South Asia: A disconnected giant in a connected world

South Asia is one of the great paradoxes of the global economy. Home to nearly a quarter of the world’s population, including three of the ten most populous countries, it should logically be among the most interconnected regions on earth. Instead, it remains one of the least integrated — economically, commercially, and institutionally — paying a heavy price in lost growth, persistent poverty, and weak social outcomes.

Nowhere is this failure more evident than in intra-regional trade. Despite the establishment of the South Asian Free Trade Area (SAFTA) in 2006, trade among South Asian countries accounts for only about 5 per cent of the region’s total trade, one of the lowest figures globally. By comparison, ASEAN conducts roughly 22–25 per cent of its trade within the region, while the European Union’s intra-regional trade is close to 45 per cent. Geography alone makes this outcome irrational; policy and politics explain it.

The costs of this fragmentation are enormous. Studies suggest that South Asia’s intra-regional trade potential is at least $67 billion and could be as high as $172 billion, compared to the current level of roughly $23 billion. In effect, more than 80 per cent of potential trade remains unrealised. These are not abstract numbers. They represent lost markets for farmers, fewer jobs in manufacturing, weaker regional value chains, and diminished opportunities for small and medium enterprises.

Trade within South Asia is also paradoxically more expensive than trade with distant partners. Poor infrastructure, restrictive border regimes, excessive documentation, and non-tariff barriers mean that moving goods across a neighbouring border often costs more and takes longer than shipping them across oceans. As a result, South Asian countries frequently trade more with Europe, East Asia, or North America than with one another — an outcome that defies basic economic logic.

ASEAN’s experience illustrates what South Asia lacks. Regional integration there has gone beyond tariff reductions to include harmonised standards, trade facilitation, logistics connectivity, and institutional dispute-resolution mechanisms. This has enabled the development of cross-border production networks, attracted investment, and increased economic resilience. South Asia, by contrast, remains trapped in a low-integration equilibrium, where political mistrust overrides economic self-interest.

At the core of this dysfunction lies the region’s unresolved political conflicts, particularly between India and Pakistan, its two largest economies. Bilateral trade between them has steadily declined, falling from $2.41 billion in 2018 to around $1.2 billion by 2024.

Afghanistan’s prolonged conflict has compounded South Asia’s isolation. For over four decades, war and instability have prevented the country from realising its natural role as a land bridge between South and Central Asia. Energy corridors, trade routes, and transit infrastructure linking the region to Central Asia remain underdeveloped or politically constrained. Even today, Afghan trade routes remain vulnerable to border closures and geopolitical frictions, despite efforts to diversify through Iran and Central Asia.

The consequences of this economic fragmentation extend well beyond trade statistics. South Asia remains home to some of the world’s highest concentrations of poverty and vulnerability, particularly when measured through multidimensional indicators that capture health, education, and living standards. While extreme income poverty has declined, hundreds of millions remain trapped in low-productivity employment with limited access to quality public services. Social sector outcomes — from nutrition and maternal health to learning levels — lag behind those of more integrated regions such as ASEAN, where economic cooperation has helped fund sustained investment in human development.

Yet South Asia’s predicament is not inevitable. The region’s under-performance is a product of policy failure, not structural destiny. The path forward begins with reimagining regional cooperation. SAARC, long paralysed by political disputes, requires either fundamental reform or supplementation through smaller, functional arrangements that focus on deliverables rather than declarations.

Trust can be rebuilt incrementally through de-politicised economic cooperation — starting with areas of mutual benefit such as energy connectivity, transport corridors, digital trade facilitation, and disaster resilience. Reducing non-tariff barriers, harmonising standards, and modernising customs through paperless systems would immediately lower trade costs and encourage private sector participation.

Crucially, economic cooperation must be insulated from security crises. ASEAN’s experience demonstrates that regional integration can advance even amid political differences, provided there is institutional commitment to continuity. South Asia must learn to separate commerce from conflict if it hopes to unlock its demographic dividend.

Multilateral institutions can also play a catalytic role. Initiatives such as the World Bank’s “One South Asia” programme aim to identify and remove regional bottlenecks, providing neutral platforms for cooperation and shared infrastructure financing.

South Asia stands at a crossroads. It can continue along the familiar path of mistrust, fragmentation, and missed opportunities — or it can choose connectivity, cooperation, and shared prosperity. The costs of inaction are already evident. The gains from integration, however, would be transformative — not only for regional economies, but for the lives and futures of nearly two billion people.

Sajjad Ashraf served as an adjunct professor at the Lee Kuan Yew School of Public Policy, National University of Singapore from 2009 to 2017. He was a member of Pakistan Foreign Service from 1973 to 2008 and served as an ambassador to several countries.