India's Economic Relations with Afghanistan: A Study in the Context of Trade & Investment

By Wani, Mohammad Ibrahim; Mir, Mohammad Afzal et al. | The Journal of Central Asian Studies, January 1, 2017 | Go to article overview

India's Economic Relations with Afghanistan: A Study in the Context of Trade & Investment


Wani, Mohammad Ibrahim, Mir, Mohammad Afzal, Akhter, Kulsuma, The Journal of Central Asian Studies


Introduction

With the introduction of new economic policy of 1991 in India, a new opportunity opened up for her to forge relations with the wider world. After an initial period of economic crisis, the country in order to achieve economic stability, domestic democratization and preserve her acquired independence have adopted multi-vectored foreign policies to choose their international patterns, while in the economic sphere the country (India) has chosen different degrees for opening of her economy. Within this framework India has attempted to forge diplomatic relations with various countries of the world including Afghanistan to rejuvenate her age old historical and cultural relations which at the same time has tuned by a desire to meet new contemporary imperatives. With the growing profile of Afghanistan at regional and international level, India has a significant place in Afghanistan's agenda of expanding its bilateral and multilateral ties with the outside world. In such a scenario, the hardest nut to crack is to overcome the crisis that is responsible for impeding the desired extent of economic relations between India and Afghanistan, through geo-economics has essentially been playing a major role in comparison to geo-politics.

Apart from energy and uranium resources, Afghanistan offers a relatively untapped market for Indian consumer goods, especially as consumers in the region have little choice between highly priced imported western products and cheap but lower quality Chinese manufactured goods. Over the years, Indian companies have acquired a foothold in some of the sectors of Afghanistan markets while the potential for Indian investment and expertise has been identified in the areas of energy, agriculture, security, banking, construction and food processing etc. Besides, the potential for Indian assistance to Afghanistan in developing its small and medium scale enterprises is immense as there is a tremendous opportunity in joint venture in different sectors also. Assistance in some of these areas is, however, being provided by India as part of its long running ITEC (Indian Technical and Economic Cooperation) program. After Soviet disintegration, Afghanistan holds a special place in India's foreign policy priorities. India and Afghanistan are rapidly growing economies, thereby have enormous vistas for bilateral cooperation. While India's trade with Afghanistan exhibits a positive trend, but there is a large scope to enhance it further as Afghanistan besides its strategic importance is rich in natural resources.

Why is Afghanistan Important for India?

The republic of Afghanistan is important to India because of its various dimensions, such as strategic location, geographical position, and natural resource base, connectivity as bridge between South and Central Asia, relations with Pakistan and other neighbors. However, the 'New Silk Road 'initiative whereby Afghanistan will 'regain its historical role as a land-bridge between South Asia, Central Asia, the Middle East and Eurasia' has some traction1 in India2. However, with an improvement in trade links with Pakistan, there is a hope in the possibility of Afghanistan to become the hub for trade, transportation and energy in the region (Summit on Afghanistan in Delhi, 2012)3. The major factors however, which makes Afghanistan important for India are:

a) Afghanistan's Strategic Location and India's Geo-strategic Interests

Afghanistan's geocentric location and its proximity to Iran on the west, Pakistan on the east, the Central Asian republics of Turkmenistan, Uzbekistan, and Tajikistan in the north, a small stretch of border with China in the northeast, enhanced the country's geo-strategic importance manifold. Several world powers became extremely active and grabbed the opportunity in seeking political and economic leverage. The sudden splurge4 of initiatives and activities from the international community made Afghanistan alive in the global scenario especially among Pakistan, Iran, Russia, China, United States, India etc. …

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