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It's the season of South Asia here with hundreds of people from neighbouring countries, speaking diverse languages and professing different faiths, descending on the Indian capital in a celebration of shared cultural identity and interlinked destiny of the region that accounts for a fourth of humanity.

The 14th South Asian Association for Regional Cooperation (SAARC) summit that begins Tuesday will bring together leaders, officials and common people from India, Pakistan, Sri Lanka, Bangladesh, Nepal, Bhutan and the Maldives, to be joined by its newest and eighth member Afghanistan.

It's a landmark summit in many ways that sets it apart from previous ones - it is an expanded SAARC with a global focus that will be watched by the world's leading powers.

Significantly, the presence of the US, China, Japan, South Korea and the European Union, who would be participating as observers for the first time in the 22-year-old history of the regional grouping, raises the stakes for a stable and cohesive South Asian region that has the potential to become an economic dynamo.

It is this precise potential that is drawing to it countries and powers that for years treated the region with lofty disdain.

Iran is the latest country to seek observer status at the summit, with a presumed intention to join as a full-fledged member later, citing its geographical links.

Although most SAARC countries continue to be afflicted by endemic problems of poverty, illiteracy and inequity, economies in most countries are growing at the rate of 5 per cent and above, a fact pointed by Indian Foreign Secretary Shivshankar Menon recently.

Economic integration and an across-the-board implementation of the South Asian Free Trade Area (SAFTA) holds the key to unlocking the economic potential of the region.

The broader idea behind all this is to convert the region into a single economic space, as articulated by the 11th SAARC summit in Kathmandu in 2002 and reiterated by subsequent summits to implement "a phased and planned process eventually leading to a South Asian Economic Union".

The global stakes in peace and stability in South Asia are huge as the region is home to the world's two nuclear-armed countries that do not enjoy the best of relations with each other on the one hand and are beset by terrorism and extremist ideologies on the other.

In fact, some South Asian countries have some of the most persistent terrorist problems in the world: India has been facing terrorism allegedly instigated by Pakistan for 18 years; Sri Lanka has a decades-old problem with the Tamil nationalists Liberation Tigers of Tamil Eelam and Bangladesh is in a danger of a section of its society falling prey to the lure of extremist ideologies.

"A stable and peaceful South Asia, free from the scourge of terrorism, is in the interests of the world's leading powers," K Subrahmanyam, a strategy expert, told the agency.

Peace means more economic opportunities. Which is what most big powers are interested in. The US and the EU are SAARC countries' largest trade partners and have stakes in the success of economic integration in the region.

The EU has offered to "share expertise and experience in all areas of interest to SAARC as well as in the implementation of the South Asia Free Trade Agreement (SAFTA)", EU's External Relations Commissioner Benita Ferrero-Waldner has said in a message to SAARC leaders.

SAARC, however, remains a work in progress with most of its potential unachieved. If the last 22 years of endless talking and producing documents are replaced by the next 22 years of action, South Asia could become the world's economic hub and even a model of regional integration.

"The collective weight of the South Asian economies will enhance their bargaining power, making for better terms in trade and financial negotiations and, therefore, the promotion of welfare and the acceleration of economic growth," said IP Khosla, a former envoy to Bangladesh and Afghanistan.

But there is a huge gap between the ideal and the reality. The World Bank has displayed some revealing statistics that highlight challenges and opportunities for closer regional cooperation in South Asia.

According to the bank, intra-regional trade is less than 2 percent of GDP, compared to more than 20 percent for East Asia. The cost of trading across borders in South Asia is one of the highest in the world, it points out.

The bank also points out that despite India, one of the most energy-hungry nations in the world, situated next to three energy-surplus countries - Bangladesh, Nepal, and Bhutan - energy trade between them except for Bhutan is miniscule.

If trust problems can be sorted out and leaderships show political will, this is what SAARC can achieve: Trade within South Asia can be more than doubled if appropriate regional agreements on roads, rail, air, and shipping are put in place.

Nepal has the potential to produce more than 40,000 MW of hydel power, most of which could be exported to India, generating $6-10 billion per year of revenues to Nepal.

Increasing popular interest and participation in SAARC is another encouraging factor.

Some 300-odd journalists, at least 200-odd officials and their assistants and some 200-odd activists who have come here for a people's summit are expected to be camping here this week.

"In 1995, it was mostly an official affair. Since then, popular participation in the larger process of South Asian integration is increasing," SD Muni, a noted South Asia specialist, told the agency.

"With this kind of popular awakening, SAARC is poised to enter a more dynamic, competitive and cooperative phase," Muni predicts.