appraisal of india’s bilateral trade …icmrr.org/global/pdffiles/ijfrr/f201608008.pdfappraisal of...

APPRAISAL OF INDIA’S BILATERAL TRADE RELATIONSHIP

WITH SAARC COUNTRIES

G. REVANTH KUMAR 1 KESHAB POKHAREL

2

1 BBA Faculty, Nizam College, Basheerbagh, Hyderabad, India

2 Student from Nepal, BBA Graduate, Nizam College, Basheerbagh, Hyderabad, India

ABSTRACT

South Asian Association of Regional Cooperation (SAARC) completed three decades in 2015. Since

its formation in 1985, it has not only built the political relationship between the member countries but

also changed the growing intra-industry trade composition which has improved throughout the time.

The trade factors show that the export patterns of major SAARC countries are significantly the same,

reflecting that they are competing with each other in same industry groups in the international market.

This not only benefits South Asia but also the rest of the world as the region.

Despite the meetings and summits conducted by SAARC at various levels regularly, it has only made

modest progress in achieving its regional goals. There are several reasons for lower performance

which vacillates the ideology of SAARC formation. Successful regionalism, collaboration in

emoluments was seen to be missing. lack of trust, prevalence of domestic political reflection and a

strong sensitivity towards supremacy has prevented collective actions. India, largest economic

member has relative trade advantage in many industries than other member countries holding a

position in influencing the major decisions. This paper attempts to analyze the trade composition

between India and SAARC countries. A brief analysis of trade relation of SAARC countries with

respect to India has been presented, identifying the opportunities and challenges for regional

economic integration in the region.

INTRODUCTION

In today's world no nation exists in economic isolation. A nation's economy, its industries, service

sectors, levels of income and employment and living standards are linked to the economies of its

trading partners. The benefits of international trade accrue in the forms of lower domestic prices,

development of more efficient methods and new products and a greater range of consumption choices.

In an open trading system, a country will import those commodities that it produces relatively at a

higher cost. Since resources are channeled from uses of low productivity to that of high productivity,

gains from trade are attained permitting higher levels of consumption and investment.

Over the past 20 years, world trade has grown twice as fast as real GDP deepening economic

integration and raising living standards. The role of foreign trade in economic development is

considerable and both are intimately connected. Trade can stimulate growth if exports are increasing

faster than imports or be a brake on growth. However, it is generally accepted that the gains to a

nation from free international trade may more than outweigh the losses to particular domestic firms

and workers. Although free trade is often strongly advocated, many countries believe that the

expansion in trade is best accomplished through the establishment of Regional Economic Association

(REA) / Integration (REI). However, the emerging WTO regime has in no way undermined the

process of regionalism. It has wide ranging implications for the global economy.

The South Asian Association for Regional Co-operation (SAARC) comprises of eight countries of

South Asia. i.e., Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEWISSN:2321-0354 - ONLINE ISSN:2347-1654 - PRINT - IMPACT FACTOR:1.552VOLUME 4, ISSUE 8, AUGUST 2016

www.icmrr.org 79 [email protected]

SAARC is a manifestation of the determination of the people of South Asia to work together towards

finding solutions to their common problems in a spirit of friendship, trust and understanding and to

create an order based on mutual respect, equity and shared benefits. The primary objective of the

Association is the acceleration of the process of economic and social development in member states,

through collective action in agreed areas of co-operation.

South Asian nations have not only a shared culture and a common history, but also, a common destiny

in the 21st century. South Asia constitutes 3.4% of world area, but houses over 24% of the world's

population. South Asia also makes an integrated condominium of common rivers, mountain system,

ocean and a conjoint ecological system.The region suffers from massive balance of payments burden,

mass unemployment, high population growth rate, large concentration of poverty, low rate of

economic growth, constant food shortage, worsening terms of trade, largely illiterate, considerable

malnourished, and also the least gender sensitive region of the globe.

Due to the growing protectionist tendencies in the international market and the increasing competition

among suppliers, particularly in the developing world, the need to evolve feasible strategies for

regional economic co-operation in South Asia is becoming more and more apparent, which is evident

from the recent tempo of activities. Such regional economic cooperation is considered feasible

because intra-regional, historical, cultural, geographical and developmental commonalities are much

stronger than intra-regional differences in political and economic structures and perspectives. Besides,

the sub continental economy of the South Asian region offers potentially vast and undeveloped

markets, and is blessed with huge endowments of material and human resources. Against this

background, the present study attempts to review the trade structure among SAARC countries and to

indicate a few areas for future co-operation.

OBJECTIVES OF THE STUDY

To analyze the trends in India's aggregate exports and imports for the period 2005 to 2015.

To analyze the latest development in SAARC and identify critical issues.

To make recommendations to improve and consolidate India's trade with SAARC countries.

PLAN OF THE STUDY

The total paper has been divided into 2 parts.

Part A Relationship among SAARC countries and the Role of India in SAARC and country wise

relations of India with the SAARC countries.

Part B Provides Latest Developments, Critical Issues, suggestions and conclusions.

PERIOD OF STUDY

The study has been conducted for the period of 10 years i.e. from 2005 to 2015

SCOPE OF STUDY

The study concentrates only on the role of India in SAARC, the exports and imports between the

SAARC countries with respect to India discussing the recent developments and the decisions taken in

the latest 18th summit of SAARC.

SOURCE OF DATA

The data considered for this project is Secondary data. The data collected is from the government

websites, research journals, books, new letters and internet also.



PART - A

REVIEW LITERATURE

The existing literature on the subject provides mixed responses on the implications of different rounds

of treaty on regional trade. It is noted that a limited number of studies have been conducted on the

subject and few of them are selected and reviewed. It is of general nature and consists of all those

studies, which examine the association between trade and development/economic growth in SAARC.

It also deals with the studies those connected with the prospect of trade expansion in SAARC region.

