SAARC AND ITS IMPACT ON INDIAN ECONOMY.

SOUTH ASIA ASSOCIATION FOR REGIONAL COOPERATION.

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Introduction to SAARC

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The South Asian Association for Regional Cooperation (SAARC) is
the regional intergovernmental organization and geopolitical union of
states in South Asia. Its member states are Afghanistan, Bangladesh,
Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. SAARC
comprises 3% of the world's land area, 21% of the world's population
and 5.21% (US$4.47 trillion) of the global economy.

Formation and Background

The South Asian Association for Regional Cooperation (SAARC) is
an economic and political organization of eight countries in South
Asia. It was established in 1985 when the Heads of State of
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka
formally adopted the charter. Afghanistan joined as the 8th member of
SAARC in 2007. To date, 18th Summits have been held and Nepal’s
former Foreign Secretary is the current Secretary General of SAARC.

SAARC was founded in Dhaka on 8 December 1985. Its secretariat is

based in Kathmandu, Nepal. The organization promotes economic
development and regional integration. It launched the South Asian
Free Trade Area in 2006. SAARC maintains permanent diplomatic
relations at the United Nations as an observer and has developed links
with multilateral entities, including the European Union. However,
due to the geopolitical conflict between India and Pakistan and the
situation in Afghanistan, the organization has been suspended for a
long time, and India currently cooperates with its eastern neighbours
through BIMSTEC.

Objectives and Vision

SAARC aims to promote economic growth, social progress and
cultural development within the South Asia region. The objectives of
SAARC, as defined in its charter, are as follows:

 Promote the welfare of the peoples of South Asia and

improve their quality of life
 Accelerate economic growth, social progress and
cultural development in the region by providing all

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 individuals the opportunity to live in dignity and
realise their full potential
 Promote and strengthen collective self-reliance
among the countries of South Asia
 Contribute to mutual trust, understanding and
appreciation of one another’s problems
 Promote active collaboration and mutual assistance
in the economic, social, cultural, technical and
scientific fields
 Strengthen co-operation with other developing
countries
 Strengthen co-operation among themselves in
international forms on matters of common interest;
and
 Cooperate with international and regional
organisation with similar aims and purposes.

Member States and Observer Countries

The member countries of the South Asian Association for Regional
Cooperation (SAARC) are:
Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
and Sri Lanka.
The observer countries of SAARC are:
 Australia
 China
 European Union (E.U)
 Iran
 Japan
 Mauritius
 Myanmar
 Republic of Korea
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  United States of America (USA)

Organizational Structure

SAARC has the following structure:

1. Council – It is the apex policy-making body. The council is
represented by government heads of the respective member
countries.
2. Council of Ministers – The Council of Ministers comprises the
foreign ministers and they meet generally two times annually.
Council of Ministers – Functions
1. Policy formulation
2. Reviewing the progress of regional cooperation
3. Identifying newer areas of cooperation, and
4. Setting up additional mechanisms as required
Standing Committee

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It comprises the foreign secretariat of the member countries. The
major functions of the standing committee are stated below:

1. To monitor and coordinate the programs

2. To deal with modalities of financing
3. To mobilize cooperation within and outside the region
Programming Committee
It comprises senior officials of the member governments. The major
functions of this committee are as follows:

1. Finalizing the annual meet schedule

2. Budget scrutinization
3. External activities assigned by the standing committee
Technical Committee
It consists of representatives of the member nations. The major
functions of the committee are as follows:

1. To formulate projects and monitor the same

2. To submit reports
Secretariat
It is headed by the Secretary-general appointed by the Council of
Ministers. The main functions of the Secretariat are as follows:

1. Coordination and execution of activities conducted by SAARC

2. Monitoring the SAARC meetings
3. Work as a communication link between SAARC and other
international summits and forums.

SAARC – Regional Centres

Regional Centres established in Member Countries are the supporting
pillars to the secretariat for promoting regional cooperation. These
Regional Centres are managed by respective Governing entities
comprising representatives from Member States, SAARC Secretary-

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General, and the Ministry of Foreign/External Affairs of the host
government.

The Regional Integrated Programme of Action covers the

following aspects:
1. Agriculture and Rural Development
2. Women, Youth, and Children
3. Health and Population Activities
4. Science and Technology and Meteorology
5. Environment and Forestry
6. Human Resource Development, and
7. Transport
Working Groups have also been established in the following areas:

1. Biotechnology
2. Information and Communications Technology
3. Intellectual Property Rights
4. Energy
5. Tourism

SAARC Principles
Cooperation within the framework of the SAARC shall be based on:

 Respect for the principles of sovereign equality, territorial

integrity, political independence, non-interference in the internal
affairs of other States and mutual benefit.
 Such cooperation shall not be a substitute for bilateral and
multilateral cooperation but shall complement them.
 Such cooperation shall not be inconsistent with bilateral and
multilateral obligations.

