SAARC tale of woe

Tension in South Asia is growing again as the India-Pakistan standoff is once again forcing countries to take sides, overwhelmingly in favour of India, with the South Asian Association for Regional Cooperation (SAARC) summit likely to be derailed. 

When giants battle, the Lilliput nations have to take a hard look at their choices. India with its fast-growing economy makes it a regional power that is impossible to ignore.  Bangladesh, Afghanistan and Bhutan have decided to join the Indian boycott of the SAARC summit that was to have been held in Islamabad in November. Sri Lanka, already in negotiations with New Delhi on a far-reaching services agreement titled the Economic Technology Cooperation Agreement (ETCA) and expecting billions of dollars in investment, will likely join the boycott as well even though no formal decision has yet been announced. 

Tiffs between India and Pakistan have dominated SAARC since its formation in 1985, and played the central role of failing to boost economic growth and collective self-reliance. Both countries have undermined the bloc to the extent that members do more trade through bilateral partnerships than as a region and growth gaps in South Asia have been widening sharply as a result. 

Economists and political pundits fed up with the endless focus on political tensions, mostly over Kashmir, believe it highly unlikely SAARC will ever realise its potential as a trade bloc and an engine of regional growth. It is clearly high time member states develop alternative trading arrangements and not let SAARC’s lethargy hold back progress on achieving the association’s worthy goals.

An organisation bringing together Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, SAARC was initially regarded with cynicism by India and Pakistan. SAARC has neither enhanced the economic wellbeing of its members’ economies nor helped to reduce regional tensions. India argues that Pakistan has blocked the deeper integration of states in the SAARC and hindered the realisation of its potential organisational benefits. Pakistan has assumed that deeper integration would strengthen India’s sub-continental dominance.

SAARC is yet to evolve into a structured trade bloc strong enough to generate intense economic activity among its member countries. SAARC states do little trade together as they mostly compete in similar products. India’s imports from Sri Lanka and Bangladesh make up only 0.1% of its total imports and it only sends 2.8% of its total exports to the SAARC states. Intra-regional trade accounts for only 3% of the SAARC members’ overall trade. Between them, India and Pakistan account for 80% of South Asia’s gross domestic product but only contribute 2% to intra-South Asia trade.

South Asia also desperately needs a strong services sharing framework, much like the liberalisation seen in the European Union, but here again political issues, memories and insecurities take precedence. Even Sri Lanka’s own attempts to establish ETCA has underscored the deep divisions with its closest neighbour and the potential political fallout it would have to face at home if greater engagement goes awry. 

Even though South Asia is tipped to grow faster than China for the first time in history, economic gains will always remain fractured and unequally distributed because the region cannot shake off its past to embrace a brighter future by working together.