Toward a South Asian Common Market: A Strategic Imperative

South Asia remains one of the least economically integrated regions in the world, despite representing nearly one-fifth of humanity. The seven principal economies—India, Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives—together account for over 1.9 billion people and a combined GDP exceeding $5 trillion. Yet intra-regional trade remains close to 5% of total commerce, compared with roughly 25% within ASEAN and more than 60% within the European Union.

This is not geography. It is the cumulative result of policy choices: tariff escalation, para-tariffs, restrictive transit regimes, weak customs harmonisation, and borders that are treated as security lines first and economic corridors later.

World Bank estimates suggest that removing non-tariff barriers, rationalising tariffs, upgrading border infrastructure, and standardising customs procedures could at least triple intra-regional trade. Current flows, below $30 billion annually, are far beneath what basic economic logic would predict.

This underperformance must be viewed against the backdrop of a broader structural shift in the global economy. The multilateral, rules-based trade order anchored in the World Trade Organization no longer frames global commerce as it once did. Strategic industrial policy, the implementation of technology controls, friend-shoring agreements, and bloc-based trade structures are redefining the negotiation processes surrounding market access. Bargaining power is consolidating within regional groupings. In that setting, economic scale becomes decisive. Fragmented economies negotiate at a disadvantage.

A South Asian Common Market, therefore, is not a revivalist project. It is an adaptation to structural change.

Strategic Restraint and Fiscal Reallocation
Regional defense expenditure approaches $100 billion annually. Even modest restraint in force expansion and capital procurement would free fiscal capacity to finance transport corridors, grid interconnection, and digital backbone infrastructure. A fifty-year border freeze—without prejudice to legal claims—would not resolve disputes, but it would suspend militarisation. That distinction matters. Reduced volatility lowers sovereign risk premiums, improves insurance terms for trade, and enables long-term investment planning with greater predictability.

Such restraint would need reinforcement through a binding regional security and extradition framework with enforceable commitments against cross-border terrorism. Intelligence-sharing, time-bound extradition procedures, and coordinated financial surveillance would narrow the space for disruption. Stability is not abstract; it is reflected in borrowing costs and investor confidence.

External restraint alone will not suffice. Domestic political cycles across the region often reward short-term mobilisation—migration anxieties, identity politics, rhetoric directed at neighbours. These approaches may deliver immediate electoral dividends, but they carry economic costs. Investors interpret inflammatory signalling as policy risk. Bilateral commitments become fragile. If integration is to be credible, governments will have to insulate regional agreements from electoral volatility. Transparent migration-management frameworks, shared verification mechanisms, and clear state control over non-state actors engaged in cross-border provocation are not idealistic requirements; they are preconditions for durable economic cooperation.

Production Networks, Not Parallel Economies
South Asia’s production capacities are complementary, yet they operate in isolation from one another. Bangladesh exports over $45 billion in garments annually. India’s services exports exceed $300 billion, driven by technology and pharmaceuticals. Pakistan retains scale in textiles and agro-processing. Nepal and Bhutan possess hydropower potential well beyond domestic absorption. Sri Lanka manages advanced port infrastructure on major shipping lanes. Maldives anchors a high-yield tourism and maritime economy.

But these sectors function in parallel. Logistics costs in parts of South Asia remain near 13–14% of GDP—well above East Asian benchmarks. Border dwell times are uneven. Inspections are duplicative. Standards recognition is inconsistent. In some corridors, it is cheaper to trade with distant partners than with immediate neighbours.

East Asia’s export competitiveness did not begin with global markets. It began with regional production density. Intermediate goods moved across borders before final goods scaled globally. South Asia has yet to replicate that sequencing.

Hydropower pooling between Nepal, Bhutan, India, and Bangladesh would reduce fossil-fuel import bills and ease current account pressures. Textile value chains linking Pakistan and Bangladesh with Indian petrochemical inputs would lower unit costs. Sri Lankan ports could consolidate regional manufacturing exports—provided transit rights are enforceable, and customs protocols harmonised.

Financial Coordination and External Vulnerability
South Asian trade is mostly in dollars. That dependence exposes smaller economies to exchange rate swings and reserve pressures. Bilateral currency swap arrangements, coupled with a regional settlement platform that allows part of trade to be invoiced in local currencies, would ease short-term dollar demand. Even limited localisation of trade settlement would improve liquidity management without requiring monetary integration.

A regionally capitalised development finance mechanism, narrowly focused on cross-border connectivity and energy interconnection, would address persistent financing gaps. Integration must strengthen macroeconomic resilience. Otherwise, it will remain politically fragile.

Labour, Skills, and Employment Elasticity
South Asia’s median age is approximately 27. More than 20 million individuals enter the labour force annually. Growth that does not generate employment elasticity will strain social stability. A South Asian Skills and Mobility Framework should standardise vocational certification, enable mutual recognition in selected sectors, and link regulated mobility to project-based demand in energy, logistics, and digital services.

Managed labour circulation increases productivity and diffuses technical capacity across contiguous markets. It reduces distortions without dissolving borders.

Addressing Asymmetry Through Rules
India accounts for roughly three-quarters of regional GDP. Smaller economies will therefore require institutional assurance. Integration must rest on enforceable dispute-resolution mechanisms, transparent governance structures, and binding commercial arbitration insulated from political cycles.

ASEAN and the European Union demonstrate that smaller economies often register higher proportional gains when market access is secured under predictable rules. Legal clarity, not sentiment, prevents asymmetry from hardening into dominance.

The Structural Choice
World Bank projections for 2025 place South Asia among the faster-growing emerging regions, with growth near 6–6.5%. Yet fragmentation constrains scale. As trade and technology governance consolidate around regional blocs, dispersed economies exert limited influence over standards.

An integrated South Asia would represent the world’s largest consumer base by population and a diversified production platform capable of absorbing supply-chain realignment. Market size affects negotiating leverage. Production density shapes resilience.

A South Asian Common Market does not require a supranational authority or monetary union. It requires sequencing: restraint to reduce volatility; insulation of regional commitments from domestic political cycles; trade facilitation to build production density; financial coordination to manage vulnerability; and calibrated labour mobility to raise productivity.

South Asia’s geography is fixed. Its economic architecture is not. The question is whether fiscal capacity will continue to underwrite managed hostility or be redirected toward growth and structural resilience in a global economy where fragmentation carries costs.