Aakar Patel | If our trade with China can see a rise, why not with our neighbours?

Reserve Bank governor Shaktikanta Das said last week that the government and the RBI were in discussions with South Asian countries to enable cross-border trade in the rupee. There were no other details given, such as which countries India was in discussion with and at what stage these discussions were. Given the history, it is quite possible and perhaps likely that this won’t go anywhere. And yet, even talking about it is a good move. The reason is that we in South Asia, or undivided India to make it clearer, are damaging ourselves by refusing to trade with each other. The World Bank says that trade between South Asian nations accounts for only five per cent of the region’s total trade. To compare this, in the Asean region (comprising Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam) intra-regional trade is 25 per cent of the total, meaning five times as much. Asean has a three-point agenda when it comes to trading between each other: economic integration, adherence to multilateral trade rules and gradual elimination of all barriers.

In the European Union, in 2021, most EU nations had a share of intra-EU exports of between 50 per cent and 75 per cent. It was 78 per cent in Hungary, 80 per cent for Slovakia and the Czech Republic and 81 per cent for Luxembourg. Even after Brexit, the EU was the UK’s largest trading partner. In 2021, UK exports to the EU were £267 billion (42 per cent of all UK exports). UK imports from the EU were £292 billion (45 per cent of all UK imports).

On the other hand, trade among South Asian countries now totals just $23 billion — below an estimated current value of at least $67 billion. And most of this lost trade is our loss. Consider that with Bangladesh, of the $18 billion in current trade, India’s exports to Bangladesh are $16 billion. Exports to Pakistan as less than $1 billion and imports under $100 million.

Pakistan is an economy the size of Uttar Pradesh and Bihar, and Bangladesh is even bigger. And yet we have not done more to expand the market for our goods and services. Of course, to do this we also have to open our borders to them and this is where the problem of will lies.

The World Bank says “border challenges mean it is about 20 per cent cheaper for a company in India to trade with Brazil instead of a neighbouring South Asian country”. The challenges being referred to are quite basic. Some are understandable, like lack of infrastructure, whether through road, sea or air. The most feasible and economic route for trade with Pakistan is the land route. The only operational rail route was through the Wagah border. For the last four years, there has been no train and no air links between the two nations.

Goods from Kolkata were shipped to Karachi through Singapore. Other problems include protective tariffs.

Only 137 products were allowed through the land route to Pakistan. In 2019, India hiked customs duty on all Pakistan goods to 200 per cent after the Pulwama attack.

Still, other non-tariff barriers include issuance of visas to traders and exporters and importers. Restrictions on investments and a general suspicion have hampered trade further.

Even when the trains were running, there were problems. The numbers of wagons that can move from Attari to Amritsar are restricted. Yet another problem is payments. Letters of credit, which are guarantees from a bank that the buyer will pay the seller on time and with the right amount, issued by Pakistani banks are not accepted in India, and vice versa.

Customs clearance through e-filing is not available on the land route into India from Pakistan. They have also complained that our customs authorities create special problems, often on grounds of security, and usually goods are held up for a long time. When I last visited Pakistan through the land border, in 2014, trucks were lined up with no sign of movement.

India does not allow Pakistan transit facilities through its territory to Bangladesh and Nepal, showing that it is not just security that is a concern but the idea that we do not want to trade with Pakistan even if it means harming our exports.

This is the sort of mindset that exists and for this reason I said it is a good idea that we are thinking of more cross-border trade. The question is whether we have considered that this means two things. First, that what we take we also have to give. In the past, the taking and giving has all been negative for the most part. That is the reason why trade is so low, as the World Bank noted. The second reason is that we have to let go the mindset that we are dealing with a permanent enemy. India’s national security focus has shifted in the last two and a half years from the western border to the eastern one. But our trade with China keeps rising. This trade is against our interest, because most of it comprises of Chinese imports. China’s exports to India in January-November 2022 increased 24 per cent to $108 billion over the previous year. Our exports to China fell 38 per cent to $16 billion. But we continue to trade with them, even though it is now generally accepted by everyone, including the government itself, that our primary national security threat is China. On the other hand, we have seemingly changed our position on our other neighbours, but for some reason we have not changed our attitude.