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Countries trade a lot with their neighbours. It is the most natural thing to do. A lot of the post World War II economic success around the world has been based on this model. But India has largely missed out on this trick. Mint looks at the reasons for such a scenario.

What are the examples of such a trade?

As Ruchir Sharma writes in The 10 Rules of Successful Nations: “Postwar economic success stories have tended to cluster in regions from southern Europe to East Asia." Let’s take the example of Japan, where economic growth first took off in Asia post World War II. This growth then “spread to the second tier of economies" like South Korea and Taiwan. It then spread to a third tier with countries like Thailand and Indonesia. The fourth tier growth was led by China. “A Japanese economist called this the “flying geese" model of development—with Japan playing the lead goose," writes Sharma.

How has India’s trade performance been?

Let’s take a look at India’s performance on the goods exports front with its major neighbouring countries—Bangladesh, Nepal, Sri Lanka, Afghanistan, Myanmar, and Pakistan. In 2019-20, it stood at $21.87 billion or around 7% of the overall goods exports of around $313 billion. Interestingly, it had stood at 6.7% back in 2003-04. Clearly, there hasn’t been much progress over the years. Also, in 2018-19, India’s goods exports to neighbours were at an all-time high of $25.69 billion or 7.8% of the overall goods exports. This fell to 7% in 2019-20, reflecting the extent of our deteriorating relations with some neighbours.

Deteriorating relations
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Deteriorating relations

What is the situation in case of imports from neighbours?

In 2019-20, just 0.8% of the overall goods imports to India came from these countries. This is hardly an isolated phenomenon. In fact, the peak of 1.8% was achieved way back in 2001-02. The moral of the story is that India barely trades with its closest neighbours and that is, perhaps, not a good thing when it comes to economic growth.

How grave is this problem of India’s?

In 2019-20, India exported goods worth $1.04 billion to Togo (a country in West Africa). This was more than what it had exported to Afghanistan (around $1 billion), Myanmar (around $0.93 billion), or Pakistan ($0.81 billion), for that matter. As Sharma writes: “South Asia remains fenced off. Isolation, lawlessness, and the lingering bitterness produced by regional wars have made it difficult for India, Pakistan, Bangladesh, and Sri Lanka to open borders, and so far, no leader has stepped forward to ease hostilities."

What is the way out of this situation?

The learning from other countries in Asia is that all of them have been willing to drop their wartime animosities. As Sharma writes: “Rising intra-regional trade was one of the main drivers of the long economic miracles in Japan, Taiwan, South Korea, and lately China, all of which proved willing to drop old wartime animosities to cut trade deals." And that’s a lesson that India and its immediate neighbours need to learn sooner rather than later.

Vivek Kaul is the author of Bad Money.

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