This page in:
  • English

BRIEF

Regional Integration in South Asia

March 24, 2014

With shared history and culture, the South Asia region has a huge potential for economic integration but issues on national identity and internal consolidation have caused political tensions and mistrust between countries, and as a result, intra-regional integration is limited.

STORY HIGHLIGHTS
  • South Asia’s intra-regional trade accounts for just 5% of total trade, compared to 25% in ASEAN.
  • The South Asia Regional Integration program manages a portfolio of $280 million in energy, trade and transport, and wildlife conservation.
  • Greater regional integration will enhance prospects for growth and shared prosperity in South Asia, home to 44 percent of the world’s poor.

Context

South Asia is one of the most dynamic regions in the world, but it is also one of the least economically integrated. Intra-regional trade accounts for just 5% of total trade, compared with 25% in the Association of Southeast Nations (ASEAN). With shared history and culture, the South Asia region has a huge potential for economic integration but issues on national identity and internal consolidation have caused political tensions and mistrust between countries, and as a result, intra-regional integration is limited. By building common interests across borders, regional integration could enhance stability in this volatile region -- which is home to 570 million or 44% of the world’s poor -- and pave the way for countries to cooperate on urgent and shared climate change-related challenges which aggravate the risks to sustainable growth.

Cross-border trade is especially important for smaller countries and for landlocked provinces/countries, including Afghanistan, Bangladesh, Bhutan, Nepal, Northeast India and Northwest Pakistan. Expanded intra-regional trade, increased investment and supply-chain integration, will need policy reforms, and improvements in regulations, border management, and infrastructure. Measures will need to pay due regard to the security concerns which dominate each country’s view of borders. Small and medium enterprises are likely to play a large role in expanded commerce (relative to power sector cooperation), creating a wider canvas of opportunities for cooperation, reduced mistrust and poverty reduction.

South Asian countries will benefit substantially from greater integration through energy trade, commerce and river basin management. The most obvious gains are in the power sector, with connectivity enhancing system reliability, lowering costs and carbon emissions, and relieving debilitating shortages in all countries by enabling the sustainable development of the enormous hydro and gas-based power generation potential of the Himalayas – the “water tower” of Asia – and of Central Asia. Afghanistan and Nepal have water resources that could potentially generate around 24,000 and 83,000 megawatts of electricity respectively. Transmission infrastructure, clean energy generation, and fair pricing agreements across borders hold the key to realizing this potential.

Momentum for economic cooperation has been building in recent years and months. India and Pakistan have revitalized ministerial-level negotiations on expanded trade including through granting Non-Discriminatory Access – a similar status to Most Favored Nation (MFN) – to India, reciprocating India’s granting of MFN status to Pakistan a decade ago. India has modernized its Attari border post with Pakistan and has offered to export 500 megawatts of power. India and Bangladesh have enhanced their bilateral ties, including in power trade, and India has extended tariff-free access to its market to all Least Developed Countries in the region. Afghanistan and Pakistan have started implementing a transit and trade treaty which they signed in 2011. Indian investment in Sri Lanka has risen significantly, as has cross-country trade, following a 2001 Free Trade Agreements. 

World Bank Group Strategy

The overall aim of the WBG regional integration strategy for the next three to five years is to step up support for three main objectives which are listed below:

  • Help put in place the building blocks for an integrated regional electricity market in South Asia (with links to Central Asia) to relieve energy shortages, which are a binding constraint to each country’s prospects for sustainable and equitable growth.

  • Move SAR towards East Asian levels of trade and investment in goods and services to enhance competitiveness and create more and better jobs for the over 10 million young people who will enter the work force each year for the foreseeable future.

  • Improve the in-country and cross-border authorizing environment (attitudes and policy) for regional integration by systematically building awareness and “championship” around the need for, and benefits from, increased regional cooperation. Building on analytical work on the costs of the status quo and high impact opportunities for cooperation, and by leveraging lessons from the South Asia Region and global experience, the strategy will seek to both facilitate sustained action in priority areas where there is already sufficient demand across countries as well as to build support for new high priority areas.

