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  • Recently International Monetary Fund(IMF) has opined and warned that, South Asia should now have a re­look at regional trade across Asia. As also global trade would slow down from 5.4% in 2022 to 2.4% in 2023.


  • There exists strong base for South Asia in trading more with dynamic East Asia as the total merchandise trade between South Asia and East Asia grew at about 10% annually between 1990 and 2018 to $332 billion in 2018.
  • Many South-East Asian countries such as Vietnam, Indonesia and Malaysia has shown remarkable rise in economic figures.
  • Since the 1990s, South Asia ­East Asia trade has gathered an economic pace.
  • Seeing this opportunity many nations such as India has also formulated trade policies re­-aligning towards East Asia through its ‘Look East’ and ‘Act East’ policies.
  • China also entered by offshoring global supply chains to Asia.
  • Free trade agreements (FTAs) linking economies in South Asia with East Asia may rise to 30 by 2030.
  • Regional trade in Asia is also recovering after the COVID-­19 pandemic.
  • Thus, it has opened various opportunities for South Asia to participate in global value chains and services trade.


  • FREE TRADE AGREEMENTS (FTAs) : South Asia should pursue comprehensive FTAs that will eventually lead to the Regional Comprehensive Economic Partnership (RCEP) to provide for a regional rules- ­based trade to insure against rising protectionism.
  • Although South Asia is a latecomer and comparatively new to FTAs when compared to East Asia, but it has made a start with the Japan­- India FTA, the SriLanka­- Singapore FTA and the Pakistan­- Indonesia FTA.
  • REGIONAL TRADE INTEGRATION: Regional trade integration across Asia can be encouraged by gradually reducing barriers to goods and services trade.
  • South Asia’s trade opening also should be calibrated with tax reforms as trade taxes account for much of government revenue in some countries.
  • Adjustment of financing to losing sectors to reallocate factors of production and re­training of workers is also essential to promote gains from trade and reduce income inequality at the same time.
  • SPECIAL ECONOMIC ZONES: improving the performance of SEZs and to invest in services SEZs to facilitate industrial clustering and exports.
  • South Asia has over 600 SEZs in operation, in Kochi (India), Gwadar (Pakistan), Mirsarai (Bangladesh) and Hambantota (Sri Lanka).
  • But these SEZs have a problem of variable record in terms of exports and jobs and fostering domestic linkages.
  • As competitive fiscal incentives only works on the margin in the locational decisions of multinationals, and thus long tax holidays deprive economies of vital tax revenue.
  • Improving the conditions of SEZ’s processes and outcomes in South Asia requires:-
  1. Ensuring macroeconomic.
  2. Political stability
  3. Adopting good practice regulatory policies towards investors
  4. Providing reliable electricity
  5. 5G broadband cellular technology
  6. Upgradation of worker skills
  • LEVERAGING MULTILATERAL FORUMS: A reinvented trade­ focused Bay of Bengal Initiative for Multi­ Sectoral Technical and Economic Cooperation (BIMSTEC) can facilitate stronger trade ties and support the interests of smaller members.
  • Reinventing BIMSTEC requires better resourcing its Secretariat, concluding the long ­running BIMSTEC FTA, building trade capacity in smaller economies, and introducing dialogue partner status to encourage open regionalism in Asia.
  • OTHER ISSUES: South Asian economies needs to improve tariff preference use by better preparing business in navigating the complex rules of origin in FTAs.
  • It should also focus on issues relevant to global supply chains in future FTAs.


  • As India is South Asia’s largest economy and its G­-20 presidency can be a good platform to initiate these changes.
  • As India has opted out of the RCEP talks in November 2019, the door is still open for it to join the agreement.
  • India has recently concluded FTAs with the United Arab Emirates and Australia in 2022.
  • India can make use of confidence gained from these , as it can help prepare for future RCEP membership by undertaking structural reforms to boost business competitiveness in supply chains and foster greater regulatory coherence with East Asia.
  • By India joining RCEP, the rest of South Asian countries may be incentivised to join out of a fear of being left out and suffering from trade diversion effects.


  • As broad South Asia ­East Asia trade may be desirable, the advent of increasingly complex geopolitics might rule this out for some time.
  • A narrower geographical coverage between South Asia and Southeast Asia may be a building block for eventual trade integration across Asia.
  • To mitigate a backlash against regionalisation, the larger economies should facilitate gains from trade to the smaller economies.


SYLLABUS : MAINS, GS-3 , Factors affecting Indian Economy.

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