Some of the studies, are connected with the intra-SAARC trade, the prospects of trade liberalization in

South Asia and a general overview of SAARC's achievement

Raj Pandey examined the prospects of Trade Expansion in the SAARC region. The Association was

set up to accelerate the process of economic, social and cultural development and promote and

strengthen collective reliance through joint action in certain agreed areas of co-operation. His

conclusion is that though the trade performance of the region and the countries individually has been

quite impressive (they achieved far higher rates of export growth during the 1986-87 period than the

developing countries) they have experienced huge and progressively increasing trade deficits which

may partly explained by their inability to create export surplus and partly because of a weak world

growth environment. He uses the trade intensity index to measure the extent to which one country's

share in another country's exports (imports) is larger or smaller in relation to the former. The major

conclusion emerging from the above analysis is that the fundamental cause for the existing low level

of intra-regional trade is the presence of low degree of complementarities m the production and trade

structures of the countries of the region.

N.N. Dhuldaya remarked that no South Asian country would be able to enjoy the fruits of

development if it did not join hands with others in the region. Further, there would also be a

possibility of other well-grayed countries from outside the regional shaping the destinies of ungrouped

ones. He stated that a set of guiding principles, the complementarities of interests, subsidiary of

functions, identification of specific areas of inter-regional co-operation and mutual understanding on

international trade in terms of common interest would help,. Further, according to him there would

also be freedom of operation across physical front to get the most out of available resources. As

reported in the Financial Express, SAARC has made remarkable progress in terms of preparing a

comprehensive regional study on the "causes and consequences of natural disasters and the protection

and preservation of the environment". The committee on Environment, which was subsequently

established, is fully engaged in the task of translating the recommendations of the study into concrete

programs and activities.

A.R. Kemal examined the prospects for trade development in South Asia. He comments that the low

level of trade among South Asian countries is very disturbing. It is often seen that when a South Asian

country is importing a certain product from outside the region, the same product is being exported by

a neighboring South Asian country to countries other than those of the region. The factors responsible

for this he cites are differences in specifications, resource constraints, communication gaps and

restrictive trade policies.

According to the study made by the Research and Information System! Expansion of trade between

the SAARC countries has more profound economic basis than achievement of regional self-reliance.

The study says, "Potential for expanding economic co-operation among regional countries, remains

largely untapped". Potential areas of intra SAARC trade identified by the study include iron ore,



natural rubber, tea and coffee among primary commodities and minerals. Major areas for joint

ventures and technology transfer include food processing industries, textiles and other products,

metals and allied products, electrical equipment and machinery, chemicals, plastic products and

energy. L.P. Srivastava, in his study, comments that economically South Asian nations have many

things in common and are agriculturally and industrially better developed than many other developing

regions. Their strong point is adequate trained manpower to usher in a factor pace by economic and

industrial co-operation.

Kanesalingam studied a general overview of SAARC's achievement. His argument is that while the

task of strengthening and consolidating the SAARC process is mainly that of all the seven nations,

India has no doubt a predominant role in this regard. His opinion is that the Association's contribution

to regional development would emerge as a by-product of a political process that will be successful

only if the countries believe that they derive political benefits from participation. The realization of

these political correlations is a challenge, which SAARC has to face now and in the decades ahead.

I.N.Mukherji presented a regional synthesis. It is argued by the author that the prospects and

possibilities of trade expansion at any regional level cannot be properly assessed without first

analyzing the role that foreign trade plays in the national economies of the regional countries. It is in

this context that the existing trends in composition, structure and direction of foreign trade at the

global level is examined. The conclusions are that foreign trade plays an important role in the

economies of South Asian countries. The small island economies of Maldives and Sri Lanka are much

more dependent on foreign trade for their development than the larger mainland countries such as

India, Bangladesh and Pakistan. Intra South Asian trade accounts for marginal share of the total of

South Asian countries. All South Asian countries have high geographic concentration of trade. The

commodity concentration of trade is also high in South Asian countries. The article suggests that the

main objective of South Asian countries should be to deliberately create a new patter of

complementarities in their production structure on the basis of which new lines of trade will be

created. Joint venture collaboration of various sectors of industries offers a good opportunity for

expansion of trade among collaborating countries. The author points out that the impact of trade

liberalization is likely to be greatest in manufacturing sector. It is not only likely to increase demand

for current trade products but also new products. Further to the extent that trade liberalization helps in

the expansion of intra-regional trade, employment opportunities will also improve in the region.

Kaur and Nanda, has calculated India‘s export potential to other SAARC nations (Bangladesh,

Bhutan, Maldives, Nepal, Pakistan and Sri Lanka) with the help of gravity model of exports using

panel data methodology by taking time period 1981-2005. The study indicates that among SAARC

countries, export potential of India exists for Bhutan, Pakistan, Maldives, and Nepal. India is the only

SAARC member that shares land border with four members and sea border with two. No other

SAARC country has a common border with each other. India is a source of potential investment and

technology and a major market for products from all other SAARC members countries. Therefore, it

is essentially in India‘s interest to put her weight behind SAARC.

I. ROLE OF INDIA IN SAARC

India has always considered regional cooperation as an important aspect of its foreign policy. The

search for a larger Asian identity and role was integral to India's freedom struggle from the start.

No doubt India stands out in Asia apparently because of the size of its population, military, economic

growth, and its growing interest in playing a role in international affairs. For instance, India accounts

for 75% of the population of South Asia, 65% of its total area and 78% of its Gross Domestic Product



(GDP). In terms of location, India also has centrality in South Asia, in that while it has borders with

Pakistan, Nepal, Bhutan, Bangladesh and Sri Lanka, they do not have borders with each other. This

gives India regional advantages as well as disadvantages as the smaller states either try to obstruct or

counterbalance India or seek countervailing external help from outside the region from countries such

as the Republic of China.

Given the size of India and her position in Asia, its vision of regionalism has sought to situate the

country in a landscape larger than the Indian subcontinent. While India's clearest regional setting and

strong sense of identity is within its immediate neighborhood of South Asia, and thus its expected role

in the regional structure there, that is the South Asian Association of Regional Cooperation (SAARC).

India is one of the founding member nations of SAARC, or the South Asian Association for Regional

Cooperation, and is the home of two regional centers within the organization, the SAARC

Documentation Centre and the SAARC Disaster Management Centre. Additionally, according to the

official SAARC website, India holds a permanent seat on the SAARC Board of Directors, and Indian

representatives have twice served as secretary general of the organization.