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Historical Context and Evolution
SAARC has undergone significant changes since its inception.
Initial efforts were focused on enhancing mutual trust and
understanding among member countries. However, regional
tensions, particularly between India and Pakistan, have often
hindered the progress of economic cooperation. Despite these
challenges, SAARC has made important strides in fostering
dialogue and partnership in areas such as trade, culture, and
sustainable development.

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Initial Formation in 1985
The idea of co-operation among South Asian Countries was
discussed in three conferences: the Asian Relations
Conference held in New Delhi in April 1947, the Baguio
Conference in the Philippines in May 1950; and the Colombo
Powers Conference held in Sri Lanka in April 1954.
In the ending years of the 1970s, the seven inner South Asian
nations that included Bangladesh, Bhutan, India, the
Maldives, Nepal, Pakistan, and Sri Lanka, agreed upon the
creation of a trade bloc and to provide a platform for the
people of South Asia to work together in a spirit of friendship,
trust, and understanding. President Ziaur Rahman later
addressed official letters to the leaders of the countries of
South Asia, presenting his vision for the future of the region
and compelling arguments for co-operation.During his visit to
India in December 1977, Rahman discussed the issue of
regional cooperation with the Indian Prime Minister, Morarji
Desai. In the inaugural speech to the Colombo Plan
Consultative Committee which met in Kathmandu also in
1977, King Birendra of Nepal gave a call for close regional
cooperation among South Asian countries in sharing river
waters.

After the USSR's intervention in Afghanistan, efforts to

establish the union were accelerated in 1979 amid the
resulting rapid deterioration of the South Asian security
situation.[11] Responding to Rahman and Birendra's
convention, officials of the foreign ministries of the seven
countries met for the first time in Colombo in April 1981. The
Bangladeshi proposal was promptly endorsed by Nepal, Sri

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Lanka, Bhutan, and Maldives, however India and Pakistan
were sceptical initially. The Indian concern was the proposal's
reference to the security matters in South Asia and feared that
Rahman's proposal for a regional organisation might provide
an opportunity for new smaller neighbours to have to then
re internationalize all bilateral issues and to join with each
other to form an opposition against India. Pakistan assumed
that it might be an Indian strategy to organize the other South
Asian countries against Pakistan and ensure a regional market
for Indian products, thereby consolidating and further
strengthening India's economic dominance in the region.

Major Milestones and Summits

SAARC Agreement on Trade in Services (SATIS): The
SAARC Agreement on Trade in Services (SATIS) adheres to
the GATS-plus “positive list” strategy for liberalizing trade in
services.
Agreement on SAARC Preferential Trading Arrangement
(SAPTA): SAPTA was signed by SAARC Foreign Ministers
on April 11, 1993, during the 7th SAARC Summit in Dhaka.
The SAPTA called for incremental negotiations for better and
expanded market access.
Agreement on South Asian Free Trade Area (SAFTA): The
SAFTA was agreed during the Twelfth Summit in Islamabad
in 2004 to gradually work towards a South Asian Economic
Union (SAEU). The agreement asks for greater commercial
and economic cooperation.
SAARC and Environment Protection: In 1987, the
environment was designated as a subject requiring urgent
attention by SAARC. SAARC Environment Ministers have
convened regularly to assess progress and strengthen regional
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cooperation in the environment, climate change, and natural
disasters.
Other Achievements:
In addition to establishing an energy reserve in Pakistan,
SAARC also developed a food bank in India. An FTA is
limited to products but not services like information
technology.
Heads of State have had to shake hands and engage in
conversation because of the circumstances, institutions, and
venues that SAARC has managed to establish.
Important issues for the area have been addressed by SAARC,
including a social charter, development agreements, and even
the delicate problem of terrorism prevention.
The transportation, energy, and food bank agreements are all
significant milestones in the right direction. One of the
foundations of South Asian integration initiatives is
exchanges in research and civil society.

Role of SAARC in Promoting Regional Cooperation

SAARC is the world’s most densely populated region and one
of the most fertile areas. It comprises 3% of the world’s area,
21% of the world’s population and 3.8% (US$2.9 trillion) of the
global economy.

