Context

• Two significant developments, the reciprocal tariffs imposed by the Trump administration and the terror attack in Pahalgam, may appear disconnected at first glance.
• However, they underscore a crucial truth: economic stability and national security are deeply interlinked and despite the evident need for collective resilience, South Asia remains one of the least economically integrated regions globally.
• Therefore, it is important to explores the interplay between economic stagnation and regional insecurity in South Asia, highlighting the underlying causes of poor economic integration.

The Interplay Between Economic and National Security

• Security and economic growth are often addressed in silos, yet they are mutually reinforcing.
• Border disputes, insurgencies, and mistrust among South Asian nations stifle trade, hinder investment, and limit economic cooperation.
• Economic fragility can exacerbate internal unrest, while insecurity deters trade and infrastructure development.
• As the world’s most populous region, South Asia cannot afford to treat these spheres as separate policy domain Instead, peace and prosperity must be pursued in tandem.

South Asia’s Trade Disintegration, Hidden Potential and Missed Opportunities

• The Stark Reality of South Asia’s Trade Disintegration
  • South Asia's economic under integration is staggering.
  • Intraregional trade under the South Asian Free Trade Area (SAFTA) accounts for a mere 5–7% of the region’s total international trade far below global counterparts.
  • The European Union achieves 45%, ASEAN 22%, and even NAFTA approximates 25%.
  • While SAARC’s current trade volume is approximately $23 billion, the potential is nearly three times higher, with UNESCAP estimating a possible $67 billion, perhaps even $172 billion with optimal conditions.
  • These figures reveal a colossal underutilization of trade capacity in a region that houses 25% of the world’s population but generates only a $5 trillion GDP.
  • This economic inertia is not just an abstract statistic; it directly impacts regional development.
  • For example, while the EU, home to just 5.8% of the world’s population, boasts a GDP of $18 trillion, South Asia remains trapped in comparative poverty.
  • Such disparities reflect the lost opportunities caused by inadequate integration.
• Hidden Potential and Missed Opportunities
  • Country-specific analyses show severe untapped potential in intraregional trade: Bangladesh (93%), Maldives (88%), Pakistan (86%), Afghanistan (83%), and Nepal (76%).
  • The decline in India-Pakistan bilateral trade, from $2.41 billion in 2018 to just $1.2 billion in 2024, highlights how geopolitical tensions damage regional economics.
  • Pakistani exports to India plummeted from $547.5 million in 2019 to a mere $480,000 in 2024.
  • Furthermore, South Asia’s trade-to-GDP ratio has dropped from 47.3% in 2022 to 42.94% in 2024, exacerbated by growing trade deficits ($339 billion in 2022, up from $204.1 billion in 2015).
  • Yet, total trade volume, exports and imports, rose significantly to $1,335 billion between 2015–2022, showing that while global engagement is increasing, regional trade remains sidelined.
  • This indicates a clear preference or necessity for trading with distant partners over neighbouring ones.

The High Cost of Trade and Strategic and Political Impediments

• Barriers Beyond Borders: The High Cost of Trade
  • Despite SAFTA, the cost of trading within South Asia remains prohibitively high, averaging 114% of the value of goods being exported.
  • Paradoxically, it costs less to trade with the United States (109%) than with a neighbouring South Asian country.
  • Indian firms find it 20% costlier to trade with Pakistan than Brazil, which is twenty-two times farther away.
  • In contrast, ASEAN nations enjoy much lower intra-regional trade costs, around 76%, supporting the development of regional value chains and economic interdependence.
  • These inefficiencies discourage the creation of a regional production ecosystem and limit the development of strategic complementarities among South Asian economies.
• Strategic and Political Impediments
  • Several deep-rooted issues continue to inhibit regional cooperation: terrorism, cross-border insurgencies, trust deficits, political diversity, and historical conflicts.
  • SAARC, envisioned as a platform to build trust and enhance cooperation, has largely underperformed.
  • While the mechanisms for liberalisation exist on paper, their implementation is severely hampered by mutual suspicion and unresolved disputes.
  • The potential for trade in services and investments also remains largely unexplored.
  • This distrust ultimately deprives South Asia’s vast population of economic opportunities, innovations, and inclusive development.
  • The absence of robust trade networks weakens local industries, limits job creation, and discourages foreign direct investment.

A Path Forward: Towards Regional Renaissance

• Unlocking South Asia’s potential demands a strategic pivot. Economic and security cooperation must go hand in hand.
• First, countries must lower trade barriers, improve customs procedures, and simplify logistics infrastructure.
• Second, diplomatic efforts should prioritise conflict resolution and institutional trust-building.
• Third, regional platforms like SAARC must be re-energized with clear mandates and accountability frameworks.
• The region must move from a paradigm of rivalry to one of mutual gain.
• Common challenges, poverty, climate change, terrorism, and public health, require unified solutions.
• Economic interdependence can act as a stabiliser, reducing incentives for conflict and increasing the cost of hostility.

Conclusion

• South Asia today stands at a crossroads and despite the abundant promise of its people, geography, and market size, it lags in both economic integration and collective security.
• The failure to develop regional trade has compounded insecurity, and persistent security issues have further choked economic collaboration.
• For South Asia to secure a prosperous future, it must shed the baggage of the past and embrace a new vision of collaborative growth and shared security.
• Only then can the region transform from a story of missed opportunities into one of strategic renaissance.