Member countries

India Pakistan Sri Lanka Maldives Bangladesh Bhutan Nepal

The seven-member Association targets economic development and aims to raise the living standards of the region's one and a half billion people.

The challenge is huge, with 40% of people suffering in poverty and the world's lowest per capita income of $309.

But the head of the Indian Chamber of Commerce, RS Lodha, has stressed the extent of the poverty in the region means economic issues must not be brushed aside by the threat.

Trading ambitions

Business leaders are expected to continue to press for a free trade agreement, despite the mounting tension between India and Pakistan.

"The compulsion of economic globalisation, the influence being exerted by the World Trade Organisation - and China's entry into it - automatically means the time is coming for a strong unity," said Mr Lodha.

"We expect in the next few years a South Asian Free Trade Agreement to be a reality and a success," he said, dismissing the India-Pakistan row as an aberration.

Mr Lodha said the mistrust between Pakistan and India was a political legacy that was not reflected by the desire of traders to do business with each other.

Small beginnings

The progress made so far on creating a free trade area has largely been symbolic rather than real.

The total ban on e-mail is crippling trade

Kashmir business leader

Three previous rounds of trade talks have helped reduce taxes on over 5,000 commodities, but have not included the region's major exports.

But a united approach from the SAARC is thought to have increased the negotiating power of the group at the latest round of Word Trade Organisation (WTO) talks.

However, the seven members account for just 3.5% of world trade, and attract a fraction of foreign investment - largely due to the political instability.

Kashmir cut-off

The devastating impact of political tension on local industry is very evident in Kashmir, the centre of tensions between India and Pakistan.

Businesses based in the Indian-administered part of Kashmir are furious about the government's decision to cut the region's internet and long-distance phone services.

Nepal's Finance minister welcomes his guests

Kashmir's three main business forums called the moves "deplorable" as their production, trading and exports were hit by the lack of e-mail.

And Kashmir's telecom department has reported a daily loss of 800,000 rupees ($16,500; �11,500).

"The total ban on e-mail is crippling trade," said Ram Sahay, president of the Jammu Chambers of Commerce and Industries.

Kashmir's key exports are woollen carpets, shawls and saffron, and the region is particularly dependent on e-mail for trading purposes.

The Indian government says communications have been restricted in order to curb military activity in the region.

Long term goals

The summit of the seven-member SAARC, essentially an economic grouping, has been repeatedly postponed because of tensions between the two dominant forces, India and Pakistan.

Leaders have not met since a failed summit in July.

The government is curbing military action by cutting communications

Leaders of the seven states will meet in Nepal over the weekend, after the start of the summit was delayed once again due to the late arrival of Pakistan's president, Pervez Musharraf.

Mr Musharraf, has refused to say whether he will meet Indian Prime Minister Atal Behari Vajpayee on the sidelines of the meeting to try and diffuse the crisis.

The regional grouping was set up in 1985 on the lines of the Association of Southeast Asian Nations to promote trade and economic cooperation in the region.

The regions have set the goal of drafting a framework by the end of the year for a free trade area and achieving economic union by 2020.