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Afghanistan-India Towards a Future of Strong Economic Ties

Afghanistan-India Towards a Future of Strong Economic Ties
Prime Minister, Shri Narendra Modi meeting the President of Afghanistan, Dr. Mohammad Ashraf Ghani, on the sidelines of the SCO Summit, in Astana, Kazakhstan on June 09, 2017.

A dedicated air freight corridor between Afghanistan-India was inaugurated in June 2017, taking the bilateral relations a step forward. The decision to establish the corridor was taken during President Ashraf Ghani’s visit to India in September 2016. The first cargo flight carrying Afghan asafoetida (hing) landed at New Delhi on 19 June 2017 and earlier on 18 June, a cargo flight carrying pharmaceuticals, water purifier and medical equipments flew from New Delhi to Kabul. Lack of direct access has impeded the growth of robust bilateral trade.The new air corridor albeit with its limitations is a welcome step to strengthen economic ties.

The deep historical and civilizational linkages the two countries share needed to be adjusted to the new geopolitical realities of the region after the fall of the Taliban regime in 2001. India has judiciously used its ‘soft power’ in Afghanistan; thereby creating a space of its own based on goodwill and trust.

The bilateral ties, severed during the Taliban period, are gradually and steadily developing since 2001. India post-2001 has contributed in the reconstruction process by investing in infrastructure projects, capacity building, health and education in Afghanistan. So far, India has promised $2 billion as development assistance, making it the largest regional donor and one of the leading donor nations. India offered an additional $1 billion during President Ghani’s 2016 visit to India.

India was also the first strategic partner of Afghanistan. Adding more substance to the bilateral ties, the two countries signed the Strategic Partnership Agreement (SPA) in 2011. Among many other projects built with Indian assistance, the inauguration of the Salma Dam in June 2016 and the Afghan Parliament building in December 2015 testifies India’s continuing engagement in the reconstruction process.

The Zaranj-Delaram road connecting Iran to Afghanistan, transmission line from Pule- Khumri to Kabul, substation at Chimtala, etc are few other significant projects completed with Indian assistance. India gifted three Cheetal helicopters in 2015 and four Mi25 Attack helicopters in 2016 paving way for defence cooperation. Despite these initiatives, India’s military engagement with Afghanistan will be limited given the geopolitical constraints.

The growing ties, the bilateral economic relations remain a weak link in the relationship. During the September 2016 visit of President Ghani to India, his second visit after assuming office, the two countries expressed willingness to enhance the bilateral trade to $ 10 billion in the next five years.

At present, the bilateral trade is modest. During the period 2012-2016, the bilateral trade was $632.18 million, $683.10 million, $684.47 million and $834.50 million, respectively. The major Indian exports to Afghanistan
includes man-made filaments, apparels and clothing accessories, pharmaceutical products, cereals, man-made staple fibres, tobacco products, dairy and poultry products, coffee, tea, meat and spices.

Afghan exports to India primarily comprises of dry and fresh fruits, nuts, raisins, vegetables, oil seeds, precious, semi-precious stones, etc. Back in March 2003, the two countries signed the Preferential Trade Agreement that allowed 50-100 percent duty concessions to some categories of Afghan dry fruits. Indian tea, sugar, cement and pharmaceutical enjoy similar concessions from Afghanistan.

From 2011 onwards, goods from Afghanistan enjoy duty free access to Indian market as part of India’s decision to remove basic customs duties for goods from SAARC LDCs. India is the main export market for Afghan goods after Pakistan. Absence of direct access is one of the major hurdles to improve trade ties.

Afghanistan-India Attari Railway StationThe opening of the Wagah-Attari land route does not seem possible given the present strained India-Pakistan relations. At present, Pakistan allows Afghanistan to export goods through its territory but denies goods from India to pass through its territory. In 2015, 170,000 ton of wheat offered by India remained undelivered as Pakistan refused to open its land route for Indian goods.For war torn economy of Afghanistan such incident has deep consequences; also challenging the prospect for regional economic integration. Trade and connectivity are imperative for Afghanistan to be self reliant and reduce its dependence on foreign aid and projects.

