MANILA, Sept. 3 (Xinhua) -- The Asian Development Bank (ADB) is supporting closer regional cooperation and integration in South Asia through a grant designed to help strengthen policy reforms in two key nations, India and Pakistan, said the institution on Wednesday.

    ADB will provide technical assistance of 750,000 U.S. dollars for the South Asian Regional Cooperation in 2030 project. The grant will identify constraints and promote policy reforms and other strategies needed to overcome the barriers to cooperation and integration in South Asia, the Manila-based development bank said in a statement.

    The grant is focused on India and Pakistan because they are the region's two largest economies and both have been taking steps to promote stronger regional cooperation and integration, ADB said.

    "India and Pakistan could potentially play a pivotal role in advancing wider Asian integration, as well as catalyzing South Asian regional cooperation," said Jayant Menon, Principal Economist with ADB's Office of Regional Economic Integration.

    In the past, progress on cooperation has been slow and South Asia remains the least integrated region in the world with intra-regional trade, for example, accounting for just 2 percent of gross domestic product, compared to 20 percent in East Asia.

    Challenges to closer ties include persistent poverty, rising inequality, civil conflict and at times, tense political relations. High levels of trade protectionism also persist despite the establishment of the South Asian Free Trade Area, ADB said.

    However, there has been progress in recent years with a pickup in the level and pace of domestic policy reforms across South Asia; improved relations and increased levels of trade between India and Pakistan; and a greater opening up of South Asian economies to other regions and the world, it said.

    The grant will seek to support and accelerate domestic policy reforms that have begun in India and Pakistan, and to identify long-term strategies for closer regional cooperation that could maximize gains from the policy changes, according to the statement.

    Two country studies will be carried out and an international conference is planned for October 2009 where the findings will be discussed and disseminated. Another phase may be carried out examining similar issues in other South Asian countries, starting with Bangladesh, then Sri Lanka and Maldives, followed by Nepal, Bhutan and Afghanistan.