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Economically Increasing Trade Within Asia Makes Sense


  • After the International Monetary Fund (IMF) warned on January 31, 2023, that global trade would slow from 5.4% in 2022 to 2.4% in 2023, South Asia must now reevaluate regional trade across Asia.
  • With poly-crisis risks like a worsening Russia-Ukraine conflict, a break from global supply chains, and dealing with COVID-19 virus variants, this forecast is optimistic.


GS Paper-2: India and its neighborhood- relations; bilateral, regional, and global groupings and agreements involving India and/or affecting India’s interests.

Mains Question

Do you think that BIMSTEC is a parallel organisation like the SAARC? What are the similarities and dissimilarities between the two? How are Indian foreign policy objectives realized by forming this new organisation? (250 words)

Why Trade Between Dynamic East Asia And South Asia Needs To Increase:

  • Since the 1990s, trade between South Asia and East Asia has increased, which is related to India’s trade realignment toward East Asia through its o Look East o Act East policies.
  • Reforms are being implemented in South Asia, and China is offshoring its supply chains to Asia.
  • The amount of free trade agreements (FTAs) connecting economies in South Asia with East Asia may rise to 30 by 2030. In addition, regional trade in Asia is recovering after the COVID-19 pandemic, opening opportunities for South Asia to participate in global value chains.

What should be done in that case?

  • Reduction of trade barriers for goods and services: By gradually lowering trade barriers for goods and services, regional trade integration across Asia can be promoted.
    • Since the global financial crisis of 2008, import tariffs and non-tariff measures have increased in several South Asian economies and have never decreased.
  • Since trade taxes make up a large portion of government revenue in some economies, South Asia’s trade opening should be calibrated with tax reforms.
    • Retraining workers and providing adjustment financing to losing industries are also crucial in order to promote trade benefits and reduce income inequality.
  • Increasing SEZ productivity and investment in services SEZs: o There are more than 600 SEZs operating in South Asia, including those in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh), and Hambantota (Sri Lanka).
  • However, these SEZs have a patchy track record when it comes to exports, employment, and promoting domestic ties.
    • Competitive fiscal incentives only slightly influence where multinational corporations choose to locate, and lengthy tax holidays deprive economies of important tax revenue.
    • Ensuring macroeconomic and political stability, adopting best practises in investor regulation, providing dependable electricity, using 5G broadband cellular technology, and improving worker skills are all necessary for improving SEZ processes and outcomes in South Asia.
  • The pursuit of thorough FTAs: While South Asia is a latecomer to FTAs when compared to East Asia, it has made a start with the FTAs between Japan and India, Sri Lanka and Singapore, and Pakistan and Indonesia.
    • South Asian economies need to improve the use of tariff preference by better preparing companies to negotiate the intricate origin rules in FTAs and including concerns about global supply chains in upcoming FTAs.
  • In 2022, India will have FTAs with Australia and the United Arab Emirates.
  • The assurance gained from these can be used to implement structural reforms to increase business competitiveness in supply chains and promote greater regulatory coherence with East Asia in order to get ready for future RCEP membership.
    • The rest of South Asia may be encouraged to join the RCEP if India does so out of a fear of being left out and suffering from the effects of trade diversion.
  • Reinventing BIMSTEC: o A Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) that is more focused on trade can support the interests of smaller members and promote stronger trade ties, but this will require better funding for its Secretariat.
  • Ending the protracted BIMSTEC FTA.
  • Increasing the trade potential of smaller economies
  • Establishing the status of dialogue partner to promote open regionalism in Asia.

South Asian Association for Regional Cooperation

  • In order to foster economic development in South Asia, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka founded the South Asian Association for Regional Cooperation (SAARC), an intergovernmental organisation. Later, Afghanistan joined SAARC.
    • SAARC’s shortcomings: The organisation has utterly failed to meet the majority of its goals.
      • South Asia is still the world’s least developed and most impoverished region.
      • When compared to other regions like the Association of South East Asian Nations (ASEAN) and Sub-Saharan Africa, South Asia’s intraregional trade and investment are very low.
      • Pakistan has taken an obstructive stance within SAARC by repeatedly preventing a number of crucial initiatives, such as the motor vehicles agreement, intended to improve regional connectivity.
      • Things have gotten worse as India and Pakistan’s hostility has grown. The absence of a SAARC summit since 2014 has left the grouping directionless and all but dead.


  • While extensive trade between South Asia and East Asia may be desirable, this may not be possible for a while due to the emergence of increasingly complex geopolitics.
  • In light of this, a smaller geographic overlap between South Asia and Southeast Asia might serve as a foundation for later trade integration across Asia.
  • The larger economies should make it easier for the smaller economies to benefit from trade in order to lessen opposition to regionalization.
  • As global trade slows, expanding trade within Asia makes financial sense.
  • The largest economy in South Asia, India, could serve as a good starting point for these changes because it currently holds the G-20 presidency. Having the political will to enact pro-trade policies can improve the lives of Asians.

December 2023