South Asia is one of the most paradoxical regions of the globe, with a population of almost two billion, strong civilizational ties and geographical contiguity, and yet one of the least integrated regions internationally. Although SAARC was established in 1985, intra-regional trade remains around 5 per cent of the total trade, while in the ASEAN region it is around 25 per cent and in the European Union region, it is more than 60 per cent.
This is not a “marginal gap” it’s a “structural failure”. Twenty years on, the outcome of summits, declarations and agreements has been very little change. The issue is not the lack of frameworks; it’s the systematic lack of operationalization of frameworks. Neofunctionalism was one of the classical integration theories which held that economic cooperation would lead to political integration. But this is not the case in South Asia. Trade between the two largest economies of the region, namely India and Pakistan have been very small, usually less than $3 billion per year, even though it is estimated at more than $20-30 billion per year if there were no barriers.
Rather than spillover, the region has what can be called “spillback” periodic political crises undo even modestly achieved progress. Conflict has been so entrenched that economic rationality has been rendered meaningless. However, when it comes to institutional performance, failure is more obvious. It was hoped that agreements signed such as the South Asian Free Trade Area, which have been in operation since 2006, would lead to the further reduction of tariffs to 0-5%.
Despite tariff reductions, non-tariff measures and restrictive visa policies and inadequate logistics infrastructure still hamper trade. World Bank estimates place South Asia among the top nations in the world in terms of intra-regional trade costs, typically 20–30% more complex than in East Asia. This is no coincidence and no mistake; it is a conscious move towards sovereignty and security rather than regional integration. The concept of ‘regionalism’ has been effectively held hostage by security politics, especially the ‘India versus Pakistan’ competition.
Since 2014, the SAARC summits have failed completely with the 19th summit never held. This paralysis shows a severe weakness: If one bilateral confrontation paralyzes the whole regional organization. There are no mechanisms in South Asia to shield cooperation from political shocks; such mechanisms have been developed in the European Union following the devastations of World War II. What emerges is a weak system in which regionalism is left up to choice, but conflict is a determining factor. The disparity of power between the countries adds to the difficulty of integrating the region on a politically economic basis. India contributes almost 80% of the South Asian GDP and this is a structural imbalance.
Smaller nations like Nepal, Sri Lanka and Bangladesh see regional initiatives as a manifestation of Indian influence instead of as common platforms. This perception drives hedging by looking elsewhere for partnerships, rather than strengthening ties with one another in the region. Indeed, South Asia is not only under-integrated, it is externally oriented and internally fragmented. One critical and frequently overlooked factor is that connectivity does not exist. There is limited cross-border infrastructure, although borders are shared.
For example, goods trade is more competitive and faster than within South Asia when heading for Europe. There are either stalled or politicized rail, road, or energy connectivity projects. Projects involving rail, road and energy connectivity are stalled, politicized, or underfunded. Unlike Southeast Asia, South Asia has not yet managed to integrate into production, due to the lack of integrated supply chains. Likewise, there is no regional identity. Europe was building an image of unity after the war, while South Asia is stuck in polarizing nationalism and historical resentments. The media systems propagate narratives of conflict, and educational systems cater more to national differences than to commonalities.
The term South Asia is an identifier more than an identity for a population used to being digitally connected but politically divided the Generation Z. Any institutional effort to have a positive impact is undermined by this lack of social and cultural integration. The digital economy also highlights the need to update the regionalism model in South Asia.
While today’s international trade is increasingly service- and platform-based, with reliance on data, there are no common digital regulations, cross-border payment systems, or conducive tech ecosystems in South Asia. Start-ups in India, Pakistan and Bangladesh are working in isolation despite having similar market conditions. It’s a huge opportunity lost. A digitally connected South Asia may be one of the biggest single markets in the world, but the policy does not act. There is another paradox when it comes to climate change. South Asia is one of the most vulnerable regions in the world, with high temperatures, flooding and scarcity of water.
However, there is a lack of cooperation across the regions on climate. Comprehensive solutions are limited to the management of shared river systems like Indus and Ganges basins, which is based on bilateral river treaties instead of multilateral ones. This is an overarching trend: challenges of existence cannot even produce meaningful regional cooperation. Importantly, in the consensus building model of decision making adopted by the SAARC, progress can only be made at the rate of the slowest member of the organization. This means that in practice, there is institutional paralysis.
No enforcement measures, no penalties for non-integration, and no independent force to drive integration. Regionalism in South Asia is thus self-chosen, self-reversible and politically precarious, which is no strong basis for any meaningful economic or strategic initiative. What is missing from a Gen Z’s analysis is the conceptualization of the problem. South Asia tried to create regionalism as a state-led, top-down process, during a time when bottom-up, network-driven regional integration is gaining importance.
But the region is already connected by informal economies and diaspora networks, digital communities and cultural industries, and these linkages are not formal. However, policy frameworks are still operating in a 20th century frame of mind of borders, tariffs, and sovereignty. These implications are huge. The cost of non-integration in South Asia is estimated to be 2-3% of GDP each year due to lost trade and efficiency. It also erodes its collective bargaining position in the world, as groups of regions are more powerful than individual regions in the international arena. It is more important in that it denies almost two billion people the economic opportunities that integration might provide.
There is a need to accept the fact that traditional regionalism as it is conceived and designed will not automatically work out. Rather, integration needs to be modular, flexible, and multi-speed, with willing nations advancing without being stifled by political gridlock, in South Asia. It also means that economic and technological cooperation will be free of security concerns, which will take political courage but reap significant long-term benefits.
To sum up, regionalism in South Asia has been underperforming, and structurally failed. Its political polarization, weak institutions and little economic integration are hallmarks of the region. But it’s not a foregone conclusion. The result has been from outmoded models, misaligned incentives, and a never-ending refusal to recognize the need to divorce politics from economics. A new paradigm based on connectivity, digital integration, and flexible cooperation, provides a blueprint for the future. The big question is whether the leaders of South Asia are willing to accept it or whether the region will continue to be one of the world’s neglected neighborhoods despite its vast potential.