India’s trade with neighbours has largely been flat

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Countries trade a lot with their neighbours. Most of the post World War II economical success all over the world has been predicated on this model. But India has largely missed from this trick. Mint looks at the reason why for such a scenario.

Countries trade a whole lot with their neighbours. It's the most natural move to make. Most of the post World War II financial success all over the world has been predicated on this model. But India has largely missed from this trick. Mint talks about the reason why for such a scenario.

What are the examples of such a trade?

As Ruchir Sharma writes in The 10 Rules of Successful Nations: “Postwar economic success stories have tended to cluster in regions from southern Europe to East Asia." Let’s take the example of Japan, where economic growth first became popular in Asia post World War II. This growth then “spread to the second tier of economies" like South Korea and Taiwan. After that it spread to a third tier with countries like Thailand and Indonesia. The fourth tier growth was led by China. “A Japanese economist called this the “flying geese" model of development-with Japan playing the lead goose," writes Sharma.

How has India’s trade performance been?

Let’s look into India’s performance on the goods exports front with its major neighbouring countries-Bangladesh, Nepal, Sri Lanka, Afghanistan, Myanmar, and Pakistan. In 2019-20, it stood at $21.87 billion or around 7% of the overall goods exports of around $313 billion. Interestingly, it had stood at 6.7% back 2003-04. Clearly, there hasn’t been much progress through the years. Also, in 2018-19, India’s goods exports to neighbours were at an all-time most of $25.69 billion or 7.8% of the entire goods exports. This fell to 7% in 2019-20, reflecting the extent of our deteriorating relations with some neighbours.

What is the problem in the event of imports from neighbours?

In 2019-20, just 0.8% of the entire goods imports to India originated from these countries. That is hardly an isolated phenomenon. Actually, the peak of just one 1.8% was achieved in the past in 2001-02. The moral of the story is that India barely trades using its closest neighbours and that's, perhaps, wii thing with regards to economic growth.

How grave is this issue of India’s?

In 2019-20, India exported goods worth $1.04 billion to Togo (a country in West Africa). This is more than what it had exported to Afghanistan (around $1 billion), Myanmar (around $0.93 billion), or Pakistan ($0.81 billion), for example. As Sharma writes: “South Asia remains fenced off. Isolation, lawlessness, and the lingering bitterness made by regional wars have managed to get difficult for India, Pakistan, Bangladesh, and Sri Lanka to open borders, and so far, no leader has stepped forward to ease hostilities". 
Source: https://www.livemint.com

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