Issues relating to South Asian economic cooperation and South Asian economic integration receives high priority in ICRIER’s research agenda. In assessing the potential for economic integration, formal and informal trade flows need to be taken into account. The core question in this study “Informal Trade in the SAARC Region” has been to evaluate the extent to which SAFTA can lead to a shift in trade flows from illegal to legal channels. The study begins with an empirical documentation of the magnitude and composition of trade flows in the South Asian region. Factors obstructing official flows have been analysed in order to see how SAFTA can help in bringing a shift from illegal to legal channels.