Afghanistan depends on the Karachi port for access to markets, which makes Afghanistan vulnerable to pressures from Pakistan. Problems in Afghanistan-Pakistan border have led to the closure of the borders paralysing trade and transit. For example, in August 2016, the Chaman border crossing remained closed for almost fourteen days and in June 2016, Torkham border crossing was closed for a week. Afghanistan is looking for alternate routes, bypassing Pakistan to reach world markets.

For India, direct access to Afghanistan not only facilitates India’s trade with Afghanistan but also gives India access to Central Asia. President Ghani had requested Pakistan to allow Indian goods through its territory, which Pakistan has refused. President Ghani had earlier warned Pakistan that if it does not allow Indian goods through its territory, Afghanistan will not give Pakistan access to Central Asia. Given the present vulnerabilities, it may not be possible for Afghanistan to implement a strong step against Pakistan.

However, President Ghani making such a statement does highlight the importance Kabul attaches to India, allaying fear about waning India-Afghanistan relations.

In the prevailing situation, India and Afghanistan need to explore various alternate routes. The opening of the air corridor is one option. However, trade through air has its own limitations and will thus be restricted. Another viable route is through Iran. The tripartite agreement between India-Iran and Afghanistan in May 2016 to make the Chabahar port a transit hub bypassing Pakistan is a welcome step. Exploring various alternate routes will help to address the connectivity issue.

In addition to increasing trade ties, investments offer opportunity for strong economic engagement. Mining sector in Afghanistan holds immense potential for foreign investments. The Ministry of Mines in Afghanistan is the nodal agency.

Afghanistan-India gold minesThe country has huge deposits of gold, copper, iron, barite, molybdenum, zinc, lead, chromite, etc. The three known hydrocarbon basins are: Afghan-Tajik, Amu Darya and Tirpul. There are two possible hydrocarbon basins: Katawaz and Helmand.

The legal frameworks available to develop the mining sector are:
The Minerals Law of 2009, Mining Regulations of 2010, the Hydrocarbons Law and Regulations of 2009 and Policies and Regulations for Mining Sector. Mining sector needs investments for the use of modern techniques. India, has taken a small step to invest in the country where uncertainties are still looming high.

The consortium led by SAIL won the bid for the Hajigak iron ore mine in Afghanistan. However, so far, no agreement has been signed and the implementation of the project depends on the security environment in Afghanistan. Two recent decisions to broaden the engagement are noteworthy.

India during September 2016 visit of President Ghani decided to supply good quality affordable medicines from India to Afghanistan and to develop cooperation in solar energy. Several steps have been taken in the recent past to further strengthen economic relations.

Afghanistan-India Rita A. Teaotia
The Deputy Minister for Commerce, Ministry of Commerce & Industries, Government of Islamic Republic of Afghanistan, Mr. Mohammad Qurban Haqjo and
the Commerce Secretary, Ms. Rita A. Teaotia exchange an agreement, at the 2nd meeting of the Joint Working Group (JWG) on Trade, Commerce and
Investment between India and Afghanistan, in New Delhi on March 30, 2017.

India as the pilot country for Trade, Commerce and Investment (TCI)Confidence Building Measure of the Heart of Asia Process organised the Seventh Regional Technical Group (RTG) in March 2016 and a Conference and Exhibition on ‘Made in Afghanistan’ from 19-20 July 2016. KEC, Phoenix, AIPL, WAPCOS, ANGELIQUE International Aptech GAMMON India, KPTL, ANAAR Group and Spice Jet are a few main Indian companies engaged in Afghanistan.

The prevailing security uncertainties in Afghanistan impede the scope for enhanced economic partnership. Strengthening economic ties is crucial to sustain the deep rooted friendship between the two countries. The implementation of the work on the Hajigak mine will be a significant step towards cementing the bilateral economic engagement.

Also, the successful completion of the Turkmenistan Afghanistan-Pakistan-India (TAPI) gas pipeline will give a strong message for regional economic integration. To sustain and nurture the growing partnership, there is need to expand the areas of engagement and take steps to move beyond aids. Given the present geopolitical realities in Afghanistan, small steps to enhance economic presence will go a long way in nurturing the relationship. The newly established air corridor is an effort from both sides to pave way for stronger economic partnership.

By: Dr. Angira Sen Sarma

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