India has been a member of SAARC consistently since the organization's beginnings, and Indian

representatives were heavily involved in drafting the charter that all the nations eventually signed.

India also frequently plays host to SAARC committee members when they meet for organizational

summits. For example, the 1986 summit, in which the duties of the SAARC secretariat were revised

and expanded, was held in Bangalore, India. In 2007, the 14th SAARC Summit was held in Delhi,

India. This summit was notable because it marked the first time a new country was invited to become

a member of SAARC when representatives from Afghanistan signed the charter.

"Deeper Integration for Peace, Progress and Prosperity.‖ The agreement on South Asian Free Trade

Area (SAFTA) has led to a scaling up of intra-regional exports to about US$ 22 billion in 2013 from

US$ 10 billion in 2006, but experts say this is just the tip of the iceberg. The best is yet to come, and

India is expected to proactively join efforts with other countries for actualizing the vision of a South

Asia Economic Union. The economic union envisages greater trade liberalization, the development of

cross-border trade infrastructure and the removal of non-tariff barriers, which is hindering the free

movement of goods and services in the region. With the new government looking to make India a

manufacturing powerhouse, it is expected to push for creating new cross-border production networks

and joint manufacturing projects. India should also be pushing for proactive implementation of the

SAARC agreement on services as the long-range goal of creating a seamless economic space in the

region can only be achieved by free movement of not just goods, but through the liberalization of

services and the free movement of professionals. Intensifying energy cooperation will be another key

priority. In this context, the SAARC summit was also aimed to seal a pact on energy-sharing, a

defining agreement that could pave the way for opening new pathways of economic cooperation

among countries of the region.

With the SAFTA Agreement coming into force, India unilaterally announced that before the end of

2007, India would allow the LDC countries of SAARC duty free access to its markets, and India will

also further reduce the Sensitive List of SAFTA for these countries. In pursuance of this, India has

notified tariff reductions to zero per cent for SAARC LDC countries under SAFTA, with effect from

1st January, 2008. India has also reduced its Sensitive List under SAFTA for these countries from 744

items to 480 items.



0.00

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion

Export Import

Figure 1.1

India‘s Export and Import to SAARC countries

Figure 1.2

Growth rate of India‘s Export and Import to SAARC countries

-20

-10

0

10

20

30

40

50

60

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Export Import

Source:Government of India, Ministry of Commerce

II. Country wise Relationship between India and SAARC Countries

2.1 INDIA – AFGHANISTAN

India & Afghanistan signed the Preferential Trade Agreement on March 6, 2003 in New Delhi. This

agreement would remain in force till either party gives to the other a notice for its termination. Under

the Agreement, India has granted preferential tariff for 38 products from Afghanistan including

Raisins, Dry Fruits, Fresh Fruits and Spices whereas Afghanistan granted preferential tariff to 8 items

from India including Tea, Antisera and Medicines, Refined Sugar, Cement Clinkers and White

Cement. Afghanistan was inducted as the eighth member of SAARC during the Fourteenth SAARC

Summit held in New Delhi on 3-4 April 2007. In November 2011, India removed basic customs

duties for all products of Afghanistan (except alcohol and tobacco) giving them duty free access to the

Indian market. India is one of the major export destinations of Afghanistan's goods with.



Table 2.1

India‘s Bilateral Trade with Afghanistan (Values in US $ Million)

YEAR EXPORT IMPORT TOTAL TRADE TRADE

BALANCE

2005-06 142.67 58.42 201.09 +84.25

2006-07 182.11 34.37 216.48 +147.74

2007-08 249.21 109.97 359.18 +139.24

2008-09 249.21 109.97 359.18 +139.24

2009-10 394.23 126.24 520.47 +267.99

2010-11 422.41 146.03 568.44 +276.38

2011-12 510.90 132.50 643.41 +378.40

2012-13 472.63 159.55 632.18 +313.7

2013-14 474.34 208.77 683.1 +265.57

2014-15 422.56 261.91 684.47 +160.65

Source: Government of India, Ministry of Commerce

Figure 2.1- India –Afghanistan Bilateral Trade

0

100

200

300

400

500

600

700

800

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion

EXPORT IMPORT TOTAL TRADE TRADE BALANCE


India‘s bilateral trade with Afghanistan stood at $684.47 million in 2014-15, an increase of 0.20

percent over US$683.10 million a year earlier, and 20.41 per cent higher than US$ 568.44million in

2010-11. India‘s exports to Afghanistan stood atUS$ 422.56 million in 2014-15, while its imports

from that country were worth US$ 261.91 million. India‘s trade with Afghanistan has increased

substantially from US$ 201 million in 2005-06 to US$ 684 million in 2014-15. Despite the lack of

direct land access, India is the second-largest destination for Afghan exports. The trend in trade

between India and Afghanistan is given in Table 2.1 and figure 2.1



2.2 INDIA – BANGLADESH

The Bilateral Trade Agreement between India and Bangladesh has been renewed from time to time

for expansion of trade and commerce. With Bangladesh, relations have improved significantly over

the last few years. The dialogue has yielded benefit for the both countries in favour of trade

&commerce, connectivity, easier transit, development, enhancement of mutual security, cooperation

against insurgency and terrorism. There is enhanced mutual trust and confidence that is oxygenating

relationship between India and Bangladesh. Under SAFTA Agreement, India remained committed to

reduce its tariffs to 20% for LDCs in two years after the commencement of SAFTA. Bangladesh was

the biggest beneficiary country of the reduction in India‘s sensitive list from 744 items in 2006 to the

current list of just 25 items.

