India’s trade with countries in South Asia has remained less than 4% of its global trade since the late 1980s while China has increased its exports to the region by 546%, from $8 billion in 2005 to $52 billion in 2018, according to a new study.
The study by Brookings India, released on Tuesday, noted that South Asia remains one of the least economically integrated regions in the world. Intra-regional trade remains well below its potential, at only 5% of the region’s global trade, because of “protectionist policies, high logistics cost, lack of political will and a broader trust deficit”.
India’s regional trade growth from 1991 until 1999 was minimal, according to the study titled “India’s limited trade connectivity with South Asia”. In 2008, India’s trade with South Asian neighbours reached a decadal high of $13.45 billion. Following a dip in 2009 due to the global financial crisis, India’s trade with its neighbours doubled in the next five years, touching $24.69 billion in 2014.
The slowdown in India’s exports to South Asia in 2015 and 2016 coincided with the 13% decline in India’s global trade, from $19 trillion in 2014 to $16.5 trillion in 2015. Intra-regional trade revived in 2017, reaching a peak at $24.75 billion, and picking up further in 2018 when it rose to $36 billion, according to the study.
India’s largest export market in the region is Bangladesh, followed by Sri Lanka and Nepal, whereas the largest imports by value come from Myanmar, Sri Lanka and Bangladesh.
All countries in the neighbourhood have a trade deficit with India, the highest in 2018 being Bangladesh ($7.6 billion), followed by Nepal ($6.8 billion).
The study says that despite the growing trade volume, India’s trade with its neighbourhood has remained roughly between 1.7% and 3.8% of its global trade.
This has happened despite trade agreements such as the SAARC Preferential Trading Arrangement (SAPTA), followed by the South Asian Free Trade Area (SAFTA) agreement, as well as the Indo-Myanmar Border Trade Agreement, the ASEAN–India Trade in Goods Agreement and the Indo-Sri Lanka Free Trade Agreement.
In contrast, China has consistently increased its trade with South Asia, barring a slight dip after the global financial crisis of 2008. In 2014, China’s trade reached a high of $60.41 billion, whereas India traded approximately one-third that amount at $24.70 billion.
Though China’s trade volume with South Asia is consistently larger, excluding Pakistan reduces the gap to almost half. This gap is attributed to the China–Pakistan Free Trade Agreement signed in 2006, which increased trade significantly between both countries.
The study’s analysis of India and China’s shares in the global trade of the South Asian countries revealed only the landlocked countries (Afghanistan, Bhutan, and Nepal) had a higher trade share with India when compared to China. While exports to China from the region have been minimal, imports from China have been growing since 2012 in Myanmar, and since 2014 in the Maldives, Bangladesh, and Pakistan.
In the case of Sri Lanka, there was heavy reliance on imports from India till 2013, owing to the Indo-Sri Lanka Free Trade Agreement. However, post-2013, both India and China export at par to Sri Lanka.
“In the last two decades, China has established itself as a major trade partner of South Asia. Beyond Pakistan, China has made inroads into South Asia by becoming Bangladesh’s top trading partner in 2015, and bolstering trade and investment with Nepal, Afghanistan, Maldives and Sri Lanka. This mainly reflects the region’s strategic importance for China’s Belt and Road Initiative (BRI), particularly the smaller South Asian countries,” the study said.
The study recommended several steps to help improve India’s regional trade, including revisiting and redoubling the focus on free trade agreements, eliminating barriers and other protectionist policies, and enhancing cross-border infrastructure such as integrated check posts.
Data from World Bank’s World Integrated Trade Solution (WITS) database and the International Monetary Fund’s (IMF) Direction of Trade Statistics (DOTS) database on trade by India and China with Afghanistan, Bangladesh, Bhutan, the Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka was analysed for the study.
The study focused on India’s import and export with South Asian states from 1988 to 2018 and China’s trade with South Asia, excluding India, from 1992 to 2018.