Regional cooperation presupposes land connectivity in order to benefit from the economics of geography. During the British Rule in India, South Asia, for all practical purposes, was one economy with freedom of movement of not just goods but also peoples and means of transportation. This was fostered by the Indian Railways, the Grand Trunk Highway linking Peshawar to Kolkata and, not least, Inland Waterways linking East and West Bengal which, unfortunately, were broken with the partition of United India in 1947. 

 

Another reason for the need of land connectivity is the fact that all SAARC nations, except Afghanistan, need to transit and tranship their exports and imports through India to be able to maximize intra regional trade rather than have to use the sea route which is ill connected, costly and time consuming because of the distance to be covered by sea. In the instance of Afghanistan, Bhutan and Nepal, they need to have freedom of transit to the High Seas which is severely constrained by the transit neighbours ostensibly for their security interests. 

 

The share of regional trade by and between South Asian nations hovers around five percent of their total trade. At the time of partition, it is estimated to have been around 20 per cent. Considering that SAARC was founded in 1985, and SAFTA was launched in 2004, it is a sad state of affairs that, in reality, the share of regional trade was higher prior to SAFTA than post SAFTA! This is a sad reality which can only be improved upon with land connectivity supplemented by trade facilitation measures to take care of the need for beyond border actions for the carriage and storage of exports and imports.

 

Only land connectivity can bring about the structural change in foreign trade of SAARC, which today remains the least connected region of the globe. 

 

Land connectivity between China and South Asia was notably through the Nathula Pass in Sikkim which came to a standstill with the China-India War in 1962. However, a new route was opened in 1965 when the Khasa- Kodari-Kathmandu Highway was opened. The Nathula Pass was more for cross border trade between local inhabitants whereas the Khasa-Kathmandu land connectivity was broader in scope, as it linked with Nepal's capital. Its importance grows each day: first, with the opening up of the economy to FDI by China in 1979 and then later in the late 1990s to the transformation of the economy of Tibet. 

 

New land connectivity points are being developed for trade with China. They include Rasuwagadhi ( Raswua District); Nhechung (Mustang District); Olangchungola (Taplejung District); Kimathangka (Sankhuwasabha District); Lamabagar ( Dolakha District); and Yari (Humla District)..

 

Following significant improvement in China-India bilateral relations since 1988, coupled with China's accession to the WTO in 2001, the Nathula Pass got much prominence. In 2003, China and India signed an agreement to reopen it after China recognized Sikkim as an integral part of India. Be that as it may, it was not welcomed by the security arm of the Indian government since it was too close to the so called Chicken's Neck lying in close proximity to the international borders of Bhutan, Bangladesh and Nepal. 

 

Should the Chicken's Neck be over ridden by an occupying army, it would completely cut of the seven North East states of India from the mainland aggravating grave internal security risks to India. In fact, India's security and defence analysts were starting to ponder if Nepal, as a buffer state, would not be the more suitable country to serve as the transit economy? 

 

Prof Mahendra Lama had projected that prospective trade flow through the Nathula Pass would be $48 million in 2007 rising to $ 527 million in 2010 and to $ 2.8 billion in 2015. This is probably no more than 1-2% of China India total trade. As it turns out, no more than $ 5-6 million of trade actually occurs suggesting that security and defence have taken precedence over geo economics. 

 

Naturally, with such prospects Nepal was quick to officially declare, as its national strategic policy, that it wished to act as the transit state. This was duly incorporated into Nepal’s national budget in 2005 with due support from China. It may be underscored that Nepal's exports to Tibet rose from $ 5.8 million in 1991 to $ 33 million in 2005. And imports from $ 14 million in 1991 to $107 million in 2005. A 10% earnings from the transit traffic would be highly significant for Nepal's balance of trade with both India and China.