Table 2.2 - India‘s Bilateral Trade with Bangladesh (Values in US $ Million)


India's trade with Bangladesh has witnessed rapid growth in recent years. India is likely to emerge as

the largest trading partner in the coming years, overcoming china. Bilateral trade between India and

Bangladesh stood at US$ 7 billion in 2014-15 with India's exports at US$ 6.4 billion and imports

from Bangladesh at US$ 621 million, representing about double the value of US$ 3.6 billion five

years ago. India‘s trade with Bangladesh has increased substantially from US$ 1791 million in 2005-

06 to US$ 7072 million in 2014-15. The trend in trade between India and Bangladesh is given in

Table 2.2 and figure 2.2

Figure 2.2 - India –Bangladesh Bilateral Trade

0

2000

4000

6000

8000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion



YEAR EXPORT IMPORT TOTAL TRADE BALANCE OF TRADE

2005-06 1664.36 127.03 1791.39 +1537.33

2006-07 1629.57 228.00 1857.57 +1401.57

2007-08 2923.72 257.02 3180.74 +2666.7

2008-09 2497.87 313.11 2810.98 +2184.76

2009-10 2433.77 254.66 2688.43 +2179.11

2010-11 3242.90 446.75 3689.66 +2796.15

2011-12 3789.20 585.73 4374.93 +3203.47

2012-13 5144.99 639.33 5784.31 +4505.66

2013-14 6166.93 484.34 6651.27 +5682.59

2014-15 6451.47 621.37 7072.84 +5830.10



2.3 INDIA- BHUTAN

India is Bhutan‘s largest trading partner. A free trade regime exists between India and Bhutan. The

India-Bhutan Trade and Transit Agreement was first signed in 1972. 2006 was the last time that this

Agreement was renewed, for a period of 10 years. Under this Agreement India also provides transit

facilities to landlocked Bhutan to facilitate its trade with third countries and movement of good from

one part of Bhutan to another through Indian Territory. The requirements of Bhutan are mainly met by

imports from India.

Bilateral trade between India and Bhutan stood at US$ 483.81 million in 2014-15 with India's exports

at US$ 333.94 million and imports from Bhutan at US$ 149.87 million. Bilateral trade was at peak at

US$ 507.77 million in 2013-14. India‘s trade with Bhutan has increased substantially from US$

187.94 million in 2005-06 to US$ 483.81 million in 2014-15. The trade trend between India and

Bhutan is given in Table 2.3 and figure 2.3

Table 2.3 - India‘s Bilateral Trade with Bhutan (Values in US $ Million)


Figure 2.3- India –Bhutan Bilateral Trade

-200

-100

0

100

200

300

400

500

600

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion



YEAR EXPORT IMPORT TOTAL

TRADE TRADE BALANCE

2005-06 99.17 88.77 187.94 +10.4

2006-07 57.66 142.05 199.71 -84.39

2007-08 86.74 194.72 281.64 -107.98

2008-09 111.15 151.79 262.94 -39.93

2009-10 118.86 153.11 271.97 -32.93

2010-11 176.03 201.57 377.60 -25.54

2011-12 229.86 222.55 432.41 +27.30

2012-13 233.22 164 397.22 +69.22

2013-14 355.6 152.17 507.77 +203.43

2014-15 333.94 149.87 483.81 +184.08



2.4 INDIA – MALDIVES

The Bilateral Trade Agreement was signed between India and Maldives on 31st March, 1981. It will

remain in force until it is modified or terminated by either country. Even after three decades of

bilateral agreement, bilateral trade is not commensurate with its true potential. The Agreement

provides for Most Favoured Nation (MFN) treatment to each other in trade and merchant vessels,

promotion of commercial and technical cooperation through exchange of delegations and participation

in trade fairs and exhibitions and supply of essential commodities by Government of India to

Government of Maldives on annual quota. All payments between India and Maldives are in freely

convertible currency, subject to their foreign exchange regulations.

Table 2.4 - India’s Bilateral Trade with Maldives (Values in US $ Million)


Growing from modest beginnings, India-Maldives bilateral trade now stands at US$ 156 million in

2014-15 with India's exports at US$ 152.38 million and imports from Maldives at US$ 4.32

million.Maldives export to India increase substantially in 2010-11 amounting US$ 31million.

However it decreased by 40 percent in 2011-12. Currently, the trade balance is heavily in India's

favour. India's share in the bilateral trade is around 99 percent of the total trade. India is the Maldives

third largest trading partner. The trend in trade between India and Maldives is given in Table 2.4 and

figure 2.4.

Figure 2.4 - India –Maldives Bilateral Trade


0

50

100

150

200

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion

s



TRADE

TRADE

BALANCE

2005-06 67.58 1.98 69.56 +65.6

2006-07 68.68 3.05 71.73 +65.63

2007-08 89.72 4.15 93.87 +85.57

2008-09 127.91 3.97 131.88 +123.94

2009-10 79.86 3.63 83.49 +76.23

2010-11 100.14 31.38 131.52 +68.76

2011-12 124.60 18.89 143.49 +105.71

2012-13 122.36 6.29 128.65 +116.07

2013-14 106.07 3.97 110.05 +102.1

2014-15 152.38 4.32 156.7 +148.06



2.5 INDIA- NEPAL

The bilateral mechanism for trade and transit is provided by the India-Nepal Treaties of Trade, of

Transit, and Agreement for Co-operation to Control Unauthorised Trade, 1991. The Trade Treaty

valid for seven years was signed on November 27, 2009, and will be automatically renewed for

another seven years. Under the Agreement, India provides, on a non-reciprocal basis, duty free access

into the Indian market all products which were manufactured in Nepal on the basis of certificate of

origin (COI) issued by the Nepali authorities with no minimum requirement of domestic value

addition., barring 3 items in the negative list (cigarettes, alcohol and cosmetics) and 5 items with

quantitative restrictions. Agricultural products are traded both ways without tariffs.

