Kamal Nath, India's Commerce Minister, said on Friday: "The South Asian Free Trade Area (Safta) agreement has been finalised."
The statement was issued after a meeting of Safta experts in Kathmandu, Nepal, between 29 November and 1 December, aimed at resolving outstanding issues.
South Asian Association for Regional Co-operation (SAARC) groups together Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.
The landmark deal to create a South Asian Free Trade Area was signed in Islamabad, Pakistan, in January 2004 during a summit of regional leaders, with 1 January 2006 set as the deadline for implementation.
However, the deal by SAARC was expected to become fully operational only by 2016.
"Implementation of Safta will further strengthen our trade relations with the SAARC countries," Nath said.
The agreement when signed in Islamabad was seen as the best hope to better the standards of living for millions of poor in a region with a population of 1.5 billion.
"Implementation of Safta will further strengthen our trade relations with the SAARC countries"
Indian commerce minister
But implementation was delayed when some SAARC members expressed reservations over a list of sensitive products, rules of origin and a compensation mechanism for the least developed countries.
The statement said agreement had been struck on the outstanding issues.
"A phased tariff liberalisation programme from the date of Safta's coming into force is envisaged," it said.
Under the terms of the agreement, the more-developed countries among the seven member states would bring down their tariffs for non-SAARC trade from the existing 30% to zero in five years. The less-developed countries would do so in eight years.
The developed countries would also reduce their tariffs for non-developed countries within SAARC in three years, the statement said.
Manmohan Singh, India's prime minister, said that implementation of Safta would increase intra-regional trade from the present $6 billion a year to $14 billion.