South Asia remains one of the least economically integrated regions in the world: Report

South Asia remains one of the least economically interconnected regions in the world.

For instance, India’s regional trade sits around 3% of its “global trade against the regional average of 5%, well below the 22% in Sub Saharan Africa and 50% in East Asia.” Pakistan's trade with South Asian countries only accounts for 8% of its global output. Similarly, Bangladesh’s regional trade also remains close to non-existent.

However, this is not because of the lack of potential for trade. “South Asian countries are physically adjacent, but political and institutional distances remain significant,” argues Gaurav Bhatiani & Sanjeev Ahluwalia in an article for the Financial Times.

Energy security remains one of the key issues in the region. With the growth in population and economic output, the demand for more energy infrastructure will grow in the coming years. Bhatiani and Ahluwalia believe that “South Asia must invest at least $1 trillion over the next decade to develop energy infrastructure, enhance energy security, and reduce carbon footprint.”

Kaushik Basu, the former chief economist at the World Bank, maintains that regional countries need to bridge the existing trust deficit to increase trade interdependency. “Trust promotes trade; and trade fosters trust, interdependency, and constituencies for peace,” he notes.

A recently published report, titled, Glass Half Full: The Promise of Regional Trade in South Asia notes what needs to be done to realize the full trading potential in South Asia. “Pakistan is sitting on huge trade potential that remains largely untapped,” said Illango Patchamuthu, World Bank Country Director for Pakistan. “A favorable trading regime that reduces the high costs and removes barriers could boost investment opportunities that are critically required for accelerating growth in the country.” The report also notes that Pakistan’s trade links with South Asia can increase by 8 fold if the issue of high tariffs and other political issues are addressed.

It is expected that by 2040, India, Pakistan, and Bangladesh’s energy needs will double. The missing gas and electricity, transmission links need to be fulfilled if South Asia is to meet its energy needs and enhance regional trade cooperation.

“Energy market development follows a pattern of organic growth, starting with intra-regional markets, culminating in international integration. Since gas usage is projected to double in all three countries, time is ripe for investments and collaborations,” argue Bhatiani and Ahluwalia.