Table 2.5 -India’s Bilateral Trade with Nepal (Values in US $ Million)


The India-Nepal Treaty of Transit, renewed every seven years, provides for port facilities to Nepal at

Kolkata and specifies 15 transit routes between Kolkata and the India-Nepal border. For bilateral

trade, 22 entry/exit points are provided along the Indo- Nepal border. Bilateral trade between India

and Nepal stood at US$ 5.19 billion in 2014-15 with India's exports at US$ 4.5 billion and imports

from Nepal at US$ 639 million, representing about double the value of US$ 2.5 billion five years

ago.India’s trade with Nepal has increased substantially from US$ 1.2 billion in 2005-06 to US$ 5.19

billion in 2014-15. The trend in trade between India and Nepal is given in Table 2.5 and figure 2.5

Figure 2.5- India –Nepal Bilateral Trade


0

1000

2000

3000

4000

5000

6000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion



TRADE TRADE BALANCE

2005-06 859.97 379.85 1239.82 +480.12

2006-07 927.40 306.02 1233.42 +621.38

2007-08 1507.42 628.56 2135.98 +878.86

2008-09 1570.15 496.04 2066.19 +1074.11

2009-10 1533.31 452.61 1985.92 +1080.70

2010-11 2186.06 513.40 2681.47 +1654.66

2011-12 2721.57 549.97 3271.54 +2171.59

2012-13 3088.84 543.10 3631.94 +2545.73

2013-14 3592.30 529.93 4122.23 +3062.37

2014-15 4558.77 639.91 5198.68 +3918.86



http://www.nepalembassy.in/treaty-of-transit.htm

2.6 INDIA – PAKISTAN

India and Pakistan have no formal trade agreement. India has granted MFN status to Pakistan but

Pakistan is yet to reciprocate. Pakistan maintains a list of importable items from India, called Positive

List, as notified from time to time. The present Positive List consists of 1938 items. Both countries

have set up a Joint Study Group (JSG) at Commerce Secretary Level for adopting a strategy to boost

trade and economic cooperation between the two countries. Formal trade between the two countries

due to tariff barriers and quota problems is not significant; significance is diminishing year after year.

The reason for diminishing India Pakistan bilateral trade significance may be attributed to informal

trade between the two countries. Informal trade between India-Pakistan is generally done (1) re-

routing trade through a third country and (2) illegal trade through land borders. The informal trade

between India and Pakistan is estimated at more than US$3bn which could be brought into the

mainstream through better trade facilitation measures.

Table 2.6 - India’s Bilateral Trade with Pakistan (Values in US $ Million)


Figure 2.6 -India –Pakistan Bilateral Trade


Bilateral trade between India and Pakistan stood at US$ 2.3 billion in 2014-15 with India's exports at

US$ 1.8 billion and imports from Pakistan at US$ 497.31 million. India’s trade with Pakistan has

increased substantially from US$868.79 million in 2005-06 to US$ 2354.49 million in2014-15. The

trend in trade between India and Pakistan is given in Table 2.6 and figure 2.6.

0

500

1000

1500

2000

2500

3000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion


YEAR EXPORT IMPORT TOTAL TRADE TRADE BALANCE

2005-06 689.23 179.56 868.79 +509.67

2006-07 1350.09 323.62 1673.71 +1026.47

2007-08 1950.53 287.97 2238.50 +1662.56

2008-09 1439.88 370.17 1810.05 +1069.71

2009-10 1573.32 275.94 1849.26 +1297.38

2010-11 2039.53 332.51 2372.05 +1707.02

2011-12 1541.56 397.66 1939.21 +1143.90

2012-13 2064.79 541.87 2606.66 +1522.92

2013-14 2274.26 426.88 2701.15 +1847.38

2014-15 1857.18 497.31 2354.49 +1359.87



2.7 INDIA – SRI LANKA

Sri Lanka has traditionally been an important export market for India. India is Sri Lanka’s largest

trading partner globally, while Sri Lanka is India’s second largest trading partner in the SAARC.

India-Sri Lanka Free Trade Agreement (ISFTA) was signed on 28th December, 1998, which has been

in operation since 1st March, 2000. Under this Agreement, both countries agreed to phase out trade

tariffs from each other within a fixed time frame except for those items in the Negative List of each

other. A Joint Study Group (JSG) was set up in April, 2003 to widen the ambit of ISFTA to go

beyond Trade in Goods to include Services and to facilitate greater investment flows between the two

countries. Report of JSG was submitted in October, 2003. Based on the recommendation and

conclusion of the JSG, negotiations for a Comprehensive Economic Partnership Agreement (CEPA)

were started in February, 2005 and concluded in July 2008, after 13 rounds. Both sides had agreed to

sign the CEPA during the 15th SAARC Summit held in Colombo in 2008. Bilateral trade between

India and Sri Lanka stood at US$ 7.5 billion in 2014-15 with India's exports at US$ 6.7 billion and

imports from Sri Lanka at US$ 756.17 million.India’s trade with Sri Lanka has shown marked

increase from US$ 2.6 billion in 2005-06 to US$ 7.4 billion in 2014-15. The trend in trade between

India and Sri Lanka is given in Table 2.7 and figure 2.7.

Table 2.7- India’s Bilateral Trade with Sri Lanka(Values in US $ Million)


Figure 2.7- India –Sri Lanka Bilateral Trade


0

1000

2000

3000

4000

5000

6000

7000

8000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

US$

mill

ion


YEAR EXPORT IMPORT TOTAL TRADE TRADE BALANCE

2005-06 2024.67 577.70 2602.37 +1446.97

2006-07 2258.30 470.33 2728.63 +1787.97

2007-08 2830.43 634.96 3465.39 +2195.47

2008-09 2425.92 356.57 2782.49 +2069.35

2009-10 2188.01 392.19 2580.20 +1795.82

2010-11 3510.05 501.73 4011.78 +3008.33

2011-12 4378.79 637.43 5016.23 +3741.36

2012-13 3983.87 625.81 4609.68 +3358.06

2013-14 4534.35 666.93 5201.27 +3867.42

2014-15 6703.72 756.17 7459.89 +5947.55



III. INDIA – SAARC

Proposal to replace SAFTA from SAPTA gave a wide scope for the free trade agreement with in the

SAARC countries, covering the limitations of SAPTA. The agreement of SAFTA was done in the

year 2004 and the implementation of the SAFTA objective was done from the year 2006. Even though

India plays the major role in the trade relation in the SAARC group, the trade performance was not

impressive as a percentage in the global group. India occupies approximately 2.6 % of her total trade

in the SAFTA countries.

