With the dawn of the twenty-first century, South Asian region has undergone radical transformation. It has witnessed a strong democratic sweep. Most of the South Asian economies have registered impressive growth trajectories. Some of its countries have also emerged as the hub of global terrorism. The international community has become far more involved in South Asian affairs due to the nuclearisation of the region. SAARC cannot but keep pace with the changing regional dynamics. It has moved ahead on its economic agenda and expanded its reach not only by adding new members ( Afghanistan ) but also by opening itself to the participation of many other countries, including China , Iran and the US , as Observers.