The removal of tariff and non-tariff barriers and better connectivity will boost intra-regional trade in South Asia more than 3.5 times over the next five years, a World Bank study found.
Trade will soar from the current $28 billion to $100 billion in 2020 if operational connectivity is established, a fully functional South Asia Free Trade Agreement ensured, non-tariff barriers tackled and intra-regional investment encouraged.
The increase in trade will also cut poverty significantly in the region, it said.
There will be winners and losers but the net impact would be positive, said Sanjay Kathuria, lead economist of WB's South Asia regional cooperation and integration unit.
But the small countries stand to gain the most, he said while sharing the findings of the study at the inaugural South Asia Economic Conclave, held in New Delhi last month.
Several ministers, business leaders, economists participated in the three-day event to discuss how regional cooperation and trade could be given a boost.
Exports from Bangladesh to India remain stagnant despite an open market since 2012.
In 2013, exports from Bangladesh to the neighbouring country declined 10 percent year-on-year, with the declining trend continuing into 2014 and beyond.
Tariff and non-tariff barriers as well as a lack of exportable products were responsible for the negative growth in exports, according to Kathuria.
Commerce Minister Tofail Ahmed raised the issue in the conclave.
The Saarc countries should take active measures to bring down tariff and non-tariff barriers that limit the expansion of regional trade. Abdulla Jihad, finance minister of Maldives, pointed out that intra-regional trade has not picked up although duty concessions have been extended by India to some economies.
Subsequently, he urged the Saarc governments to find ways to accelerate regional trade flows. Highly restrictive trade regime hurts overall and intra-regional trade, according to the WB study.
More than 50 percent of Bangladesh's imports are from Pakistan and Nepal and are listed as sensitive, while over 45 percent of Nepal's imports from India and Sri Lanka are sensitive.
Sensitive items are those which are subjected to barriers to entry.
It says SAFTA needs to articulate a programme with a clear deadline for phasing out the sensitive list and moving to a free trade area.
The WB says various non-tariff barriers including technical regulations, quality specifications, product standards, custom procedures also affect the flow of goods and services in the South Asian countries.
About connectivity, the study said geography offers South Asia big opportunity for trade and transit.
Subsequently, the WB recommended deepening sub-regional connectivity initiatives like the Bangladesh-Bhutan-India-Nepal (BBIN) and Pakistan-Afghanistan-Central Asia.
Increasing capacity at important ports to improve internal and external connectivity, augmenting inland waterways to spur multi-modal transport linkages and improving border clearances, and developing transit (motor vehicle agreement) would increase connectivity.
If the European Union could achieve deep economic integration, so can the South Asian nations, said Sunil Bahadur Thapa, commerce minister of Nepal. The road to regional prosperity lies in facilitating seamless movement of goods, capital and people across the entire region, said Lyonpo Norbu Wangchuk, economic affairs minister of Bhutan.
The South Asian region is the least economically integrated and that has placed all the regional economies at a competitive disadvantage, said Nirmala Sitharaman, state minister for commerce and industry of India.
After India extended duty-free, quota-free facilities to the least-developed countries in South Asia, exports from the nations to India increased.
To accelerate economic integration, the minister underlined the need for the region to establish free trade areas, she said.
Nitin Gadkari, Indian minister of road transport and highways, said his ministry plans to set up an international arm of the National Highways Authority to steer the connectivity projects with the neighbouring countries.
The international arm could also extend its expertise to the South Asian countries for the development of roads, highways, expressways and bridges.
He also gave emphasis on the use of waterways and railways as they are less costly.
Gadkari admitted that inland waterways will not only offer economical transportation of passengers and bulk cargo between different parts of India but it can also facilitate greater trade flows with the neighbouring countries like Bangladesh. The government of India is working to establish a 'waterport' in Sahibganj of Jharkhand to accelerate import and export of goods between India and Bangladesh.
India has also planned to establish multi-modal hubs in Varanasi in Uttar Pradesh, and Sahibganj, and Haldia in West Bengal. The tonnage of barges for these waterways will be enhanced through special design to handle larger volumes of passenger traffic and cargo, he added.