India‘s export to the SAARC countries is seen to be below 5% compared to its total exports in the

year 2008-09. The export trading of India to SAARC countries is on the peak level in the year 2014-

15 which is 6.59 %, the next highest exports were 5.57 % and 5.03 % in the years 2013-14 and years

2012-13. There is a visible decline seen in the year 2008-09 with 4.6 %, which further decreased to

4.34 % in 2011-12. After the formation of SAFTA, the growth of India‘s export in SAARC region

had been in the negative since 2008-2009.

Table 3.1 - India‘s Trade with SAARC countries (Values in US$ million)

Source: Government of India, Ministry of Commerce.

India‘s imports from the SAARC countries have been only 0.8414, 0.5986, 0.5747, 0.5878, 0.516,

0.546, 0.55 and 0.65 in percentage point for the years 2007-08, 08-09, 09-10, 10-11, 11-12 & 12-13,

13-14, 14-15 respectively, in spite of the true trade potential. The success of the trade relation between

the SAARC countries greatly depends on India because, India is at the center of the geographical

positioning and the size of its economy. Therefore India can play a greater role in improving the trade

anatomy ensuring that the goals of SAFTA are achieved. Observing the India‘s trade with the SAARC

countries from the tables below, it is noticeable that India has a favorable trade balance with all

countries in the South Asian region. It has a huge trade surfeit with Bangladesh, Pakistan, Sri Lanka,

and Nepal. However it is essential to note here that the lawful accounts of South Asia‘s international

2005-06 2006-07 2007-08 2008-09 2009-10

India‘s export to

SAAR C 5,547.65 6,473.81 9,637.76 8,567.12 8,567.12

India‘s total export 103,090.53 126,414.05 163,132.18 185,295.36 178,751.43

% share 5.3813 5.1211 5.9079 4.6235 4.6941

India‘s import from

SAAR C 1,413.31 1,507.45 2,117.35 1,817.89 1,657.34

India‘s total imports 149,165.73 185,735.24 251,654.01 303,696.31 288,372.88

% share 0.9475 0.8116 0.8414 0.5986 0.5747

2010-11 2011-12 2012-13 2013-14 2014-15

India‘s export to

SAAR C 11,659.14 13,296.47 15,110.70 17,503.84 20,480.02

India‘s total export 251,136.19 305,963.92 300400.68 314,405.30 310,338.48

% share 4.6426 4.345 5.03 5.5673 6.5993

India‘s import from

SAAR C 2,173.37 2,524.74 2,679.95 2,472.98 2,930.85

India‘s total imports 369,769.13 489319.49 490,736.65 450,199.79 448,033.41

% share 0.5878 0.516 0.5461 0.5493 0.6542



trade statistics are distorted by the high prevalence of informal trade between India and its neighbors.

The data merely captures the formal trade activities which took place between the neighboring

countries.

HIGHLIGHTS OF TRADE WITH SAARC COUNTRIES

During 2014-15, Sri Lanka was the largest trading partner of India in SAARC region.

During 2008-09, same time of the great recession, India‘s Export and Import decreases

significantly by 11.11 percent and 14.14 percent respectively.

Except for Bhutan, India runs a trade surplus with all other trading partners.

India‘s trade with SAARC countries has increased substantially from US$ 6.96 billion in

2005-06 to US$ 23.41 billion in 2014-15 by more than 235 percent.

PART - B

LATEST DEVELOPMENTS

SAARC has been unfairly derided by skeptics as all talk and no action grouping; this critique is

misplaced as SAARC may have miles to go achieve the required traction, but in its nearly three-

decade journey, it has taken some important steps to cement the architecture of regional cooperation

like the setting up of a South Asian University, SAARC Development Fund, a SAARC Food Bank to

supplement national efforts in times of crises, and SAARC Disaster Management Centre to bail out

each other in case of calamities and natural disasters. These are all laudable steps, and only underlines

the need to accelerate the pace of implementation of a whole range of ideas that are waiting to take

off.

SAPTA TO SAFTA

The SAARC Preferential Trading Arrangement (SAPTA) provided a framework for exchange of tariff

concessions and also for liberalization in para-tariff and non-tariff measures with a view to promoting

trade and economic cooperation among the SAARC member countries. The Agreement on South

Asian Free Trade Area (SAFTA) was signed during the Twelfth SAARC Summit held at Islamabad in

January 2004 which came into force from 1st January 2006. SAFTA, inter alia, prescribes a phased

Tariff Liberalization Programme (TLP) according to which all the member states would reduce their

tariffs, at the MFN applied rate existing as on 1st January 2006, to zero to five percent within ten

years of the agreement coming into force. This TLP would cover all tariff lines except those items

kept in the Sensitive List by each country. With the SAFTA Agreement coming into force, there

would be no more negotiations under SAPTA.

Tariff Liberalization Programme (TLP)

Tariff on 30% of the tariff lines outside the Sensitive Lists would be brought down to zero by all

the Contracting States within a period of two years (to be confirmed by member States by

December 2009.)

Sensitive Lists of member States to be reduced by 120% of the tariff lines from existing Sensitive

Lists. Reduction in Sensitive Lists would be done keeping in mind that the goods have substantial

trade coverage so that this initiative results in trade creation

Eighteenth SAARC Summit

The 18th SAARC Summit was held in Kathmandu on 26-27 November 2014. Theme of the summit

was Deeper Integration for Peace and Prosperity. The most prominent regional feature was the

agreement on the framework on energy cooperation. Motor vehicles and regional railways agreements

are to be finalized within three months.In Kathmandu Declaration SAARC leaders reaffirmed their



http://saarc2014.ekantipur.com/news-updates.php?news=189&ln=en

commitment to the principles and objectives of SAARC for ensuring the welfare and quality of life of

the peoples of South Asia and recognized to reinvigorate SAARC‘s regional cooperation and

revitalize SAARC as an effective vehicle to fulfill the developmental aspirations of the peoples of

South Asia. Observer participants of the 18th SAARC summit were Australia, China, Iran, Japan,

Korea, Mauritius, Myanmar, the US and the European Union.

