NEW DELHI: The existing barriers to trade restrict South Asian nations from fully realising their trade potential, says a report by World Bank, as a result of which India's current trade in goods with its neighbouring countries in the South Asian region is just $19 billion as against a potential trade value of $62 billion.
The report addressed four specific barriers that have constrained trade within South Asia: tariff and para tariff barriers; non-tariff barriers; the high costs of connectivity; and the trust deficit among South Asian countries. It further said that the huge deficit gap of around $43 on current trade can be narrowed down if certain restriction like tariffs, port restrictions and other non-tariff barriers are eased.
Citing an example, it said that trade between India and Pakistan presently stands at $2 billion, which without any trade barriers could go up to $37 billion.
Explaining how complex and expensive it to trade with the neighbouring nations, Sanjay Kathuria, lead economist at the World Bank, noted that it is cheaper for India to import the same set of goods from Brazil as compared to its neighbour Pakistan, while for Sri Lanka or Bangladesh, imports from Nepal are more costly as compared to Brazil.
Economic liberalisation by countries has also done a little to ease tariff rates in the region. In 2016, average tariffs in South Asia where 13.6 per cent, more than double the world average (6.3 per cent) and the highest among major regions of the world despite a regional free trade agreement (SAFTA) that came into force in 2006.
Criticising SAFTA, the report highlighted two drawbacks of the agreement. It says that almost 35 per cent of the value of intra-regional trade in South Asia is subject to sensitive list tariffs; over 39 per cent of India's exports to the region fall under the sensitive lists of various partners.
Also, several countries in the region maintain high para tariffs (that is, duties imposed on imports, but not on domestic production), which have not been included in the tariff preference programs in free trade agreements.
India, the report points out, can play a critical role in regional cooperation for mutual economic and welfare gains. Citing two examples- creation of Indo-Bangladesh border haats and liberalization of India-Sri Lanka air services, the report said that the efforts have improved economic prosperity in the region.
"Given its complicated history, size asymmetries, and a trust deficit, small steps backed by policy persistence is probably the right way to go for South Asia," Kathuria said.