SAARC countries synergize their actions as they have common

traditions, dress, food and culture, and political aspects.

The SAARC nations have problems and solutions to the

problems in common such as poverty, illiteracy, malnutrition,
natural disasters, internal conflicts, industrial and technological
backwardness, low GDP, and poor socio-economic conditions.

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 These nations uplift their living standards by creating common
areas of development.

SAARC is the world’s most densely populated region and one

of the most fertile areas. It comprises 3% of the world’s area,
21% of the world’s population and 3.8% (US$2.9 trillion) of the
global economy.

SAARC countries synergize their actions as they have common

traditions, dress, food and culture, and political aspects.

The SAARC nations have problems and solutions to the

problems in common such as poverty, illiteracy, malnutrition,
natural disasters, internal conflicts, industrial and technological
backwardness, low GDP, and poor socio-economic conditions.
These nations uplift their living standards by creating common
areas of development.

Economic Integration through SAARC

The South Asian Association for Regional Cooperation
(SAARC) has made some progress towards economic
integration in South Asia, but has not yet achieved complete
integration:
 Established the South Asian Free Trade Area: SAARC
has established a free trade area, but has not yet achieved
complete economic integration.
 Proposed an economic union: SAARC has proposed
establishing an economic union.
 Expanded areas of cooperation: SAARC has expanded
the areas of cooperation to include agriculture, rural
development, meteorology, telecommunications, postal
services, transport, science and technology, health and
population, and sports, arts and culture.
 Developed the SAARC Development Fund: SAARC has
developed a development fund.
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  Harmonized technical trade barriers: SAARC has
harmonized technical trade barriers.

South Asian Free Trade Area

Countries under the South

Asian Free Trade Area
The SAFTA was envisaged primarily as the first step towards
the transition to a South Asian Free Trade Area
(SAFTA) leading subsequently towards a Customs Union,
Common Market and the Economic Union. In 1995, Sixteenth
session of the Council of Ministers (New Delhi, 18–19
December 1995) agreed on the need to strive for the
realization of SAFTA and to this end, an Inter-Governmental
Expert Group (IGEG) was set up in 1996 to identify the
necessary steps for progressing to a free trade area. The Tenth
SAARC Summit (Colombo, 29–31 July 1998) decided to set
up a Committee of Experts (COE) to draft a comprehensive
treaty framework for creating a free trade area within the
region, taking into consideration the asymmetries in
development within the region and bearing in mind the need
to fix realistic and achievable targets.
The SAFTA Agreement was signed on 6 January 2004 during
Twelfth SAARC Summit held in Islamabad, Pakistan. The
Agreement entered into force on 1 January 2006, and the
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Trade Liberalization Programme commenced from 1 July
2006. Under this agreement, SAARC members will bring
their duties down to 20 percent by 2009. Following the
Agreement coming into force the SAFTA Ministerial Council
(SMC) has been established comprising the Commerce
Ministers of the Member States. In 2012 SAARC exports
increased substantially to $354.6 billion from $206.7 billion in
2009. Imports too increased from $330 billion to $602 billion
over the same period. But the intra-SAARC trade amounts to
just a little over 1% of SAARC's GDP. In contrast to SAARC,
in ASEAN (which is actually smaller than SAARC in terms of
the size of the economy) the intra-bloc trade stands at 10% of
its GDP.
The SAFTA was envisaged to gradually move towards the
South Asian Economic Union, but the current intra-regional
trade and investment relation are not encouraging and it may
be difficult to achieve this target. SAARC intra-regional trade
stands at just five percent on the share of intra-regional trade
in overall trade in South Asia. Similarly, foreign direct
investment is also dismal. The intra-regional FDI flow stands
at around four percent of the total foreign investment.[68]
The Asian Development Bank has estimated that inter-
regional trade in SAARC region possessed the potential of
shooting up agricultural exports by $14 billion per year from
existing level of $8 billion to $22 billion. The study by Asian
Development Bank states that against the potential average
SAARC intra-regional trade of $22 billion per year, the actual
trade in South Asia has been only around $8 billion. The
uncaptured potential for intra-regional trade is therefore $14
billion per year, i.e., 68%.

