Modi-Sharif handshake salvages Saarc summit

A brief meeting between India's Prime Minister Narendra Modi and his Pakistani counterpart appears to have salvaged a summit of South Asian leaders, with all eight countries clinching a last-minute deal to create a regional electricity grid.

Thursday's pact, to be signed at the summit's closing ceremony, will buttress Modi's ambition for South Asia to become a viable economic counterweight to China, which has made sweeping inroads in the region.

"Yes, the electricity agreement will be signed," Nepal's Foreign Minister Mahendra Bahadur Pandey told Reuters, as the leaders emerged from a mountain retreat outside the Nepali capital of Kathmandu.

Modi and Pakistan's Prime Minister Nawaz Sharif shook hands at the retreat, Pandey said, but gave no details. Until that point in the summit, the leaders of the two rivals had cold-shouldered each other.India and Pakistan have fought three wars since independence from Britain in 1947, and just last month exchanges of fire across the border in disputed Kashmir killed 20 people. Peace talks were called off in August.

Four people, including an Indian army officer, were killed on Thursday in the worst militant violence in the Indian part of disputed Kashmir in more than a year.

The squabbling between the rivals is widely blamed for the poor performance of the South Asian Association for Regional Cooperation (SAARC), which was originally founded with the goal of moving towards a European-style union.

Despite a free trade pact in force since 2006, high tariffs and restrictions on movement keep trade among South Asian nations limited to just five percent of their total trade.

The grouping's failure to integrate the region over the past three decades has left the way open for China to step in, with port and road developments.

China has observer status at the grouping. Vice Foreign Minister Liu Zhenmin on Wednesday promised $30 billion for road building in South Asia over five years, and suggested increasing trade to $150 billion over the same period.

Modi announced an easier regime for business and medical visas and promised to lower India's trade surplus.

Pakistan, which still refused to sign two other planned pacts to boost cross border road and rail traffic, was increasingly sidelined at the summit.

India and Pakistan have been trying for years to strike a deal to share energy across their heavily militarized border in Punjab, but Pakistan's army has resisted the attempt. After Thursday's pact, it was not immediately clear if the army was now on board.