The uncertain future of India’s economic relationship with Afghanistan

Updated on Aug 30, 2021 06:25 PM IST

The forceful capture of power in Afghanistan by the Taliban has halted all reconstruction and development works undertaken by India in the country for almost two decades

External affairs minister S Jaishankar said in March,“long-term commitment towards a peaceful, sovereign, stable and inclusive Afghanistan where the rights of all sections of the society are protected within a democratic constitutional framework.” (File photo) PREMIUM
External affairs minister S Jaishankar said in March,“long-term commitment towards a peaceful, sovereign, stable and inclusive Afghanistan where the rights of all sections of the society are protected within a democratic constitutional framework.” (File photo)
ByRajeev Jayaswal

The forceful capture of power in Afghanistan by the Taliban has halted all reconstruction and development works undertaken by India in the country for almost two decades. India, as a close neighbour, had been assisting the reconstruction and development efforts of the government and people of Afghanistan as part of the endeavour to bring stability to the country.

The search for stability and goodwill

What has India gained by its efforts in the reconstruction of Afghanistan? The intent was never economic, but instead, the stability of the region and the goodwill of Afghans. The then external affairs minister (EAM) SM Krishna in February 2010 told the Rajya Sabha: “The situation in Afghanistan is of direct concern to India, since we have an abiding interest in the stability and prosperity of that country and since we are directly impacted by developments in that region.

“India does not see assistance in Afghanistan’s reconstruction as being a zero-sum game. Our assistance programme in Afghanistan has earned us goodwill among the ordinary people there...” he added.

More than a decade later, a Cabinet minister, who did not wish to be named given the sensitivity of the situation in Afghanistan, said the crisis will not have a significant direct impact on the Indian economy or its industry, but instability in Afghanistan is not desirable for the economic development of the region.

“Bilateral trade between the two is minuscule. But, recent developments [Talibanisation] of the neighbouring nation may certainly hamper [the] Indian government’s humanitarian aid and other ongoing developmental projects in the country,” the minister said, who did not wish to be named because of the precarious situation in the neighbouring country.

According to industry and official data, India has so far completed more than 400 projects covering all 34 provinces of Afghanistan, worth billions of dollars in the reconstruction of the nation, to help the war-torn neighbour to become strong, democratic and prosperous.

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EAM S Jaishankar, in March, said India’s “long-term commitment towards a peaceful, sovereign, stable and inclusive Afghanistan where the rights of all sections of the society are protected within a democratic constitutional framework”. The EAM’s comments are still relevant for India, a government official said requesting anonymity.

The economic stakes

According to official data, India’s trade with Afghanistan is negligible, a mere 0.19% of $686.24 billion total trade in 2020-21. Bilateral trade between the two countries was only about $800 million in 2016-17. It grew to $1.52 billion in 2019-20 only to slip to $1.33 billion in 2020-21.

India’s export to Afghanistan is a minuscule 0.28% of its total exports of $291.8 billion, according to data from the commerce ministry. India exported goods worth $825.78 million in 2020-21, a year-on-year contraction of 17.22%. It imported goods worth $509.49 million in FY-21, 0.13% of India total imports of $394.43 billion that year.

The top 10 commodities India exports to Afghanistan are sugar, garments, manmade yarn and fabric, pharmaceuticals, woollens, handicrafts, manufactured tobacco, fresh fruits, spices, and iron and steel products. It imports spices, fruits and nuts, lac, gum, resins, herbal products and processed fruits and vegetables.

The possible impact

Sanjay Aggarwal, president at PHD Chamber of Commerce and Industry (PHDCCI), said that the political and economic developments in Afghanistan would not have “major ramifications” for the Indian economy as trade between the two nations is meagre.

But he added that trade between the two countries would drop significantly. “Afghanistan is a landlocked country with air route as an important medium of exports. With the restricted airspace for India in Afghanistan, the trade with Afghanistan is expected to stand still for some time,” he said.

Confederation of Indian Industry (CII) director-general, Chandrajit Banerjee, said the dedicated air freight corridor service, which started on June 19, 2017, had augmented Afghan exports to India and directly benefited the Afghan farmers and small traders and exporters.

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But CII members remain hopeful. “Agricultural products make up 65.8% of Afghanistan’s exports. Dry fruits are among its most exported agricultural products. India is one of the biggest destinations of Afghanistan’s exports as the products are imported at concessional tariffs due to a preferential trading arrangement between India and Afghanistan... The events unfolding in Afghanistan have taken place when Afghan farmers are in the process of harvesting the dry fruits for exporting to Indian markets for the upcoming festive season. Indian importers are hopeful that trade routes would reopen in time for sourcing these products for the festive season,” he added.

