The World Bank on Tuesday asked South Asian leaders to adopt bold reforms in a bid to increase trade and investment, relieve energy shortages and foster peace in the largely poverty-stricken subcontinent.
The bank said India should set the pace for regional integration by pushing for a dialogue mechanism to resolve political disputes and launching programs to remove infrastructure bottlenecks and trade barriers.
India is the chair of the South Asian Association for Regional Cooperation (Saarc) summit in New Delhi, which was attended by leaders from across the region.
"This meeting taking place in New Delhi is quite unique and in many ways presents opportunities that previous summits have not - one is the fact that India is chairing," said Praful Patel, the Washington-based World Bank vice-president for the South Asia region.
"There is also a new wind blowing in India - their sights have shifted from just the local neighbourhood, meaning India, to the global stage and therefore, performance of the region as a subcontinent is important," he said. Patel said South Asia, unlike Europe, did not have the luxury of time for regional integration as it was "the least integrated region in the world."
"In a fast globalising world, where the entire globe is in fact opening up for exports, you cannot really wait because market share lost once is very hard to get back and you need to really act faster," he said.
Intra-regional trade in South Asia is less than two percent of gross domestic product compared to more than 20 percent in East Asia while the cost of trading across borders is one of the highest in the world, a World Bank study showed.
Annual trade between arch rivals India and Pakistan, the bulk of which is routed through Dubai, is currently estimated at one billion dollars but the bank says it has the potential to snowball to as high as nine billion dollars. "Intra-regional trade in South Asia can increase to 20 billion dollars by 2010 if trade barriers are lifted," Patel said. Benefits from energy trade can also be huge, he said. Nepal has the potential to produce more than 40,000 megawatts of hydro power, most of which could be exported to India, generating six to 10 billion dollars per year of revenues to Nepal, he said.
"The more the public in the region are aware of these forgone benefits, the more likely they are to demand greater openness," he said. Saarc is made up of Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka. Afghanistan will also be formally inducted into the bloc at the summit.
A South Asian Free Trade Agreement came into effect last year, but Pakistan's refusal to grant India Most Favoured Nation trading status has helped keep intra-regional trade mired at low levels.
There are some expectations that a peace process launched between India and Pakistan in January 2004 would help enhance integration. Shantayanan Devarajan, the World Bank's chief economist for the South Asia region, said smaller South Asia nations feared that their domestic industries would be swamped if they open up trade with India, the biggest nation in the region with a common border with the other countries.
"It may not be a valid argument but certainly a concern," he said. "Sometimes we call it the 800 pound gorilla problem." Devarajan said regional cooperation, along with national initiatives, could play a useful role in ensuring that no country or region in South Asia was left behind.
Even as the region grew at an annual average of six percent, "rising inequality" is becoming a concern to policy-makers, he said. Devarajan said there was a need to streamline transport and trade systems to facilitate regional trade, citing other regional competitors which have "dramatically" reduced customs and port clearance times.