The SAARC Secretariat in Kathmandu looks more desolate than usual this winter. Most staff are in Islamabad, and the air hangs thick inside its poorly-designed and inadequately-heated premises. Nothing gives the impression that this is the HQ of an organisation that stands for nearly 1.5 billion people-nearly one-fourth of humanity.

As current SAARC chairman, Prime Minister Surya Bahadur Thapa has hopped, skipped and jumped all over the subcontinent this month when he should have been concentrating on fixing things back home. Other than prolonging his uncertain tenure, Thapa's prancing has failed to achieve much-for SAARC, or for his own country. His travels exposed the sad fact that to fly to some SAARC capitals one still has to transit Singapore and Bangkok.

When Thapa hands over the gavel to Premier Jamali this weekend at the 12th SAARC Summit, he will have to begin exactly where the organisation was two years ago in Kathmandu. There have been platitudes, but no progress towards goals set by the Kathmandu Summit: "To give effect to shared aspirations for a more prosperous South Asia, the leaders agreed to a vision of phased and planned process eventually leading to a South Asian Economic Union." The two biggest SAARC members who finally shook hands in Kathmandu and then resumed hurling barbs at each other must share the blame for undermining the viability of SAARC.

The SAARC's biggest challenge is that nothing will shake the belief of the foreign policy bureaucracy of its biggest member that the five smaller states (who all border India but don't share a contiguous border with each other) are ganging up against India. Such conviction makes India defensive when it should be the one taking bold initiatives.

Dhaka has lost all hopes of making SAARC work and has decided to focus on BIMSTEC instead. This look-east sub-regional grouping is free of Indo-Pakistan acrimony and has greater chances of economic cooperation. Even after badly bruising itself in Afghanistan, Islamabad is still pinning its hopes on profting from Central Asian oil and gas transiting its territory. Sri Lankans have always felt more affinity to ASEAN than to the geographical accident that placed it 50km off the tip of south India. Nepal is waiting for China's railhead to arrive in Lhasa. That leaves Male and Thimpu (combined population: less than two million) in favour of South Asian Economic Union.

Off late, Prime Minister Atal Behari Bajpai has been hinting about a regional Customs Union and even a Common Currency. But as usual, the Indian premier is probably being more lavish with his promises than he would be allowed by his own babudom. Unless India begins with a generous gesture of goodwill towards its smaller neighbours, there is no way the economic cubs of the region will be able to keep pace with the galloping lion claiming to lead the pack. The non-reciprocity of the Gujral Doctrine wasn't charity, it was based on the sound economic principle of India acting as a powerful economic locomotive.

The other chain that has kept South Asia shackled is New Delhi's enduring obsession with military security. Since Islamabad also refuses to grow up from its juvenile fascination of nuclear firecrackers, it is still only 15 seconds to midnight on South Asia's nuclear doomsday clock. Here again, it is India that has the bigger responsibility of defusing tensions. If it doesn't do so on its own, outside powers will make it before long.

Just as the famous handshake that stole the show in Kathmandu, in Islamabad too all eyes will be on Bajpai. But this time he and Gen Musharraf better come up with something more tangible than the Lahore Bus or the Agra Breakfast. Apart from the importance of de-escalating the conflict along the Line of Control in Kashmir, there is one more thing that they can do to atone for their past misdeeds: begin the process of moving towards a common South Asian Rupee.

Despite doubts here among our economists, the South Asian Rupee has the potential of becoming the currency of goodwill in the region. And for that too, it is New Delhi that must take the lead.