Economic and Security Challenges Between India and Pakistan
The economic and national security landscape of India experienced significant disruptions due to two major incidents: reciprocal tariffs by the Trump administration and the terror attack in Pahalgam. These events, though seemingly unrelated, underscore the interlinked nature of economic stability and security.
Impact on Trade
Trade between India and Pakistan has significantly declined due to constant terror insurgencies and border disputes. Bilateral trade decreased from $2.41 billion in 2018 to $1.2 billion in 2024, with Pakistani exports to India dropping from $547.5 million in 2019 to just $480,000 in 2024.
Economic Integration in South Asia
- SAFTA's Limited Impact: Despite trade liberalization under the South Asian Free Trade Area (SAFTA), intraregional trade is less than a third of its potential.
- Comparative Statistics: Intraregional trade in South Asia accounts for only 5%-7% of total international trade, compared to 45% in the European Union and 22% in ASEAN.
- Potential for Growth: The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) estimated South Asia's potential trade could have reached $172 billion by 2020, indicating over 86% of capacity remains unexploited.
- Trade-to-GDP Ratio: South Asia's trade-to-GDP ratio declined from 47.30% in 2022 to 42.94% in 2024.
Challenges in Regional Cooperation
- High Trade Costs: Trading within South Asia is expensive, with costs reaching 114% of the value of goods being exported.
- Comparison with Other Regions: Trade costs within South Asia are higher compared to ASEAN and trade with distant partners like the U.S.
- Barriers to Policy Implementation: Trust deficits, political and regional conflicts, and terrorism hinder effective regional cooperation and the implementation of agreements like SAFTA.
Recommendations for Improvement
Greater regional cooperation could enhance economic linkages, reduce trade barriers, and facilitate the development of complementary export sectors. For South Asia to fully exploit its potential, member nations must set aside bilateral conflicts to improve intra-regional trade.