Projects & Results

Portfolio

Central Asia-South Asia (CASA) 1000 Electricity Transmission Project (P145054)
Category: Energy
Development Objective: The project will enable supply of about 1300 MW of electricity to Afghanistan and Pakistan from existing summer surplus hydropower generation in the Central Asian countries of Tajikistan and Kyrgyz Republic.
Financing: FY14 US$526.5m

Nepal-India Electricity Transmission and Trade Project (P115767)
Category: Energy
Development Objective: The project will establish cross-border transmission capacity of about 1000 Megawatts (MW) to facilitate electricity trade between India and Nepal, and increase the supply of electricity in Nepal by the sustainable import of at least 100 MW of electricity.
Financing: FY11 US $99m; FY13 Additional Financing US $39m

Nepal-India Regional Trade and Transport Facilitation Project (P144335)
Category: Trade and Transport
Development Objective: The project will decrease transport time and logistics costs for bilateral trade between Nepal and India, transit trade along the Kathmandu-Kolkata corridor for the benefit of traders by reducing key infrastructure bottlenecks in Nepal and by supporting the adoption of modern approaches to border management.
Financing: US $99m

Strengthening Regional Cooperation in Wildlife Protection APL Program (P121210)
Category: Wildlife Conservation
Development Objective: The project will build or enhance shared capacity, institutions, knowledge and incentives to collaborate in tackling illegal wildlife trade and other selected regional conservation threats to habitats in border areas.
Financing:
US$39m

Second Phase of the APL on Strengthening Regional Cooperation for Wildlife Protection in Asia  (P126193)
Category: Wildlife Conservation
Development Objective: The project will assist the participating governments of Bhutan and others to build or enhance shared capacity, institutions, knowledge and incentives to collaborate in tackling illegal wildlife trade and other selected regional conservation threats to habitats in border areas.
Financing: US$2.25m

Pipeline

India Mizoram Roads II Regional Connectivity Project (P145778)
Category: Transport
Development Objective: The project will enhance connectivity for the state of Mizoram and the rest of NE India to Bangladesh and the Port of Chittagong (as well as Myanmar), while complementary projects in the program will enhance connectivity for landlocked Nepal to Bangladesh through the Siliguri Corridor of India.
Financing: FY14 US$107m

Useful Resources: 

Reports
South Asia: Growth & Regional Integration
South Asia: Trade and Transport Facilitation
Promoting Economic Cooperation in South Asia – Beyond SAFTA

Events
Promoting Development of Lagging Regions in South Asia (North West Region)
Enhancing Trade in South Asia’s North East Region
Competitive Funds for Higher Globally and Experiences for South Asia

Quick Links: 

Think Tanks & Research Institutes
Center of Policy Dialogue
ICRIER
Indian Institute of Foreign Trade
Institute of Policy Studies of Sri Lanka
Lahore University of Management Sciences 
Marga Institute
National Council for Applied Economics Research
Pakistan Institute of Development Economics
Pakistan Institute of Legislative Development and Transparency
Regional Center of Strategic Studies
Research and Information Systems for Developing Countries
Sustainable Development Policy Institute 
Trade and Development Authority of Pakistan (TDAP)

Chambers of Commerce
SAARC Chamber of Commerce and Industry
Afghanistan Chamber of Commerce & Industries
Bhutan Chamber of Commerce & Industry
Federation of Indian Chambers of Commerce and Industry
Maldives National Chamber of Commerce and Industry
Federation of Nepalese Chambers of Commerce and Industry
Nepal Chamber of Commerce
The Federation of Chambers of Commerce and Industry (Pakistan)
Federation of Chambers of Commerce and Industry of Sri Lanka

Ministries of Commerce & Industry
Ministry of Commerce and Industries (Afghanistan)
Ministry of Commerce (Bangladesh)
Ministry of Economic Affairs (Bhutan)
Ministry of Commerce and Industry (India)
Ministry of Commerce (Pakistan)
Ministry of Economic Development (Maldives)
Department of Commerce (Sri Lanka)

Investment Bodies
Afghanistan Investment Support Agency
Board of Investment, Bangladesh
Foreign Investment Promobtion Board (India)
Invest Maldives
Invest Nepal
Board of Investment, Pakistan
Board of Investment, Sri Lanka

Other Useful Links
Central Board of Excise and Customs, India
National Tariff Commission, Pakistan
Pakistan Business Council
Pakistan-India Business Council