Area \u2014 the numbers<\/h3>\n<p>South Asia covers about <span class=\"n-term\">3.5%<\/span> of the world\u2019s land surface but holds a fourth of its population. Despite proximity and common socio-cultural bonds, it is among the world\u2019s least integrated regions.<\/p>\n<div class=\"n-tw\">\n<table>\n<thead>\n<tr>\n<th>Indicator<\/th>\n<th>Position<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><span class=\"n-term\">Intra-regional trade<\/span><\/td>\n<td>A meagre <span class=\"n-term\">5%<\/span> of total trade \u2014 against <span class=\"n-term\">25%<\/span> for ASEAN.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Intra-regional investment<\/span><\/td>\n<td><span class=\"n-term\">Less than 1%<\/span>.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Cost of intra-regional trade<\/span><\/td>\n<td><span class=\"n-term\">114%<\/span> of the value of goods exported \u2014 trade with neighbours costs more than trade with distant partners, which discourages regional value chains despite contiguity.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Comparative cost<\/span><\/td>\n<td>It is <span class=\"n-term\">20% cheaper<\/span> for India to trade with Brazil than with its neighbours.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Hub-and-spoke pattern<\/span><\/td>\n<td>For Bangladesh, trade with India is <span class=\"n-term\">90%<\/span> of its regional trade; trade with Afghanistan, Bhutan, Nepal, Maldives and Sri Lanka together is just <span class=\"n-term\">2%<\/span>.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span class=\"n-term\">Why it stays low<\/span><\/p>\n<ul>\n<li><span class=\"n-term\">SAFTA\u2019s poor implementation<\/span> \u2192 SAARC\u2019s main instrument for improving intra-regional trade has failed largely because of <span class=\"n-term\">Non-Tariff Barriers<\/span>, while the focus remained on tariff reduction alone.<\/li>\n<li><span class=\"n-term\">Poor connectivity and infrastructure deficit<\/span> \u2192 women, the poor and marginalised groups are worst affected by the infrastructure gap.<\/li>\n<li><span class=\"n-term\">High informal border trade<\/span> \u2192 recorded figures understate reality. <span class=\"n-term\">UNESCAP<\/span> analysis shows formal intraregional trade vastly underestimates actual trade, since official data misses informal exchanges by entrepreneurial communities at the frontiers, helped by porous borders and shared history, language and culture.<\/li>\n<li><span class=\"n-term\">Poor supply capabilities in LDCs<\/span> \u2192 trade imbalances with India persist because of limited capacity to supply products of interest to India; productive capacities of South Asian LDCs have actually declined in technical complexity and product variety compared with other countries.<\/li>\n<li><span class=\"n-term\">Poor trade facilitation<\/span> \u2192 excessive delays, high costs and uncertainty at borders.<\/li>\n<\/ul>\n<p><span class=\"n-term\">The upside estimate<\/span><\/p>\n<p><span class=\"n-sch\">Philippe Le Hou\u00e9rou<\/span> points to prospects in regional commerce, connectivity and energy cooperation; a <span class=\"n-term\">World Bank<\/span> study finds goods trade within South Asia could be <span class=\"n-term\">three times<\/span> current levels, with even higher potential in services.<\/p>\n<h3 id=\"india-as-a-driving-force-of-economic-integration\">India as a Driving Force of Economic Integration<\/h3>\n<p>India is central to SAARC by geography, economy, international stature and commitment. The region has an acute asymmetrical balance, so India carries a special responsibility \u2014 taking the region along in its own march is both an economic and a demographic imperative.<\/p>\n<div class=\"n-tw\">\n<table>\n<thead>\n<tr>\n<th>Instrument<\/th>\n<th>What India has done<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><span class=\"n-term\">Trade share<\/span><\/td>\n<td>India\u2019s trade with South Asia is around <span class=\"n-term\">5.5%<\/span> of its global trade; India has pressed for expedited negotiation and implementation of agreements on three themes \u2014 <span class=\"n-term\">trade, connectivity and people-to-people contact<\/span>.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">SAFTA concessions<\/span><\/td>\n<td>Unilateral duty-free access on all items to SAARC LDCs; Phase II commitments met for non-LDCs; zero tariff for goods from LDCs.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Currency swap<\/span><\/td>\n<td>A base fund of <span class=\"n-term\">US$ 2 billion<\/span> from India for short-term foreign exchange liquidity.