The paper deals with the road-map for economic cooperation among South Asian Association for Regional Cooperation (SAARC) member countries. A South Asian perspective is used. In terms of population, SAARC with its 8 member states is the largest of any regional organization with over 23% of world population. However, the total GDP of the SAARC member states is only 3% of the world total GDP.
India’s economy is disproportionately larger than other SAARC members, i.e. 80% of SAARC total GDP. On the other hand India’s trade with its two big neighbours is low (Bangladesh and Pakistan). Moreover, SAARC trade with the rest of the world is also low.
The reason for small share in trade is that most of the SAARC members’ economy are not so open, and they do not trade much with each other. SAARC members have not been as aggressive in attracting FDI (foreign direct investment) as ASEAN (Association of South East Asian Nations).
The paper examines the reason for low level of trade and regional integration among SAARC member states. Despite the political issues which will take a long time to resolve, India and Pakistan can continue with trade liberalization and free movement of people. We can see that China and India have had unresolved disputes since 1962 and the total trade between the two countries was just $1 billion in 1990s. In 2011 it has reached to US$ 74 billion. Similarly, China and Taiwan trade has reached US$100 billion, although China has territorial claim over Taiwan.
If India and Pakistan open up their borders, harbours, railway lines, and airports, and continue with the liberalization of trade then, it is estimated that the trade potential will increase from the present US$ 2.6 billion to maybe US$ 50 to 100 billion.
Recently, there are some positive signs that India and Pakistan are improving their economic cooperation.
Assuming that the bilateral relations between India and Pakistan improves, then SAARC will become one of the largest trading block in the world. The expectations are that successful outcome of SAFTA (South Asian Free Trade Area) could play an important role in strengthening trade ties within the region. With the reduction in tariff and non-tariff barriers, the informal trade will be also reduced. By eliminating or reducing the impediments to economic cooperation, SAARC will become one of the fast growing region with full of economic vitality.