A spokesperson of the Associated Chambers of Commerce and Industry of India (Assocham) terms recent developments in Afghanistan as a “grave humanitarian crisis”.

“In the middle of such a crisis, it would be premature to assess the economic impact of the deteriorating geopolitical developments in Afghanistan. However, events of such a magnitude are bound to leave a deleterious impact on the economy of that country,” the spokesperson said. According to Assocham, Indian investments in Afghanistan are of a “strategic” imperative.

Indian projects in Afghanistan:

Salma Dam: One of India’s high-visibility hydropower and irrigation projects — the 42MW Salma Dam in Herat province — was completed against all odds and inaugurated in 2016. It is known as the Afghan-India Friendship Dam.

Zaranj-Delaram highway: The other high-profile Indian project was the 218-km Zaranj-Delaram highway built by the Border Roads Organisation. Zaranj is located close to Afghanistan’s border with Iran. With Pakistan denying India overland access for trade with Afghanistan, the highway is of strategic importance to New Delhi, as it provides an alternative route into landlocked Afghanistan through Iran’s Chabahar port. Over 300 Indian engineers and workers toiled alongside Afghans to build the road. According to the ministry of external affairs, 11 Indians and 129 Afghans lost their lives during the construction. Six of the Indians were killed in terrorist attacks; five in accidents. India has also built several smaller roads.

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Parliament: The Afghan Parliament in Kabul was built by India at $90 million. It was opened in 2015; Prime Minister (PM) Narendra Modi inaugurated the building. In an expansive speech about India-Afghanistan friendship, he quoted Rumi, who was born in Balkh, Afghanistan, and the immortal Yaari hai imaan mera yaar meri zindagi from the movie Zanjeer, featuring Pran in the role of Sher Khan, the Pathan. Modi described the building as India’s tribute to democracy in Afghanistan. A block in the building is named after former PM AB Vajpayee.

Stor Palace: In 2016, Afghan President Ashraf Ghani and PM Modi inaugurated the restored Stor Palace in Kabul, originally built in the late 19th century. The building housed the offices of the Afghan foreign minister and the ministry until 1965. In 2009, India, Afghanistan, and the Aga Khan Development Network signed a tripartite agreement for its restoration. The Aga Khan Trust for Culture completed the project between 2013 and 2016.

Power infra: Other Indian projects in Afghanistan include the rebuilding of power infrastructure such as the 220kV DC transmission line from Pul-e-Khumri, capital of Baghlan province to the north of Kabul, to beef up electricity supply to the capital. Indian contractors and workers also restored telecommunications infrastructure in many provinces.

Health: India has reconstructed a children’s hospital it had helped build in Kabul in 1972 — named Indira Gandhi Institute for Child Health in 1985 — that was in a shambles after the war. “Indian Medical Missions” have held free consultation camps in several areas. Thousands who lost their limbs after stepping on mines left over from the war have been fitted with the Jaipur Foot. India also built clinics in the border provinces of Badakhshan, Balkh, Kandahar, Khost, Kunar, Nangarhar, Nimruz, Nooristan, Paktia and Paktika.

Transportation: According to MEA, India gifted 400 buses and 200 minibuses for urban transportation, 105 utility vehicles for municipalities, 285 military vehicles for the Afghan National Army, and 10 ambulances for public hospitals in five cities. It also gave three Air India aircraft to Ariana, the Afghan national carrier, when it was restarting operations.

Other projects: India has contributed desks and benches for schools, built solar panels in remote villages, constructed Sulabh toilet blocks in Kabul. New Delhi has also played a role in building capacity, with vocational training institutes, scholarships to Afghan students, mentoring programmes in the civil service, and training for doctors and others.

Ongoing projects: Last November, Jaishankar announced that India had concluded an agreement with Afghanistan for the construction of the Shatoot Dam in Kabul district, which will provide safe drinking water to 2 million residents. He also announced the start of some 100 community development projects worth $80 million. Last year, India pledged $1 million for another Aga Khan heritage project, the restoration of the Bala Hissar Fort south of Kabul, whose origins go back to the 6th century. Bala Hissar went on to become a significant Mughal fort, parts of it were rebuilt by Jahangir, and it was used as a residence by Shah Jahan.

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