By Gopal Sharma and Frank Jack Daniel
KATHMANDU (Reuters) - South Asian leaders from Afghanistan to the Maldives met in Kathmandu on Wednesday for a summit that was undermined by traditional bickering between rivals Pakistan and India.
In Nepal, India's Prime Minister Narendra Modi was due to hold two-way talks with every country in the volatile region except Pakistan, as neither neighbor is ready to seek talks to reduce tension between the nuclear-armed states.
Divided when they won freedom from British colonial rule in 1947, the two countries have barely agreed on anything since, a predicament that has left the three-decade-old South Asian Association for Regional Cooperation (SAARC) dysfunctional.
"More often than not, India-Pakistan disputes have overshadowed the organization," Nepal's former prime minister, Baburam Bhattarai, wrote in the Republica newspaper. "It is now time for India to take the lead."
Despite a free trade pact since 2006, South Asian nations conduct only 5 percent of their total trade with each other, and there are few transport and power links among them.
"My vision for our region is a dispute-free South Asia, where, instead of fighting each other, we jointly fight poverty," Pakistan's Prime Minister Nawaz Sharif said in a speech that acknowledged the grouping's sparse achievements.
But hopes for a meeting between Modi and Sharif to restart the peace process faded after Sharif told reporters on his plane that "the ball is now in India's court".
India says Pakistan needs to commit to "meaningful dialogue" before they can meet at the summit, which opened on the anniversary of 2008 attacks by Pakistani militants on Mumbai that killed 166 people.
India would like to make SAARC a viable economic counterweight to China. Modi hoped to build on goodwill he earned by inviting SAARC leaders, including Sharif, to his inauguration six months ago.
But his ambition looked unlikely to gain traction in Kathmandu, with Indian officials on Tuesday saying Pakistan was blocking proposals to integrate energy grids and free up road and rail movement.
After the May overtures to Sharif, ties between India and Pakistan have again been frayed by exchanges of fire on the border in disputed Kashmir, which killed 20 people last month.
Such divisions and mistrust have helped China establish a strong foothold, building roads and ports in the region. The summit was held in a hall China built for Nepal.
Modi has not welcomed Beijing's renewed suggestion, backed by Pakistan, for its status to be raised from "observer" in the grouping, where India is currently the major power.
(Additional reporting by Gopal Sharma in Kathmandu, Rupam Jain Nair in New Delhi, Michael Martina in Beijing and Katharine Houreld in Islamabad; Editing by Sanjeev Miglani and Clarence Fernandez)