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Impact on Indian Economy
A thriving regional market: Deeper economic integration
within SAARC can create a large regional market for Indian
goods and services. This could boost Indian exports and the
manufacturing sector.
Attract investment: An integrated South Asian economy could
attract more foreign investment into the region, including into
India.
Improved connectivity: SAARC initiatives to enhance
regional connectivity through transport and energy
infrastructure could benefit India's economy.
Common policies: Harmonizing economic policies in areas
like trade, investment and agriculture could benefit India.
Job creation: Thriving regional trade can boost labour-
intensive manufacturing in India, helping generate more jobs.
Attracting FDI: A liberalised investment regime within
SAARC can help attract more foreign direct investment into
high-potential sectors in India.
Technology transfer: Improved cooperation in areas like
agriculture, renewable energy and IT can facilitate technology
transfer to India from other members.
Improved food security: Initiatives to boost agricultural trade,
research and technology sharing within SAARC can improve
food security in India.
Infrastructure boost: SAARC projects in transport, energy and
digital connectivity sectors could support India's infrastructure
needs.
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Poverty alleviation: Regional cooperation initiatives in areas
like microfinance, rural development, healthcare and
sanitation can benefit the poor in India.
Tourism promotion: Promoting South Asia as a single
destination under SAARC can boost tourism in India.
Containing extremism: Effective security cooperation within
SAARC can help India contain extremism and terrorism
originating from the region.
SAARC is a game-changer for India’s Act East Policy. It
links South Asian economies with Southeast Asia which will
further boost economic integration and prosperity to India
mainly in the Services Sector.
Primacy to the country’s immediate neighbours.
Nations of SAARC help in the creation of mutual trust and
peace within the region thus promoting stability.
SAARC can engage Nepal, Bhutan, the Maldives, and Sri
Lanka in economic cooperation and development processes to
counter China (OBOR initiative).
SAARC offers a platform for India to showcase its leadership
in the region by taking up extra responsibilities.
The SAARC region’s size has expanded to around 7% of the
world’s GDP in PPP, more than doubling since 1980.
However, this increase in the worldwide share pales in
comparison to China, which increased its global share to 16.5
percent in 2014, compared to India’s 6 percent.
Indian engagement with SAARC nations is based on a
consultative, non-reciprocal, and result-oriented approach,

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concentrating on delivering benefits like improved
infrastructure, increased connectivity, stronger development
cooperation in various sectors, security, and expanded people-
to-people contacts.
Compared to the other regional organizations, SAARC has
made very few accomplishments.
In its continuous attempts to revive the SAARC as the premier
platform of regional cooperation and economic integration,
India, the region’s largest economy and most populous nation,
is both an idealist and a realist.
Although opening a university, a food bank, and a disaster
management centre may seem like commendable initiatives at
first, they ultimately don’t contribute much to advancing the
local economy.

Sector-Wise Impact
The South Asian University (SAU), the SAARC Development
Fund (SDF) Secretariat, the SAARC Arbitration Council
(SARCO), and the SAARC Regional Standards Organization
(SARSO) are new SAARC organizations that have distinct
goals and organizational frameworks than the Regional
Centers.
SAARC Development Fund (SDF)
The SAARC Development Fund (SDF) was established as a
comprehensive funding structure by the 13th SAARC
Summit.
It was established with the main goal of sponsoring project-
based collaboration.

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South Asian University(SAU)
During the 14th SAARC Summit, the SAARC Member States
signed the Agreement for establishing South Asian
University.
The SAU wants to be recognized for the degrees and
certificates it grants, on par with those granted by the national
universities.
AARC Regional Standards Organization (SARSO)
The fifteenth SAARC Summit cleared the ground for the
creation of SARSO
It aims to unify standards and foster cooperation in metrology,
accreditation, conformity assessment, etc.
SAARC Arbitration Council (SARCO)
During the Thirteenth Summit, a deal was made about
SARCO, which became effective in 2007.
SARCO was founded to resolve regional conflicts amicably
and economically through arbitration.

Areas of Cooperation
o The SAARC aims to advance the well-being of South Asians,
increase communal self-reliance, encourage proactive
cooperation and mutual aid in a variety of areas, and collaborate
with global and regional organisations.
o The following areas of cooperation were decided upon by the
Member States:

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Importance of SAARC
o SAARC has provided a platform to member nations to
meet and address significant concerns through bilateral
meetings and discussions.
o For instance, when tensions between the two are very
high, India and Pakistan would find it difficult to openly
explain a meeting, but delegates from both nations might
join forces under the auspices of SAARC
o SAARC has also made modest progress in ratifying
accords with the Covid-19 problem, food security, and
climate change.
o It has the ability to accomplish much more, but only if
member nations cooperate on important matters.
o

