India is the powerhouse of South Asia. But trade between India and its South Asian partners is lacklustre, accounting for less than 4 percent of global trade. This means plenty of regional trade opportunities remain untapped. 

Why India is Lagging in Regional Trade

While enjoying excellent growth in external trade, India’s regional trade lags behind. This is largely due to a number of trade barriers such as tariffs and para-tariffs, high logistics costs and inadequate cross-border infrastructure. 

The region is also notorious for persistent informal trade between India and its neighbours, which is not accounted for in official figures. Other non-tariff barriers also exist, particularly a lack of comparative advantage

Unfortunately, many South Asian economies are competitors in export markets, as they produce similar goods; especially textiles, apparel products and cash crops. Furthermore, many of these economies, including India, pursue protectionist policies that further inhibit trade within the region. Add to this that the two largest regional economies, India and Pakistan, are constantly at odds with each other and refuse to formally expand trade, and the conditions for regional non-cooperation are ripe. 

Improving Regional Trade

Crucial steps need to be taken to overcome these obstacles, strengthen the region and capitalize on untapped opportunities. 

Regional Cooperation: Countries need to adopt a more cooperative stance at a political level. This initiative needs to be led by India. At least for trading purposes, historic disagreements and petty feuds need to be side-lined. Also, digital technology can be used to create a regional trade network to streamline trade between countries.

Trade Agreements: Existing agreements are archaic and outdated, having been entered into in the late 90s and early 2000s. They need to be revised and new, more efficient agreements entered into.

Breaking Trade Barriers: Overly protectionist attitudes, non-beneficial tariffs, para-tariffs and archaic import policies need to be shown the door.

Cross-Border Infrastructure: Even for passenger travel, crossing borders in South Asia is needlessly complicated and it is even worse for trade movements. The region needs better infrastructure and more streamlined processes and policies across transport modes.  

Improved Trade: A Benefit to All

All participants in South Asia will benefit from improved regional trade. More importantly, it will help India balance out China’s expanding regional influence, ultimately creating a more friendly and stable South Asia.