Main highlights of Kathmandu Declaration

SAARC leaders determined to deepen regional integration for peace, stability and prosperity in

South Asia by intensifying cooperation in a prioritized, result-oriented and time-bound manner

SAARC leaders committed to achieve South Asian Economic Union (SAEU) in a phased and

planed manner, through Free Trade Area, a Customs Union, a Common Market, and a Common

Economic and Monetary Union.

In context of the Least Developed, Land-locked, and Small Island Developing States (SIDS)

member states, they agreed to effectively implement the existing preferential facilities under

SAFTA (South Asian Free Trade Area) and SATIS (SAARC Agreement on Trade in Services)

Free trade in goods and services operations will be simplified and transparent of origin;

implementation of trade facilitation measures, harmonization of standards relating to Technical

Barriers to Trade (TBT) and sanitary and phyto-sanitary measures.

In context of connectivity, the leaders made significant progress towards finalization of the

SAARC Motor Vehicles Agreement and SAARC Regional Railways Agreement. They agreed to

hold a Meeting of the Transport Ministers within three months in order to finalize the Agreements

for approval.

Leaders welcomed the signing of the SAARC Framework Agreement for Energy Cooperation

(Electricity) and directed the relevant SAARC bodies and mechanisms to identify regional and

sub-regional projects in the area of power generation, transmission and power trade and

implement them with high priority with a view to meeting the increasing demand for power in the

region.

India to develop and launch a satellite dedicated to SAARC Countries.

SAARC Agreed to eliminate illiteracy from the region in line with global goal of education for all

ensuring quality education in all institutions by reforming curricula, teaching methods and

evaluation systems adequately supported by physical, technical and other facilities.

For Combating Terrorism and trans-national Crimes, The Respective authorities have been

directed to ensure full and effective implementation of the SAARC Regional Convention on

Suppression of Terrorism and its Additional Protocol, including enacting necessary legislations at

national level to root out terrorism. The leaders agreed to take effective measures to combat illicit

trafficking of narcotics and psychotropic substances, arms smuggling, money laundering,

counterfeit currency and other transnational crimes. They also agreed to establish a cybercrime

monitoring desk.

The leaders agreed on the need for cooperation and collaboration within SAARC on issues of

common interest and concern to Member States.

To strengthen SAARC processes, the leaders of SAARC nations agreed to hold henceforth the

meetings of the SAARC Summit every two years or earlier, if necessary, the Council of Ministers

once a year, the Standing Committee at least once a year, and the Programming Committee at



least twice a year. They also agreed to make the Programming Committee a Charter body of

SAARC Strengthening SAARC processes.

CRITICAL ISSUES

Regional cooperation in South Asia is not easy. The history of the sub-region, most notably

influenced by the partition of India in 1947, political sensitivities and the trust deficit between states,

and the vast disparity between the size and wealth of the different countries make it hard to find

mutual ground on a host of important trans-boundary issues. The downside challenges, besides the

growing scourge of terrorism and extremism are: forty percent of the World‘s poor live here and

South Asia fares poorly in respect of food security, human development, namely, health, nutrition,

education and so on.

The various criticism of SAARC are as follows-

Big brother syndrome developed by the members towards India: Among the member states,

member have the feeling that India tries to dominate the function and activities of SAARC and

hence this narrow attitude of members of SAARC results in decreasing co-operation which could

have provided more opportunity if this ill feeling have not developed within members towards

India.

Political instability due to different political system: SARRC constitutes member of South Asia

which have large variety of different political system. Pakistan promotes military rule, India

promotes democracy, Nepal have federal republic, Myanmar have military dictatorship,

Bangladesh like India have parliamentary democracy and Afghanistan have Islamic Republic

currently with a parliament. So there is so much difference regarding the political system and this

creates a political instability.

Regional and cultural differences exists: South Asian countries constitutes large variety regional

and cultural differences which hinders the path of co-operation due to difference in priority of the

interest and concluding common interest arises to be a big problem.

Lack of financial resources and technology: South Asian countries constitutes mainly of

developing countries and they lack financial resources and advance technologies as compared to

the European Union and other regional organization. Many plans cannot attain its success because

of the lack of financial fund.

Internal interference by external actors: It has been marked that from time to time SAARC faces

the problem of involvement of external actors and they to certain extend effect the decision and

working by internal interference.

Internal problem of member states: SAARC countries are developing countries and all of them

have various internal problems constituting social economic and developmental and growth

issues. In this context the contribution of member countries towards regional and global

development lacks behind and this led to negligence which can be seen and understand by the less

count of SAARC submits.

Bilateral disputes and differences: SAARC members are engaged in various bilateral disputes and

differences. The difference between India and Pakistan, India and Bangladesh provides major

hindrance for the development of working of SAARC as regional organization. The border and

river disputes between these member countries makes the SAARC environment hostile for

providing common platform for development of all nations.

Competitive economies of member states: There is a huge competitiveness regarding the

economies of member state for example tea trade with India and Sri Lanka, jute in case of

Bangladesh and India and finally the outward linkages of economies of member states. This

competitiveness at one part has its effect on the common platform of SAARC and restricts the co-

operation to avail much benefit for all.



SUGGESTIONS

Everything with SAARC is not gloomy. In fact, the establishment of this important organization is the

proof that the regional neighbors want to achieve progress in various social, economic and security

fields. We can be optimistic about the future of SAARC because both India and Pakistan are now on

the way to move ahead with peace initiatives. We can hope better that this regional organization has

got enormous potential in the face of changing trends. The people of South Asia cannot be ignorant of

the lost opportunities for their own prosperity and welfare. Indeed, they are well aware of the

advantages of closer cooperation between the nations of South Asia. It is, therefore, time to re-invent

the wheel of South Asian identity through increased citizen activism, which will lead to a better

environment for confidence-building among the formal elites of South Asia and in turn lead to a better

South Asia.

India constitutes 70 per cent or more of SAARC‘s area and population. India has to redefine its

role to being prepared to go the extra mile in meeting the aspirations of all other SAARC nations.

