ISAS Working Papers

This paper studies economic integration in the South Asian region using an India - centric approach. It recommends that the gains from India withdrawing its tariff on imports from South Asian countries hugely outweigh the losses for the region. The four bila teral trade relationships analysed cover India - Pakistan, India - Bangladesh, India - Sri Lanka and India - Nepal. The Indo - Pakistan relationship shows Pakistan’s exports to India contribute much less to India’s total imports than to Pakistan’s GDP. The benefits of India unilaterally withdrawing tariffs, thus, are much greater than the costs. Similarly, the India - Bangladesh trade relationship, despite having many complementary characteristics, is not very well established. India announced duty free access to some textile imports from Bangladesh in September 2011 3 and should be encouraged to declare ‘zero tariff’ rates on all major Bangladeshi imports. The India - Sri Lanka relationship, despite having a Free Trade Agreement (FTA), is restricted in many ways. Similarl y, the Indo - Nepal trade relationship, despite a 60 year FTA, is still protectionist in nature. It is important that these protective criteria be removed in favour of improving trade between the countries. Each of the countries mentioned in the paper will g ain immensely if India opens up its borders to their ex ports. These gains will outweigh the minor losses for India which will be more than compensated for by its increased goodwill. Economic integration is important to maintain stability in this region and the four bilateral relationships described above are crucial.