What are the impediments in the development of South Asian Free Trade Area (SAFTA)?

Political Impediments

The most significant impediment to SAFTA’s success is the pervasive political mistrust among member states, particularly between India and Pakistan. This manifests in several ways:

• Non-Tariff Barriers (NTBs): Countries frequently employ NTBs like stringent sanitary and phytosanitary regulations, complex customs procedures, and bureaucratic delays to protect domestic industries. These are often used as political tools.
• Lack of Most Favored Nation (MFN) Status: Pakistan revoked India’s MFN status in 2019 following the Pulwama attack, effectively halting bilateral trade. This demonstrates the vulnerability of SAFTA to geopolitical tensions.
• Sensitivity Lists: Each country maintains extensive “sensitive lists” – products excluded from tariff liberalization – protecting politically sensitive sectors. India’s sensitive list is particularly long, limiting the scope of tariff reduction.

Economic Impediments

Significant economic disparities and structural issues also hamper SAFTA’s progress:

• Trade Imbalances: India dominates intra-regional trade, leading to substantial trade deficits for smaller economies like Nepal and Bangladesh. This creates resentment and limits their willingness to fully embrace liberalization. According to UN Comtrade data (2022, knowledge cutoff), India accounts for over 60% of SAFTA’s total intra-regional trade.
• Lack of Diversification: South Asian economies largely rely on exporting similar products (textiles, agricultural goods), leading to intense competition rather than complementary trade.
• Limited Private Sector Participation: Insufficient engagement from the private sector, due to perceived risks and bureaucratic hurdles, restricts the realization of SAFTA’s potential.

Infrastructural Impediments

Poor infrastructure and logistical challenges pose significant obstacles to trade facilitation:

• Connectivity Issues: Inadequate transportation networks (roads, railways, waterways) and limited cross-border connectivity increase transportation costs and delays.
• Customs Procedures: Cumbersome and non-harmonized customs procedures, coupled with a lack of automation, create bottlenecks and increase transaction costs.
• Lack of Standardisation: Absence of common standards for products and services hinders trade and increases compliance costs.
• Financial Infrastructure: Limited access to trade finance and inadequate banking infrastructure further complicate cross-border transactions.

Impediment Category	Specific Challenge	Example
Political	Non-Tariff Barriers	Stringent import regulations on agricultural products
Economic	Trade Imbalance	India’s large trade surplus with Nepal
Infrastructural	Connectivity	Poor road conditions between India and Bangladesh