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Challenges to SAARC
 Low frequency of meetings: More engagement is
required by the member states and instead of meeting
biennial meetings should be held annually.
 Broad area of cooperation leads to diversion of energy
and resources.
 Limitation in SAFTA: The implementation of SAFTA
has not been satisfactory a Free Trade Agreement
confined to goods, excluding all services like information
technology.
 Indo-Pak Relations: Escalated tension and conflict
between India and Pakistan have severely hampered the
prospects of SAARC.
o The two main SAARC members, India and Pakistan,
have long been at odds with one another. SAARC is still
unable to perform as a sub-regional organisation due to
rivalry.
o Border and maritime disputes still plague the area in
great numbers. Unresolved border issues have
contributed to issues with terrorism, the refugee crisis,
smuggling, and the drug trade. Cooperative relationships
are still hampered by unsolved difficulties.
o SAARC has not developed into a regional organization
in the vein of the European Union or the African Union,
despite its ambitious goals.
o Internal conflicts, most notably the war between India
and Pakistan, affect its member states.
o In consequence, this has made it more difficult for it to
create comprehensive trade agreements or to effectively
work together on issues like infrastructure, energy, and
security.

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 o Any such summits are unlikely until the problem has
been settled since Pakistan is steadfast in its backing of
the Taliban and the other SAARC nations are reluctant to
accept the group.
Need for Revival of SAARC
Political, diplomatic, and military tensions jeopardize regional
security and stability. These are persistent barriers to
economic and social development and threats to human rights
and freedom. These factors necessitate the revival of SAARC
to withstand the upcoming threats.

Lack of Political Will

o The bilateral concerns among the South Asian nations
lead to political conflicts that escalate in the working of
SAARC.
o Persistent regional power politics, interstate wars, and a
lack of political will further hamper progress and
development.

Indo-Pak Rivalry
o Since the end of the British administration in Asia in
1947, nuclear-armed states have been engaged in a
volatile and hostile environment, resulting in four major
conflicts in 1947, 1965, 1971, and 1999.
o Persistent cross-border terrorist strikes from Pakistani
territory have disrupted peace talks with India-Pakistan.

Kashmir Dispute
o The main disagreement between India and Pakistan is Kashmir,
an unfinished agenda for Pakistan since 1947.

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 o This issue has remained a major concern for countless border
clashes and instability.

Terrorism
o The conflicts between India-Pakistan have evolved into
extremism and terrorism, providing a platform for non-
state actors to undermine the human fabric.
o There is a lack of a shared comprehensive approach and
plan to combat terrorism which has emerged owing to
ideological differences.

Water Disputes
o In addition to the boundary and territory issue, water
allocation among the countries fuels interstate conflict
and exacerbates tensions.
o There are water issues not just between India and
Pakistan but also between Bangladesh and India, India
and Nepal, and even Afghanistan and Pakistan.
Lack of Economic Integration
o SAFTA has failed to attain success due to ongoing
tensions and icy Indo-Pak ties.
o However, because of a lack of interdependence, SAARC
nations have not satisfied the world’s tremendous market
demand across different sectors such as industry, services
such as hospitality and information technology,
agriculture, and health, resulting in market exploitation
by China and other global market players.

Pro-active Chinese approach

o India’s ability to establish itself economically in the South Asian
region has been negatively impacted by China’s proactive

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 approach and subsequent market capture in Pakistan,
Bangladesh, and Sri Lanka.

Recent Developments in Afghanistan and Pakistan

o The changing socioeconomic situation in Afghanistan

may soon lead to hunger, a scarcity of medications, and
the resulting poverty and suffering.
o Pakistan’s continuous economic crisis, continued
inclusion on the FATF grey list, and limited financial
assistance from Islamic and Western nations may
exacerbate a catastrophic humanitarian disaster in the
future.

Conclusion
Despite SAARC’s flaws, it remains the only forum for South
Asian leaders to discuss local issues with 1.6 billion citizens.
SAARC leaders must collaborate in South Asia’s peaceful and
prosperous development. However, it is vital to highlight that
a country may refuse to cooperate due to national pride, a lack
of trust, political friction, or unequal distribution of costs and
benefits. By promoting collaboration and regular
communication between political leaders, regional
cooperation agreements can assist in establishing confidence
among parties. Domestic institutional arrangements,
government ability, domestic backing, and political and
sociocultural actors’ desires for regional cooperation must all
be understood.

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BIBILOGRAPHY:
www.wikipedia.com
www.drishtiias.com
www.saarc-sec.org
www.eeas.europa.eu
www.mfasia.org

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