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 The U.S. can play an effective role in building confidence between India and Pakistan which will be a service to the 1.2 billion people of the two nations. Combating terrorism, developing bilateral military ties, promoting economic growth and investing in people are the key objectives of the U.S. assistance in South Asia. Existence of terrorism, illiteracy and slower economic growth promote poor governance, inter-ethnic conflict, poverty, disease and illiteracy in the region. Through the foreign aid, the U.S. government desires to remove the sources of political instability, extremist religiosity and depravation in South Asian region and advance its foreign policy and national security goals.
Prior to September 11, 2001, South Asia has been the smallest recipient of U.S. non-food assistance. Following the events of 9/11, foreign assistance gained importance as a vital cornerstone along with diplomacy and defense in the US national security strategy. After the 9/11 events, South Asia in general and Pakistan and Afghanistan in particular emerged as one of the largest recipient of U.S. assistance. Counterterrorism, humanitarian development and economic assistance started flowing in the region and Pakistan and Afghanistan emerged as the second largest beneficiary of military assistance after the Middle East. Before 2002, India and Bangladesh were the largest recipients of the U.S. bilateral aid in South Asia.
South Asia itself has immense potential to become one of the dynamic regions in the world. It is home to more than one-fifth of humanity, and just the increase in its population each year exceeds the total population of 50 small UN member countries. History and geography have brought the countries in the region together in a unique manner. They have inherited centuries of shared history and a rich composite culture, to which each nation has made its own contribution.
South Asia offers a variety of cultures and diversity of languages that no other geographic region in the world offers. This region has ancient history and civilization spanning over a period of five thousand years. The people of the countries constituting South Asia are known for their friendliness, warmth and hospitality. Rich cultures, diversity of languages, ancient history and civilization notwithstanding, the countries in the region have not exploited fully their resources for improving the living standards of their people.
These facts are reflected in key economic and social indicators of South Asia. While South Asia house 22.6 percent of the world's population and 3.7 percent of world's land, it contributes only 2.0 percent to the world's income. The per capita income of South Asia at around $500 is lower than many regions in the world.
 Economic and social transformation has taken place in Asia at an unprecedented pace. People in Asia are richer and more educated today than some 40 years ago. Economic growth has driven this transformation. Economic prosperity in Asia has however. not been shared equally by different countries in the region. South Asia has certainly lagged behind East Asia in economic and social transformation. While East Asia grew at an average rate of over 7.0 percent per annum for four decades by maintaining macroeconomic stability on a sustained manner, and by raising the levels of economic cooperation in the region, South Asian economies on the other hand have found it difficult to sustain a six percent growth over a longer period of time. Poor growth performance has given South Asia the dubious distinction of being home to the largest number of the world's poor and illiterates. It appears that the story of South Asia is indeed that of missed opportunities. None other than poor governance is responsible for South Asia's relative backwardness.
Global integration has gathered unprecedented pace. Large economic spaces have emerged in different parts of the world and regional trading arrangements have taken firm hold. Tariff and non-tariff barriers have been dismantled to transform a specific region into a single market or free trade area. While these developments have taken place extra-regionally, the South Asian region despite its physical propinquity, presents a dismal picture of regional cooperation. Not only has the mutual trade in the region been stagnant over time, the share of intra-regional trade to the global trade of the countries of the region has also remained more or less stagnant at 5 percent. The fact remains that intra-regional trade continues to retain a marginal character in South Asia.
The negative list of South Asian Free Trade Agreement (SAFTA) comprises 53 percent of the total trade between the regional countries. Intra-regional trade in South Asia stands at $7 billion (or 5%), of which, India is the only country which has maintained surplus in trade with all other countries in the region. India's trade regime in South Asia is highly restrictive as it has imposed tariff and non-tariff barriers to restrict trade with other regional countries, especially with Pakistan - the second largest economy of the region. Political, infrastructure and security issues apart, the non-tariff barriers imposed by India have been the stumbling block in expanding trade and economic ties between the two largest economies of the South Asian region. As high as 55 percent potential of the intra-regional trade remained untapped and more than $1.8 billion worth of trade potential between India and Pakistan has remained unutilized, which is over 80 percent of the existing bilateral trade. Unless Pakistan and India expand their bilateral trade relations through a fair trade regime, the dream of South Asia becoming a vibrant regional bloc can never materialize. These two economies account for over 90 percent of regional income. The future of South Asian economic cooperation hinges on the trade and economic relations between India and Pakistan.
 Can the United States play the role of an honest referee to enhance trade and economic relations in the South Asian region For the U.S. to play any role, it requires that the United States needs to have some credibility in both the countries. Most importantly, the U.S. has to bridge the trust deficit, particularly with respect to Pakistan.
Economic relations of the U.S. with the countries in South Asia have never been smooth and stable. Both India and Pakistan faced sanctions on non-humanitarian aid for conducting nuclear weapons' tests in 1998. The U.S. imposed additional restrictions on aid to Pakistan because of the delinquency on foreign loan payments and because of the military coup in October 1999. United States relations with Pakistan began to normalize in phases after the events of 9/11. India also became the beneficiary of the lifting of variety of sanctions imposed on Pakistan. Bangladesh has been receiving U.S. assistance in the areas of socio-economic development, political advancement, anti-corruption reforms and for strengthening democratic institutions.
The United States has been providing aid to India in the areas of economic development and counterterrorism with a view to enhancing its image as an influential U.S. partner in the international system, particularly after 2002. The U.S. assistance to Nepal aimed at furthering the peace process between the government and the Maoist insurgents, establishing political stability and promoting development. Other major components of the U.S. aid programs in Nepal include building the capacity of local and national governments to provide social services and improve public health.
Pakistan emerged as a front line state in the global war on terrorism after the 9/11 attacks. Pakistan-U.S. relationship grew in many areas, particularly dealing with counter-terrorism and border security efforts; economic growth, aimed at nurturing a middle class as a foundation for democracy; economic support funds for improving the quantity of and access to public education, and primary healthcare; and water and sanitation services. The size of the U.S. assistance to Pakistan also increased many folds after Pakistan emerged as a front line state. The United States has entered in a long-run multi-dimensional relationship with Pakistan with economic assistance increasing to $7.5 billion in five years under the Kerry-Lugar Program. The United States is genuinely interested in improving socio-economic conditions of the people of Pakistan through its support for economic growth and macroeconomic stability.
 The United States assistance program was aimed at promoting the peace process between the government of Sri Lanka and Tamil separatists. Its program included the strengthening of the Sri Lankan military, police force and counter-terrorism activities. U.S. assistance also promoted economic growth, especially in less developed-conflict-ridden areas of Sri Lanka.
Barring Pakistan, the United States assistance to South Asian countries can at best be regarded as modest. Given the limited size of the financial assistance in relation to the population and extent of poverty and depravation in South Asia, the United States cannot play an effective role in combating terrorism and improving the lives of the people of this region. What is required is more active engagement of the U.S. in South Asian countries along with commensurate financial assistance.
With regard to its relationship with Pakistan and India, the us has to play the role of an honest referee. The U.S. can play an effective role in building confidence between the two South Asian giants. This will go a long way in enhancing economic ties among the countries of the South Asian region. This will indeed be regarded as service of the U.S. to the humanity in general and 1.2 billion people of India and Pakistan. 
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