NEW DELHI, Dec 29: The Indian cabinet approved on Thursday the introduction of a pact with its neighbours from Jan 1, to promote free trade and economic ties in South Asia.

Indian Commerce Minister Kamal Nath said India would initially cut customs duties by five per cent for goods imported from Pakistan, Sri Lanka, Bangladesh, Maldives and Nepal after the launch of the South Asia Free Trade Area (Safta) agreement.

Though some member countries are yet to ratify the pact, Indian officials said New Delhi would go ahead with implementing the agreement from Jan 1, and was hopeful its neighbours would follow suit.

“This is a first major step for a free-trade agreement with the neighbours,” Mr Nath told reporters after a cabinet meeting.

The seven-nation South Asian Association for Regional Cooperation (Saarc) first mooted the trade pact in 1995.

Under the pact, Saarc’s developing states, Pakistan, India and Sri Lanka, will cut tariffs to between zero and five per cent within seven years of the start of the agreement.

Its least developed countries, Bangladesh, Bhutan, Nepal and the Maldives, have 10 years to complete the process, though all members can maintain a list of sensitive products on which tariffs will not be reduced.

“There is a special dispensation for the least developed countries for the revenue loss,” Mr Nath said.—Reuters