Context: India’s goods exports to neighbours fell to 7% in 2019-20, reflecting the extent of our deteriorating relations with some neighbours.

India’s trade relations with its major neighbouring countries- Bangladesh, Nepal, Sri Lanka, Afghanistan, Myanmar, and Pakistan

  • In 2019-20, India’s exports stood at $21.87 billion or around 7% of the overall goods exports of around $313 billion. It had stood at 6.7% in 2003-04 so there has been slow progress over the years.
  • In 2019-20, just 0.8% of the overall goods imports to India came from neighbouring countries. The peak of 1.8% was achieved way back in 2001-02.

Hindrances in improving trade relations: 

  • Closed South Asia: Isolation, lawlessness, and the lingering bitterness produced by regional wars have made it difficult for India, Pakistan, Bangladesh, and Sri Lanka to open borders for trade.
  • Trade barriers: Para-tariffs, high logistical costs, inadequate infrastructure, and high informal trade, other non-tariff barriers (NTBs) have hampered the trade.

Significance of trade with neighbours: 

  • Cluster based economic growth
    • 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. 
  • Creation of new opportunities:
    • Enhancing intra-regional trade is necessary to increase connectivity in the South Asian region
    • Facilitated by the flow of goods, services, people, and knowledge, such an initiative would provide access to new markets as well as attract foreign direct investment (FDI) in diverse sectors.
  • Enhancing trade in the South Asian region is also strategically important in order to integrate India with the global economy.

Way forward:

  • Dropping wartime animosities: India and its immediate neighbours should not make war history to hamper their economy and forge trade deals.
    • 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.
  • Regional integration in South Asia requires addressing several Non-Tariff Barriers (NTBs) and further reduction of the “sensitive lists” maintained by countries to ensure the effectiveness of trade agreements. 
    • Furthermore, good practices from other regions must be tailored to the South Asian context to facilitate the resolution of reported barriers to trade.