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">SAARC Development Fund<\/span><\/td>\n<td>The only country to have paid its assessed contribution for the entire five-year period \u2014 <span class=\"n-term\">US$ 89.9 million<\/span> \u2014 plus a voluntary <span class=\"n-term\">US$ 100 million<\/span>.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Bilateral trade openings<\/span><\/td>\n<td>Historic FTAs with Bhutan and Nepal, expanded to an FTA with Sri Lanka and significant liberalisation for Bangladesh\u2019s principal exports, notably textiles.<\/td>\n<\/tr>\n<tr>\n<td><span class=\"n-term\">Afghanistan<\/span><\/td>\n<td><span class=\"n-term\">US$ 2 billion<\/span> allocated to infrastructure projects in energy and highways.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span class=\"n-term\">Limited success \u2014 reasons<\/span><\/p>\n<ul>\n<li>The <span class=\"n-term\">\u201cBig Brother Syndrome\u201d<\/span> among smaller members; India\u2019s size makes it the most striking culprit in their eyes.<\/li>\n<li>India\u2019s economic strength and scientific and technological development create suspicion of domination.<\/li>\n<li>The Pakistan factor \u2014 the boycott and eventual scrapping of the <span class=\"n-term\">19th Summit<\/span> in Islamabad after Uri.<\/li>\n<li>China\u2019s intervention across South Asian countries, containing India\u2019s influence \u2014 contracts for <span class=\"n-term\">Hambantota<\/span> and the expansion of <span class=\"n-term\">Colombo port<\/span>.<\/li>\n<li>Smaller members such as Bangladesh, Nepal and Sri Lanka consider India the main source of threat to their security and have welcomed, directly or indirectly, the role of extra-regional powers.<\/li>\n<\/ul>\n<p><span class=\"n-term\">The debt-trap thesis and its rebuttal<\/span><\/p>\n<p>The <span class=\"n-term\">\u2018String of Pearls\u2019<\/span> and <span class=\"n-term\">debt-trap<\/span> readings treat Hambantota as a Chinese strategic foothold. <span class=\"n-sch\">Lee Jones<\/span> and <span class=\"n-sch\">Shahar Hameiri<\/span> (Chatham House) reject this on the evidence \u2014 Hambantota was a Rajapaksa white elephant, Sri Lanka\u2019s debt crisis came mainly from Western-market borrowing, and the 2017 deal was a commercial lease, not a seizure. The port now hosts Sri Lanka\u2019s own southern naval command.<\/p>\n<div class=\"n-pyq\"><span class=\"n-pyq-chip\">UPSC 2017 \u00b7 10m<\/span><span class=\"n-pyq-q\">What are the impediments in the development of South Asian Free Trade Area (SAFTA)?<\/span><a class=\"n-pyq-a\" href=\"\/psir\/psir-pyq\/what-are-the-impediments-in-the-development-of-south-asian-free-upsc-psir-2017-4301\/\">Answer<\/a><\/div>\n<div class=\"n-pyq\"><span class=\"n-pyq-chip\">UPSC 2020 \u00b7 10m<\/span><span class=\"n-pyq-q\">Outline the reasons for the low volume of trade in the SAARC region.<\/span><\/div>\n<div class=\"n-pyq\"><span class=\"n-pyq-chip\">UPSC 2021 \u00b7 20m<\/span><span class=\"n-pyq-q\">Why South Asia is considered as the world\u2019s politically and economically least integrated region? Explain.<\/span><\/div>\n<div class=\"n-pyq\"><span class=\"n-pyq-chip\">UPSC 2022 \u00b7 10m<\/span><span class=\"n-pyq-q\">Discuss the ways and means to realise greater economic co-operation among the Member States of South Asia.<\/span><a class=\"n-pyq-a\" href=\"\/psir\/psir-pyq\/discuss-the-ways-and-means-to-realise-greater-economic-co-upsc-psir-2022-4303\/\">Answer<\/a><\/div>\n<h3 id=\"prospects-for-sub-regional-integration\">Prospects for Sub-Regional Integration<\/h3>\n<ul>\n<li>Regional integration in South Asia is being reimagined through sub-regional platforms as SAARC remains stalled by interstate friction and weak enforcement.<\/li>\n<li><span class=\"n-sch\">Prakriti Bhattarai<\/span> records that even signature schemes left \u201cintra-SAARC trade\u2026 below 5%\u201d, and that unanimity rules slow decisions \u2014 conditions that push states towards nimbler forums.<\/li>\n<li><span class=\"n-sch\">Misu Kim<\/span> \u2192 new regionalism in India\u2019s neighbourhood draws on political-economy drivers \u2014 connectivity, market access and flexible coalitions \u2014 more than on classic neo-functional \u2018spillovers\u2019. She shows SAARC\u2019s stagnation and the rise of sub-regional ventures such as <span class=\"n-term\">SASEC<\/span> and <span class=\"n-term\">BBIN<\/span> as pragmatic responses to power politics and to limited regional identity.