The Indian cabinet approved on Thursday the introduction of a pact with its neighbours from January 1 to promote free trade and economic ties in South Asia, home to nearly one-fifth of the world's population.
Commerce Minister Kamal Nath said India would initially cut customs duties by five percent for goods imported from Pakistan, Sri Lanka, Bangladesh, Maldives and Nepal after the launch of the South Asia Free Trade Area (SAFTA) agreement.
Although some member countries are yet to ratify the pact, Indian officials said New Delhi would go ahead with implementing the agreement from January 1 and was hopeful its neighbours would follow suit.
"This is a first major step for a free-trade agreement with the neighbours," Nath told reporters after a cabinet meeting.
The trade pact was first mooted in 1995 by the seven-nation South Asian Association for Regional Co-operation (Saarc), an economic grouping formed to reduce poverty, promote trade and fight terrorism.
Under the pact, Saarc's developing states -- Pakistan, India and Sri Lanka -- will cut tariffs to between zero and five percent within seven years of the start of the agreement.
Its least developed countries -- Bangladesh, Bhutan, Nepal and the Maldives -- have 10 years to complete the process, though all members can maintain a list of sensitive products on which tariffs will not be reduced.
"There is a special dispensation for the least developed countries for the revenue loss," Nath said.
Free trade is expected to boost economic activity and growth in the region, home to about 1.5 billion people, more than 400 million of whom live on less than a dollar a day.