Kanupriya,  Research co-ordinator

India- Afghanistan Trade Relations and it’s Potential

– BY Kanupriya

India and Afghanistan have shared economic ties for thousands of years and the understanding of trade between the two countries is crucial to get an insight into what is a historical Central and South Asian connection. The biggest example of this historical connection which is embedded in the cultural psyche of both the countries is Rabindranath Tagore’s work called Kabuliwala. The Afghan president Ashraf Ghani said in 2015 that “Rabindranath Tagore’s famous short story Kabuliwala has contributed more to brand Afghanistan which it could not do with billions of dollars.”

India has been an inseparable part of the larger picture of the trade originating from and passing through Afghanistan. It will be crucial for us to look into the current trade relationship between India and Afghanistan to assess the situation better. As of now, India is Afghanistan’s second-largest export partner with a share of 40 per cent and bilateral trade between the two countries crossed the US$ 1.5 billion mark in the previous financial year. The prospect for better-developed trade relationship between the two countries looks promising but is also daunting at the same time. The biggest hurdle in scaling the trade to new heights is geography. Afghanistan’s history and its present have been determined to a large extent by its geography as it is a landlocked country. Afghanistan has been the centre of trade routes towards South Asia from Central and West Asia. The only feasible land route to Afghanistan from India is through the Wagah-Attari border which cuts across the length and breadth of Pakistan. The task of securing the support of the Pakistani establishment for unhindered trade between India and Afghanistan seems impossible looking at the tenuous bilateral relations between India and Pakistan. This problem leaves us with the question -what alternatives are to be used in the presence of a hostile neighbour?

One alternative is developing a direct connectivity with Afghanistan by bypassing Pakistan. To this effect, India is working on the Chahabar port in Iran to get land connectivity to Afghanistan so that the goods can be shipped from the Indian ports to the Chahabar port and then via land route to Afghanistan. However, the development of Chahabar port so far has been plagued with delays.

As we know, Afghanistan is primarily an agriculture-based economy and therefore relies heavily on imports and foreign aid to keep its economy afloat. There is an urgent need for Afghanistan to become more self-reliant and the most feasible way to do that would be to encourage investment in the country and create local jobs. Afghanistan needs to take advantage of its geographic location by aiming to become a transit hub for energy and goods trade. However, this can be achieved only with political stability in the country and the frequently changing power equations within Afghanistan are a hurdle for achieving economic prosperity.

 The impending US retreat from Afghanistan will have important ramifications for the numerous development projects currently being developed in the region. The TAPI (Turkmenistan-Afghanistan-Pakistan-India) project will most likely get impacted from these upcoming political changes. The project was envisaged to transport natural gas from Turkmenistan to India through Afghanistan and Pakistan, connecting the Central Asian energy reserves to the emerging and densely populated South Asian market. The future of this project currently hangs in limbo because the project can not proceed without the completion of the talks between the US and the Taliban. Even if an agreement is reached between the two parties, it will be interesting to see if different parties in Afghanistan accept that agreement and honour their share of the bargain.

It is in India’s interests to see a developed and prosperous Afghanistan to ensure peace and stability in its neighbourhood. India is a significant trading partner for Afghanistan and several steps have been taken to facilitate economic engagement between the two countries. India removed basic customs duties for all products of Afghanistan except tobacco and alcohol giving them duty-free access to the Indian market. The signing of the India-Afghanistan strategic partnership agreement in 2011 was another step towards affirming Indian commitment to Afghanistan and the stability of its government.

Indian foreign policy in Afghanistan has always been proactive and Afghanistan is one of the few countries where India has been able to achieve some success in securing its strategic interests. However, there is a long way to go in Afghanistan for India and a reworking of Indian diplomatic approach is required to consolidate the gains already made. India needs to have a more direct and forward-moving policy in Afghanistan which is not influenced by its inhibitions from the Non-alignment era.

The US withdrawal will alter the polity of Afghanistan in a significant manner and the time is ripe for India to create a space for itself as a permanent stakeholder in Afghanistan as opposed to the ambiguous stance it has maintained so far. There is an urgent need to develop the link via Iran by pouring in more investment to create a reliable railroad network because this link can be the only feasible route for India to gain inroads into Afghanistan. Given the current state of relations with Pakistan, there is almost no hope that trade via Wagah-Attari will achieve significant volumes in the foreseeable future.

India also has an advanced food processing and packaging industry which can be used to Afghanistan’s advantage as the majority of Indian exports from Afghanistan are food articles i.e. primarily dry fruits and nuts. There is a need for special focus on this aspect for our bilateral trade because India is already a huge market for Afghan Agri products. If we can provide state of the art packing and processing facilities to their products, a value chain can be created which is beneficial to both the economies in terms of monetary gains and job creation.

In conclusion, it is important to reiterate that India is an indispensable player in Afghanistan and a strategic partner which is very important for the solidification of an Afghan nation-state.

India and Afghanistan share a historical connection and India’s ability to capitalize on that connection to improve its ties with Afghanistan has been impressive so far. However, India needs to play a more proactive role regarding its trade ties with Afghanistan and the first step has to be taken by bolstering an effective trade and communications route bypassing Pakistan. There is a need to streamline the current decision-making process and regular talks with regional Afghan power holders will be beneficial. The trade between the two countries has immense potential to grow and a prosperous Afghanistan is in India’s best interests.

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