South Asia is one of the least integrated regions in the world in terms of trade and people-to-people contact, observed the International Chamber of Commerce Bangladesh (ICCB).
According to World Bank, regional cooperation has the potential to produce significant gains across all countries of South Asia. Intra-regional trade now stands at just one-fifth of its trade potential. An electricity market of the BBIN countries -- Bangladesh, Bhutan, India, and Nepal -- would save an estimated $17 billion in capital costs. Improvements in transport and logistics can reduce 50 per cent higher cost for container shipments in South Asia compared to OECD nations, the ICCB said in its quarterly news bulletin (April-June 2023 issue).
SAARC countries signed the SAPTA (SAARC Preferential Trading Arrangement) in April 1993 which came into force in December 1995, with the aim of promoting intra-regional trade and economic cooperation within the SAARC region. SAPTA was replaced by the South Asian Free Trade Area (SAFTA) in January 2006.
Besides SAFTA, there are three bilateral free trade agreements (FTAs) in South Asia, which are India-Sri Lanka, India-Bhutan and Pakistan-Sri Lanka.
Furthermore, the Bangladesh-Bhutan-India-Nepal (BBIN) Agreement signed in June 2015 is another initiative for sub-regional cooperation. The deepening relationship among BBIN countries on regional trade and transport is reflected by the increasing number of connectivity agreements. However, opportunities for growth through regional trade remain largely untapped.
But despite all these initiatives, intra-regional trade in South Asia remains much below the actual potential of trade cooperation. At present, regional trade in South Asia accounts for only 5 percent of estimated $23 billion in trade flow -- well below the potential trade of $67 billion, while the ratio of trade in other regions are East Asia: 50 per cent, ASEAN: 26 per cent, EU: 67 per cent, NAFTA: 62 per cent, LAC and COMESA 22 per cent.
In a region with a population exceeding 2 billion and a robust $4.1 trillion economy, India has firmly established itself among the booming economies of the 21st century, with 1.4 billion people and a $3.4 trillion economy. By 2035, India will be the third-largest economy.
Bangladesh is well placed to play a key role in regional trade and logistics networks and act as a transit country in South Asia, the ICCB said.
Despite huge potential, bilateral trade between India and Bangladesh was only $11 billion in FY22, out of which export from Bangladesh to India was only $1.27 billion.
Minimising various trade barriers, Bangladesh's export to India can grow by 300 per cent if it can just fetch only one percent of total Indian imports.
Estimates by the WB suggest that Bangladesh's exports to India could increase by 182 per cent from the current levels if the countries implement a free trade agreement. Improving transport connectivity between the two countries could increase exports even further, yielding a 297 per cent increase in Bangladesh's exports to India.
Bangladesh and other countries in the region trade on better terms with distant economies than with their neighbours. For example, the WB's Connecting to Thrive Report found that it is less expensive for a company in Bangladesh to trade with a company in Germany than with a company next door in India.
A well-established transport network is pivotal to trade connectivity. It can promote regional cooperation and integration by enhancing trade and investment. Besides, well-placed transport connectivity can also positively impact social and cultural development by promoting people-to-people cooperation through tourism and cultural exchanges.
For more prosperous South Asia, SAARC Leaders agreed to the vision of a phased and planned process eventually leading to a South Asian Economic Union (SAEU). But, to achieve this vision, it would be necessary for the region to have appropriate infrastructure, establish good connectivity and remove all trade barriers; including mind-set.
India's G20 presidency brings immense opportunities for South Asia to address economic challenges, foster regional cooperation in climate and energy, and lead innovation based on favourable demographics. However, to better capture the economic opportunities that this occurrence propels, it is in the interest of India and countries in South Asia to accelerate cooperation and move toward regional integrity, said the ICCB.
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