However, 17 years later, SAARC still remains hostage to the political problems that continue to dominate relations between its two largest members, India and Pakistan. Most recently, PM Vajpayee made his attendance at the 12th SAARC summit in Islamabad conditional on Pakistans position on cross-border terrorism, and on solid progress being made in economic cooperation agreements under SAPTA and SAFTA. As a result, South Asia, which comprises some of the richest resources and potential in terms of raw materials, fertile land and trained and semi-trained manpower, continues to remain one of the poorest in the world.
India realises the importance of establishing strong relations with its neighbouring countries, both for strategic as well as economic reasons. Therefore, on many occasions it has transcended SAARC and focussed on strengthening cooperation with its neighbours, through the bilateral and sub-regional route, through organisations such as BIMSTEC and IOC-ARC, on issues such as energy, natural resource development, telecommunications, etc.
New Delhis track record in bilateral relations with its neighbours, though much improved, leaves much to be desired. For instance, relations with Bangladesh, with whom it shares a 4,096 km border, 6.5 km of which is undemarcated, though officially termed as friendly and cooperative, continue to be mired in border, trade and transit and migration tensions, with a particularly tense situation, when some Bangladesh Rifles personnel entered Indian territory, being defused only after the country leaders intervened. Sporadic reports of attacks on Hindus in Bangladesh as well as Dhaka harbouring Islamic terrorists on its soil dont help. Similarly with Nepal, though both countries officially declare relations to be close and friendly, anti-Indian sentiments surface now and then, reflecting a deep-seated suspicion and resentment against its larger neighbour, and which often sees Kathmandu playing the China card.
However, relations seem to be improving with Sri Lanka, with India declaring its commitment to that countrys territorial integrity and restoration of peace there. Relations with Bhutan have been described as encompassing mutual trust and friendship in the political arena and mutually beneficial economic cooperation. Similarly, India shares problem free relations with the Maldives.
It is with Pakistan that relations have seen steady deterioration over the last year, particularly after Indias Agra summit initiative with General Musharraf was followed almost immediately by a spurt in Pakistan sponsored terrorism in Jammu and Kashmir and other parts of the country. On the economic front, too, problems between India and Pakistan have been preventing progress at the multilateral level, with India making clear its position on Pakistans refusal to grant it MFN status.
There is some dispute within Indian academia and bureaucracy on whether India should take the economic route to improve relations with its neighbours or let political ties precede economic relations. However, the neighbourhood consensus seems to be that India being the largest country in the region in physical size as well as economy, the onus should be on New Delhi to deal empathetically with its neighours. For instance, barring Bhutan, India enjoys a surplus balance of trade situation with all the other South Asian statesa point of dispute with all of them. India imports less than half a per cent of its total imports from the neighbourhood, though its exports have increased from 2-3 per cent to 5 per cent and more in the last decade. With Bangladesh, in particular, the huge trade imbalance has been the cause of several negotiations, and though India has granted it substantial concessions under the SAPTA format, it will be difficult for Dhaka to achieve some parity unless it increases its basket of export items.
However, India has improved trade relations with both Nepal and Sri Lanka and signed FTAs with both; in fact, the Indo-Nepal FTA is on a non-reciprocal basis, and allows Nepal to bridge the discrepancy in the balance of trade between the two countries by doubling its exports to India over the last 2-3 years. Some of these exports are investment linked, with many Indian enterprises being set up in Nepal. The India-Sri Lanka FTA, too, has allowed Colombo to enter the Indian garments and textiles market. However, 40 per cent of trade continues to be under the negative list, wherein tariffs have not been brought down.
Therefore, though India has made several concessions to its smaller neighbours on several fronts over the last decade, it has to transcend current trade related issues and focus more on investment, as well as interact with them on issues such as the environment, migrations and floods, all of which have a bearing on the countrys economy as well as politics.