Trade and industry, International relations | South Asia

26 October 2021

While the Taliban has said it is willing for friendly ties to continue, India needs to protect the investments it has made in Afghanistan and take a clearer economic stance on the regime, Rahul Nath Choudhury writes.

Recent political disruption in Afghanistan has affected surrounding countries in unexpected ways. This includes India, which has a significant volume of investment in the country and has been building a flourishing trade relationship with Afghanistan in recent decades.

India holds more than three billion dollars of investment in Afghanistan, and the countries’ bilateral trade amounts to around $1.5 billion. In addition, a large volume of trade from India intended for Commonwealth of Independent States nations in Central Asia is transited through Afghanistan, and India is among Afghanistan’s top donors of foreign aid grants.

Afghanistan holds a crucial position in India’s network of trade and diplomatic relationships, but the strong ties between these two nations has been threatened by the uprooting of democratic government and the establishment of the Taliban regime in the war-ravaged country.

This is a long-standing relationship too. In March 2003, India and Afghanistan entered into a preferential trade agreement. This agreement opened a vast Indian market for Afghan products, mainly dry fruits, with substantial duty concessions, ranging from 50 to 100 per cent.

In addition, as a least developed country and a member of the South Asian Association for Regional Cooperation, Afghanistan enjoys duty-free access to Indian market under the regulations of the South Asian Free Trade Area.

Afghanistan, in turn, serves as an important market for Indian products, especially pharmaceutical products, tea, cement, and other construction materials.

More on this: Democracy Sausage: After Afghanistan

Some goods are also procured directly by Afghanistan from India under government-to-government arrangements, and India exports services, as well as products. In terms of education, a large number of Afghan students study in India, and in health services, patients from Afghanistan are often treated for life-threatening diseases in Indian hospitals.

As well as its importance economically, India has an interest in Afghanistan due to its strategic location and its significant regional connectivity. This is why Afghanistan is central to India’s New Silk Road, which is designed to connect trade, transit, and energy in the Central Asian region to South Asia, and especially India.

This is a huge reason why India has invested so much in Afghanistan, and why so much of the money has been spent on infrastructure projects, with more than 400 underway across the country.

These include the 218 kilometre long Zaranj-Delaram Highway, the laying of electricity transmission lines from the Uzbek border to Kabul over the Hindu Kush mountains as part of the multi-country, multi-agency Northeast Power System, the Afghan-India Friendship Dam, and even the construction of the Afghan Parliament building.

More on this: India’s expanding security sphere

India also funded several community-level projects, such as by contributing to power infrastructure, healthcare, power, telecommunications, and transportation projects in Afghanistan. Numerous health centres have been built in border provinces of Afghanistan with Indian funds and, to develop transportation facilities in various Afghan cities, India gifted the country 400 buses and 200 mini-buses.

Clearly, India’s deep engagement in Afghanistan leaves it likely to invest in its restoration process, but these developments are under a cloud of uncertainty with the Taliban returning to power, and the government must create whatever certainty it can.

Already, Indian companies have faced danger, even allegedly stretching to the kidnapping of two employees of an Indian firm. Many Indian companies in the country have recalled their employees.

Although the Taliban has announced its plan to continue trade and diplomatic ties with India, given the current situation it is difficult to imagine how India can maintain the economic ties it built with post-2001 Afghanistan.

Changes in foreign policy would certainly affect trade relations, but at this stage, India needs to step up and make its stance on the Taliban government clear to introduce some certainty for Indian companies and investments.

Of course, this is no easy task. It is unclear if the Taliban is genuinely unlikely to disrupt Afghanistan’s ongoing friendly ties with India, and if it is willing and able to protect Indian investments and other important development and reconstruction works. Ultimately though, with so much at stake, India needs a clear economic stance on investment in Afghanistan now that the Taliban has come to power.

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