Will India’s decades of goodwill in Afghanistan vanish overnight?

Photo: Reuters
Photo: Reuters


The political crisis in Kabul will impact our multifaceted interests in that country and also hamper trade with Central Asia

India has always been a strong proponent of an Afghan-led, Afghan-owned, broad-based and inclusive process of peace and reconciliation in Afghanistan. However, a collapse of the Afghan government and return of the Taliban marks the beginning of a new phase in the India-Afghanistan relationship.

India’s trade and investment with c:

Given the geographical proximity and historical linkages, India should be a natural trading partner for Afghanistan. Bilateral trade ties have, nevertheless, stayed below their potential due to the landlocked mountainous terrain of Afghanistan and the difficulty of land transit via Pakistan. However, the launch of a dedicated air-freight corridor and operationalization of the Chabahar Port in Iran in 2017 gave a much-needed impetus to trade. India’s untapped export potential in Afghanistan is estimated at $825.9 million. India has a significant comparative advantage and thus export potential in pharmaceutical products and transport vehicles, apart from apparel, etc.

It is pertinent to note that in the post-Taliban era, India’s merchandise trade with Afghanistan witnessed a 20-fold increase (since 2002). In 2017, bilateral trade crossed the $1 billion mark, and in 2020, it was estimated at $1.4 billion. Sugar and sugar confectionery, man-made filaments, apparel and pharmaceutical products are India’s top items of export to Afghanistan. Trade is tilted in favour of India, which has consistently maintained a trade surplus with Afghanistan. It was estimated at $344 million in 2020.

India and Afghanistan signed a strategic partnership agreement in October 2011. This provided Afghanistan with assistance in rebuilding its infrastructure and institutions. The construction of Afghanistan’s parliament building, restoration of its Stor Palace, rebuilding of Habibia High School and reconstruction of its Salma dam, now known as the Afghan-India Friendship Dam, are among the various projects carried out by India. These projects stand as testimony to India’s participation in the development of Afghanistan.

As of November 2020, India’s development portfolio in Afghanistan amounted to $3 billion, with over 400-plus projects covering all 34 of its provinces. India also provides assistance to Afghan nationals under its Indian Technical and Economic Cooperation (ITEC) and Indian Council for Cultural Relations (ICCR) programmes, thus helping the country realize its development potential by aiding the skill development of its human resources. So far, more than 65,000 students have studied in India under various scholarships, and there are 15,000 such students presently.

Afghanistan at the crossroads of South Asia and Central Asia: India sees Afghanistan as a gateway to Central Asia, as the country offers access to Central Asian energy markets and connectivity projects. India’s complex relationship with its immediate neighbour to the north-west and the recent border standoff with China imply that roundabout routes must be found to reach broader markets in Central Asia. In the past, Pakistan has denied India a trade route to Afghanistan (and beyond) through the Wagah border crossing in Punjab and the Khyber Pass. However, in 2020, thanks to its commitment under the Pakistan-Afghanistan Transit Trade Agreement (APTTA), Pakistan provided Afghan traders access to its Wagah border with India, thus allowing Afghan exports to reach India. The agreement, however, does not allow Indian goods to be loaded onto merchandise carriers in their transit back to Afghanistan.

The Chabahar Port provides an alternate route for trade between India and Afghanistan. Thus, despite US sanctions on Iran, India received a waiver to develop this Arabian Sea port and an associated railway line to Zahedan in Iran by demonstrating that this was a way to economically support the landlocked territory of Afghanistan. Among the port’s propositions was that it would provide Afghanistan access to the open seas, reduce the cost of logistics through efficiency, create a reliable and safe transport corridor, and enable unhindered trade between the countries. India’s Trilateral Treaty with Iran and Afghanistan, aims to develop the port into a regional trade hub, for which India agreed to provide a credit line of $150 million through the Export Import Bank of India in 2016. Currently, India is engaged with Iran on the modalities of executing the 600km railway line from Chabahar to Zahedan located near a tri-junction of Iran, Afghanistan and Pakistan.

In March 2021, India proposed the extension of membership to Afghanistan and Uzbekistan in the International North South Transport Corridor (INSTC) project and envisaged an ‘eastern corridor’ comprising a land route between Kabul and Tashkent (in Uzbekistan). India has also suggested the inclusion of Chabahar Port in the INSTC route. The completion of this project will help India increase the scope of trade multifold and could yet act as a game changer in India’s Eurasia and Central Asia trade policy.

India’s hanging-fire interests in Afghanistan: India has made significant investments in Afghanistan and needs patience in protecting its existing trade, investment and strategic interests in the country. Given the currently fragile security conditions in Afghanistan, India is faced with an increased risk of losing its strategic significance in the region to other regional powers, like China, which has invested heavily in Pakistan through its strategic Gwadar Port (part of the China Pakistan Economic Corridor), and even Iran, with its $400 billion in investments under its 25-year bilateral pact (and eye on Chabahar Port). Beijing has been on an investment spree under its Belt and Road Initiative.

With a Taliban takeover now a reality in Afghanistan, India is left with limited options to protect its interests there. These, however, remain important for India to expand its strategic horizon beyond South Asia to Central Asia at large.

Alfiya Ansari & Akshay Dutta are economists with India Exim Bank. These are the authors’ personal views.

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