India as one of the fast growing countries in the world and especially in the SAARC group, the

investments by India in SAARC can give a scope for development the present situation and can

also improve the trade systems between the nations. Indian government‘s plan for a SAARC

satellite that can launch the space exploration dreams for all countries of the region is a powerful

idea, where India can also play leadership role. Technological implementations can address many

problems.

India‘s internal politics has sometimes played a detrimental role to India‘s aspirations vis-à-vis

SAARC. The Government of India‘s policy on issues like land boundary agreement with

Bangladesh or Tamil Issue in Sri Lanka have not been accepted by the State Governments. India

has to forcefully articulate South Asian Vision so as to avoid these internal domestic disruptions.

The objectives and targets of SAFTA should be fulfilled as soon as possible. SAARC must then

move beyond free trade area to enhance investment activity between its member states.

Civil Society rations have to be made much strong as to generate popular support for SAARC.

This can be done by encouraging freer legal movement of people for economic and cultural

tourism reasons and by minimising immigration procedures.

The article X (2) of the SAARC Charter should be amended so as to allow SAARC, to develop

into a conflict-mediating or conflict-resolving institution both on multilateral and bilateral issues.

Issues like illegal migration, terror attacks, drug trafficking could then be resolved at SAARC

platform.

India's bilateral trade relations with the neighboring SAARC countries are of great significance

for promoting intra-SAARC trade. Issues such as border trade, unauthorized trade and transit

facilities have their impact on normal trade. These issues have to be effectively tackled in order to

facilitate the creation of a Free Trade Area in the SAARC region.

While India needs to take responsibility for activating SAARC, other SAARC nations should

show their commitment for the same. They should not use SAARC as anti-India platform, should

not internationalize any bilateral issue beyond the SAARC forum, and promote free trade.

Finally, India should be ready to forge sub-regional groupings within SAARC, to give clear

signals to every country that no country could hold veto over the functioning of SAARC. The

Indian government has already started working with the grouping - 'BBIN' (comprising

Bangladesh, Bhutan, India and Nepal) - under the larger ambit of the eight-member South Asian

Association for Regional Cooperation (SAARC).



CONCLUSION

Though the formation of SAARC is a landmark step taken by the leaders of the region, the main

rational behind its establishment is to develop a congenial environment through summit diplomacy

where all nations may interact peacefully with each other, cultivate sustainable peace and promote

mutual economic wellbeing by harnessing available resources in the region through the peaceful

process of economic integration. The success of SAARC institutional arrangements will rest on

identification and pursuit of the core projects which could yield tangible results. These projects can be

easily identified in the area of trade facilitation, removal of barriers, improvement of regional

transport, removal of transit restrictions, opening up of port facilities and promotion of trade in energy

in a comprehensive way, comprising regional grids for electricity, Hydropower, and gas pipelines.

Cross-border transactions must be depoliticized and pursued purely on economic terms. A SAARC

Brand needs to be created. SAARC and regionalism in South Asia require the intensity of an article of

faith and an optimistic, problem-solving predisposition. Nevertheless, after 30 years of establishment,

neither South Asian nations have been able to push the process of integration into full swing nor the

organization itself has become viable enough to promote peace, harmony and economic integration or

prevent conflicts in the region. SAARC countries need to put in place adequate physical infrastructure

in place which hampers their global competitiveness even in those sectors where they have revealed

comparative advantages. Successful outcome of SAFTA could play an important role in strengthening

trade ties within the region.

As the largest economy of the region, it is imperative and an opportune time for India to take a lead in

building an environment of trust among SAARC members, which would encourage greater

commitment to regional integration by all. India stands to gain substantially from greater economic

integration in the region, in terms of both economic and noneconomic or strategic payoffs. Indeed,

India‘s emergence in the world economic order in the twenty-first century will be greatly facilitated if

she ensures a stable, peaceful, secure and thereby a prosperous South Asian region.. India needs to

develop policy approaches that take into account the political and economic complexities of SAARC.

The physical and soft connectivity among the SAARC countries needs to be developed and

strengthened. Trade integration needs to be expedited through faster implementation of SAFTA. In

order to achieve the objectives, the SAARC would have to evolve into a full-fledged ‗regional entity‘

that can cultivate peace in the region.

BIBLIOGRAPHY

1. http://www.saarc-sec.org/

2. http://www.commerce.nic.in/eidb/

3. www.google.com

4. https://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation

5. http://www.mea.gov.in/in-focus-article.htm?24315/India+and+SAARC+Interlinked+Dreams

6. http://www.careerlauncher.com/civils/blog/india-and-saarc.html

7. https://www.cia.gov/library/publications/resources/the-world-factbook/wfbExt/region_sas.html

8. http://sapkotac.blogspot.in/2014/11/highlights-of-18th-saarc-summit.html

9. http://focusweb.org/node/1299#sthash.fgA8MHMh.dpuf

10. www.ficci.com

11. http://www.nepalembassy.in/ecorele.htm

12. https://aric.adb.org/fta/indo-nepal-treaty-of-trade

13. http://www.onlinekhabar.com/2014/11/211832/

14. http://commerce.nic.in/trade/international_ta.asp



http://www.commerce.nic.in/eidb/

http://www.google.com/

https://en.wikipedia.org/wiki/South_Asian_Association_for_Regional_Cooperation

http://www.mea.gov.in/in-focus-article.htm?24315/India+and+SAARC+Interlinked+Dreams

http://www.careerlauncher.com/civils/blog/india-and-saarc.html

https://www.cia.gov/library/publications/resources/the-world-factbook/wfbExt/region_sas.html

http://sapkotac.blogspot.in/2014/11/highlights-of-18th-saarc-summit.html

http://focusweb.org/node/1299#sthash.fgA8MHMh.dpuf

http://www.ficci.com/

http://www.nepalembassy.in/ecorele.htm

https://aric.adb.org/fta/indo-nepal-treaty-of-trade

http://www.onlinekhabar.com/2014/11/211832/

http://commerce.nic.in/trade/international_ta.asp

appraisal of india’s bilateral trade …icmrr.org/global/pdffiles/ijfrr/f201608008.pdfappraisal of...

Documents