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India is SAARC’s fastest growing region in terms of GDP. According to the World Bank estimates, the Indian economy is projected to grow at an average growth rate of 7.4% and 7.6% in 2016 and 2017, respectively. It occupies 70% of the SAARC region, both geographically and economically. As the biggest and the most industrialised trading partner among the SAARC countries, India enjoys additional responsibilities in making regional economic cooperation a reality in South Asia.

GDP earnings

The Gross Domestic Product (GDP) per capita in India was last recorded at $1861.50 in 2016. The GDP per capita in India is equivalent to 15% of the world’s average. GDP per capita in India averaged $671.68 from 1960 until 2016, reaching an all-time high of $1861.50 in 2016 and a record low of $304.20 in 1960.

Export and Import

Defence Minister Nirmala Sitharaman recently informed that the share of India’s exports to the SAARC countries has increased from 5.57% in 2013-14 to 6.42% in 2016-17(April-August) and the share of India’s imports from the SAARC countries increased from 0.55% in 2013-14 to 0.73% in 2016-17 (April-August). The main products of trade between these countries include agri goods, electronics, textiles, dairy products and metals.

According to the Indian Ministry of Commerce & Industry, the total exports of India to Afghanistan in 2016-17(April to August) accounted for $208.95 million and imports from Afghanistan were estimated to be around $73.01 million. The total exports to Bangladesh during this period were $2,294.32 million and imports stood for $308.74million. With Bhutan, the total exports were $216.7 million and imports were $62.18 million. India’s total exports with Maldives included $72.85 million and imports were around $4.7 million.  India’s exports to Nepal were around $1,983.70 million and imports stood at around $ 173.25 million. Exports to Pakistan were $633.34 million and imports from it stood at $187.56 million. Indian exports to Sri Lanka showed a positive growth to reach $1,536.13million and goods worth $234.39 million were imported from the island nation.

Intra- SAARC trade

India has consistently strengthened trade relations with its SAARC partners. Recently, an important step was initiated in promoting electricity trade between India and Nepal following the secretary level meeting in Kathmandu. India agreed to provide surplus electricity to Nepal, which is highly energy deficient.

The new Agreement on Trade, Commerce and Transit between India and Bhutan has come into effect from July 29, 2017. The agreement provides for a free trade between the two economies.  The agreement also provides for duty free transit of Bhutanese merchandise for trade with third countries.

Trade between India and Pakistan has surprisingly being strong throughout the current year despite accelerating rate of diplomatic tension between the two countries.  A State Bank of Pakistan (SBP) report has revealed that Pakistan grew its exports to India during the first eight months of 2016-17 while curtailing imports by 23%. Imports from India in 2015-16 were worth over four times the exports from Pakistan.

The total trade between Maldives and India stood at $68,520.94 million in the year 2011-12 which increased in the year 2015-16 by $119,845.21million. Indian trade relations with Afghanistan have also improved. India is Sri Lanka’s largest trading partner globally, while Sri Lanka is India’s second largest trading partner among the SAARC countries.

Investment

India will soon invest up to $10 billion in various Bangladeshi sectors including infrastructure and pharmaceuticals. It will also provide $5 billion in loans, including $500 million in military assistance. New Delhi and Dhaka are looking at strengthening economic cooperation through joint investments and enhancing mutual cooperation under the ‘Blue Economy’ programme. Indian firms are the largest investors in Nepal, accounting for about 40% of the total approved foreign direct investments. The Indian private sector and PSUs are engaged in the development of two important hydel power projects in Nepal. There are about 150 operating Indian ventures in Nepal. They are engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power and in tourism. India is Sri Lanka’s largest trade partner and bilateral trade between the countries stood at $4.6 billion in 2014. India also plans to invest in a strategic port in Sri Lanka to counter Chinese influence.

India has recently offered Afghanistan a fresh $1 billion as economic assistance after the leaders of the two countries met in New Delhi. Indian Prime Minister Narendra Modi has repeatedly emphasised India’s commitment to help the war-torn country strengthen its education, health, agriculture and other sectors. India is one of the Maldives’ leading investors. As of March-November-2015, bilateral trade between India and the Maldives stood at $206.6 million. India has also provided $100 million stand-by credit facility to the Maldives, including long-term loans and revolving credit for trade. Under a new line of credit worth $40 million offered by the Indian government to Maldives, the Overseas Infrastructure Alliance of India has been given a contract to construct 485 housing units in Maldives.

The landlocked Bhutan has significant potential for hydropower production. The first hydropower project supported by India (Chukha, 336 megawatts [MW]) was completed in 1988. Over 80% of the power generated in this plant has been subsequently exported to India. India’s domestic demand for hydropower has increased dramatically since then, prompting a search for innovative financing tools. India has promised to help Bhutan in installing power plants that will generate 10,000 MW of hydropower by 2020.

In the early years, India provided funding to Bhutan as part grant, part concessional loan. India has proposed a new “Joint-Venture” (JV) model to raise finances for its hydropower investments in Bhutan. The JV model is a partnership between public sector undertakings of both India and Bhutan, with 70%  of finances to be raised as company debt, and 30% to be equity from India.

Investment is increasing tremendously in India compared to other countries of the region,FDI inflows to India reached to $34 billion. In terms of sectoral composition, manufacturing is gaining strength, as policy efforts to revitalize the sector are sustained, including for instance the launch of the “Make in India” Initiative in mid-2014. The major sources of FDI in India are Japan, United States and the Republic of Korea.

Challenges

Though there is a general increase in India’s export to and from individual SAARC countries, there exists a difference in trade relation with India and individual member countries. The major challenges among intra SAARC trade are high and escalating trade costs, informal trade, poor intra-regional connectivity, supply-side constraints and weak productive capacities, trade financing and related institutional mechanism. India is plagued with below poverty line which estimates nearly 1.5 billion people. Food security is hampered due to the ongoing climate challenges.

The growth of intra-regional trade has remained subdued due to considerations other than economic issues. In ensuring stability and growth in intra-regional trade, the Indo-Pak bilateral relationship plays a very crucial role. SAARC countries also need to put in place adequate physical infrastructure in place which hampers their global competitiveness even in those sectors where they have revealed comparative advantages. Although major SAARC countries are better synchronised in terms of their GDP cycles, trade integration continues to be low due to high level of protectionism existing among the SAARC countries than the rest of world. In this context, successful outcome of SAFTA could play an important role in strengthening trade ties within the region. It is, however, to be expected that with further dismantling of tariff barriers under the SAFTA, a large part of the informal trade may come under purview of formal trade.

This along with favorable Rules of Origin could raise intra-regional trade in the SARRC region. SAARC countries will need to take concrete steps for harmonisation of customs and other procedures, mutual recognition of certificates and standards and trade facilitation measures.