India's Trade with South Asia Less than 4% of Global Trade

At less than 4%, India's intra-regional trade connectivity with South Asia, namely Afghanistan, Bangladesh, Bhutan, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka, is among the lowest in the world. South Asia is one of the least economically integrated regions of the world. India's trade with its neighbors accounted for between 1.7% and 3.8% of the world trade market. India's largest trade export countries are Bangladesh, Sri Lanka, Nepal, and Myanmar. Almost all of these countries have a trade deficit with India. Bangladesh has the most significant debt at US$ 7.6 billion, followed by Nepal at US$ 6.8 billion.

Possible Reasons

After World War II, Europeans concluded that South Asian territories no longer met their security interests and economic needs. As a result, they became more active in pushing for long-term economic integration, which could help address short- and long-term human security and protection concerns.

Later, the standard economic market of the Western European region inspired other parts of the world to form regional organizations such as SAARC, the Association of Southeast Asian Nations, the Eurasian Economic Community (EEC), the North American Free Trade Agreement (NAFTA), the African Union (AU), and the Union of South American Nations. These regional confederations fulfilled their goal of regional integration on par with Europe. The conclusion of several agreements, such as the SAARC Preferential Trade Agreement (SAPTA), which was signed in 1994, and the South Asian Free Trade Area Agreement (SAFTA), which was signed in 2004 and entered into force in 2006, is among the reasons why India faced potential trade problems with neighboring countries.

Other reasons for India's low intra-regional trade with its neighbors include weak trade connectivity, high logistic costs, continuing informal work, and non-tariff barriers (NTBBs). As a result, the cost of doing business in South Asia remains remarkably high. And mainly, India's semi-manufactured products used to be traded for export, reflecting neighboring countries' low interest in this occupation. However, India's most significant trading key factors primarily rely on the food & agricultural cotton sector, which reflects a relatively lower-income US$ 12.87 billion.

India's neighbors are more reliant on China for trade and economic development. In 2005, India and China had similar trade volumes in the South Asian region. During the global financial crisis of 2009, China focused heavily on South Asian areas for trade and the economy. Following that, China's commerce reached a high of US$60.41 billion in 2014, with India trading around one-third of the amount of US$24.70 billion. Later, in 2015 and 2016, both countries' trade sectors declined. However, China has strongly emphasized Bangladesh, Pakistan, Afghanistan, Nepal, Bhutan, Myanmar, and Sri Lanka, all of which have established regional and bilateral free trade agreements with their neighbors.

On the other hand, India has security problems with countries such as Pakistan, which affects the trade policy of the South Asian region. The China-Pakistan Free Trade Agreement (CPFTA) inked in 2006 enhanced trade and exports between the two countries. China transacts with one of the greatest worldwide goods and product trade markets, relinquishing the South Asian region. However, India has limited trade regulations for intraregional trade, so India has fallen short of playing a major role in the South Asian area.

Solutions and Positive Outlooks 

The South Asia region's economic integration will prevail more in the next five years. Here are three areas where the most significant gains can be made – the 'energy sector' is one of the most critical potential areas for upcoming years. India and other neighboring countries can pool their hydroelectric resources. Then it alleviates the problem of energy scarcity, which is a critical factor in global commodities and trade. Geographically, one country in South Asia has an abundance of energy resources while others have a scarcity. However, realizing this potential is only financially feasible if surplus energy can be sold across the border. So yet, just 20% of the region's hydropower has been financed by foreign countries. For example, an India-Bangladesh power-sharing project is in the works, as are numerous others.

A second central area is 'trade and economy.' The intra-trade regions in South Asia are suffering as a result of high logistic costs and trade barriers. If India removes trade barriers and tax tariffs with its neighbors, the South Asian region's GDP will rise from US$28 billion to US$100 billion over the following five years. People from this region will profit more, as will other cultural relationships in the area.

A third-biggest potential area in the next five years is cooperating over 'shared waterways. South Asia is home to the world's most prolonged and significant river systems, including the Brahmaputra, Ganges, Indus, and Sundarbans deltas. The World Bank Group has supported efforts to broaden the knowledge base and institutional capacity for improved management of shared waterways, including wildlife sanctuaries. Governments from neighboring countries have proposed laws and regulations to encourage water-sharing integration; civic society, people, the commercial sector, and consumers have also expressed a desire to play an essential role.

Conclusions 

The South Asia regions lack connectivity and a long history of mistrust, conflict, and political upheaval. Furthermore, India's prominence in the area as a "big brother" has made smaller regions wary of implementing concrete efforts. Financial trade and connectivity strategies are primarily concerned with lowering barriers and promoting more excellent connectivity in all domains to foster trust and counterbalance China's growing relations with the region. Hence India should take essential proportions and way forward.

Additionally, neighboring countries must take steps toward eliminating para-tariffs and non-tariff barriers, which are also imposed on imports by nations, particularly those not members of SAFTA or any other regional union. Furthermore, non-tariff barriers (NTBs) such as import policy restrictions, anti-dumping measures, testing and certification requirements, export subsidies, and governmental intervention have all hampered the potential for intraregional connection. India should prioritize SAFTA and other trade agreements, such as the South Asian Economic Union and the India-Sri Lanka trade pact CEPA.

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