<\/li>\n<\/ul>\n<p><span class=\"n-term\">Two enablers<\/span><\/p>\n<ul>\n<li><span class=\"n-term\">Bay of Bengal economic geography<\/span> \u2192 BIMSTEC links South and Southeast Asia and widens India\u2019s cooperation circle beyond SAARC\u2019s constraints; sub-regionalism lets states sidestep political tension while deepening trade and infrastructure ties.<\/li>\n<li><span class=\"n-term\">Concrete connectivity<\/span> \u2192 projects under Act East \u2014 the <span class=\"n-term\">India\u2013Myanmar\u2013Thailand Highway<\/span> and the <span class=\"n-term\">Kaladan Multimodal Corridor<\/span> \u2014 are meant to cut cost and time, though delays in Myanmar and staggered execution persist. The <span class=\"n-term\">BIMSTEC FTA<\/span> is not yet functional, with negotiations continuing, which leaves the economic rules unfinished.<\/li>\n<\/ul>\n<p><span class=\"n-term\">BBIN \u2014 promise and constraint together<\/span><\/p>\n<ul>\n<li>A significant leap forward in transport and energy cooperation, but vulnerable to geopolitical rivalry and resource constraints.<\/li>\n<li>Bhutan\u2019s parliament <span class=\"n-term\">rejected the BBIN Motor Vehicles Agreement in November 2016<\/span>; the agreement moved forward in <span class=\"n-term\">March 2022<\/span> when members met in New Delhi to finalise the MoU.<\/li>\n<li><span class=\"n-term\">Domestic conditions<\/span> affect feasibility. India\u2019s Northeast, critical for BIMSTEC and BBIN corridors, faces security and social hurdles; armed conflict, mobility restrictions and policy silos still obstruct a real \u2018gateway\u2019 role.<\/li>\n<\/ul>\n<p><span class=\"n-lab\">Assessment<\/span><\/p>\n<p>Near-term realignment is feasible only in sectoral, project-based modes \u2014 transport, energy, customs facilitation, selective value chains. BIMSTEC and BBIN can deliver incremental integration where politics allows and infrastructure exists. Without operational trade rules and steadier Northeast connectivity, sweeping region-wide integration in the immediate future is unlikely.<\/p>\n<div class=\"n-pyq\"><span class=\"n-pyq-chip\">UPSC 2024 \u00b7 20m<\/span><span class=\"n-pyq-q\">Discuss the future of SAARC in the light of India\u2019s increased focus on other regional groupings like ASEAN and BIMSTEC.<\/span><a class=\"n-pyq-a\" href=\"\/psir\/psir-pyq\/discuss-the-future-of-saarc-in-the-light-of-indias-increased-upsc-psir-2024-4308\/\">Answer<\/a><\/div>\n<div class=\"n-next\"><a href=\"\/psir\/notes\/saarc-past-performance-and-future-prospects\/\"><em>Previous<\/em><b>SAARC: past performance and future prospects<\/b><\/a><a class=\"r\" href=\"\/psir\/notes\/india-s-look-east-policy\/\"><em>Next<\/em><b>India\u2019s \u201cLook East\u201d policy<\/b><\/a><\/div>\n<p><\/main><\/p>\n<aside class=\"n-rail\">\n<h4>On this page<\/h4>\n<p><a href=\"#saarc-as-an-economically-integrated-area-the-numbers\">SAARC as an Economically Integrated Area \u2014 the numbers<\/a><a href=\"#india-as-a-driving-force-of-economic-integration\">India as a Driving Force of Economic Integration<\/a><a href=\"#prospects-for-sub-regional-integration\">Prospects for Sub-Regional Integration<\/a><\/aside>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>South Asia as a Free Trade Area for the UPSC PSIR optional \u2014 PSIR Notes \u203a II-B India and the World \u203a South Asia as a Free Trade Area Paper I \u00b7 India and the World South Asia as a F<\/p>\n","protected":false},"template":"","meta":{"jetpack_post_was_ever_published":false,"fx_note_key":"II-B.3.3","fx_note_sec":"II-B","fx_note_point":"3","fx_note_desc":"South Asia as a Free Trade Area for the UPSC PSIR optional \u2014 PSIR Notes \u203a II-B India and the World \u203a South Asia as a Free Trade Area Paper I \u00b7 India and the World South Asia as a F","footnotes":""},"class_list":["post-3583","psir_note","type-psir_note","status-publish","hentry"],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/psir_note\/3583","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/psir_note"}],"about":[{"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/types\/psir_note"}],"version-history":[{"count":2,"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/psir_note\/3583\/revisions"}],"predecessor-version":[{"id":3798,"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/psir_note\/3583\/revisions\/3798"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/psir\/wp-json\/wp\/v2\/media?parent=3583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}