India’s Economic Opportunities In Central Asia

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Shavkat Mirziyoyev, the new President of Uzbekistan, will pay a visit to New Delhi towards the end of this month, seemingly to give yet another shot for cementing strong economic ties with India. For the last two and a half decades, India has been citing obstructions of physical connectivity, Pakistan’s hostility and Afghan instability for its desultory attitude towards Central Asia. But such excuses can no longer hold true as countries like South Korea and Turkey are doing enough business with the region.

If Shavkat Mirziyoyev has a fresh perspective to offer, there is scope for a second chance for India. But, this time, India must articulate a clear vision. India needs to use its instrument of economic leverages more efficiently to build closer ties with Central Asia.

Connectivity

First, New Delhi needs to remove the myth prevailing in Eurasia that India is opposed to any connectivity projects. India must tell countries in the region that its objection to joining China’s BRI scheme relates to the violation of India’s sovereignty. India is not opposed to projects passing through non-disputed areas such as the Turkmenistan, Afghanistan, Pakistan and India (TAPI) pipeline project.

To break the connectivity bottlenecks, India has sufficiently invested in the International North South Transport Corridor (INSTC) and the Chabahar project which are close to becoming a reality.

Second, Shavkat Mirziyoyev is likely to push for joining the 2016 Trilateral Transit Agreement on Chabahar. With the first phase of the Chabahar port being completed, it becomes the nearest sea port for Uzbekistan. So far, Tashkent has relied on Turkey, Russia, and the Baltic States for port access. In fact, two days after the Shahid Beheshti terminal was inaugurated in December 2017, Uzbekistan signed a deal with Afghan railways for a Trans-Afghan corridor on December 5.

Iran is shortly going to hand over the strategic port for operations to an Indian company along with a banking channel opening from both sides. India has already equipped two berths at the Shahid Beheshti terminal with capital investment of US$ 85.21 million and annual revenue expenditure of US$ 22.95 million on a 10-year lease. The terminal’s operational capacity will increase to about 10 million tonnes.

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The 2016 Trilateral Transit Agreement with Iran provides the necessary legal framework for trans-shipment of goods to Afghanistan. A shipment of 1.1 million tons of wheat to Afghanistan has already been made through the Chabahar port.

For India to use Chabahar as a vital gateway to access Eurasian markets and optimally operationalise its use requires a Central Asian state joining the project as a direct stakeholder.

And here, the prospect of Uzbekistan joining the Chabahar port project through Afghanistan would bring about the biggest breakthrough in regional transport connectivity with enormous implications for the entire region.

Economic Partnership

The next step is to finalise the much awaited Free Trade Agreement (FTA) between India and the Eurasian Economic Union (EAEU), which would probably happen during President Putin’s visit to India next month. China has already aligned its BRI projects with those of EAEU through a FTA.

This will spur unhindered two-way flow of trade with Eurasia, potentially going up to US$ 170 billion from its current paltry level of US$ 10 billion.

India’s current trade figure of about US$ 100 billion with the SCO members is also grotesquely asymmetric – about US$ 90 billion is with China, US$ 8 billion with Russia and US$ 1.5 billion with the Central Asia states of which US$ 1 billion is with Kazakhstan.

India needs to take note that Central Asian countries, including Uzbekistan, may not be key export markets or investment destinations for Indian companies as yet, but they are fast getting linked to the global market for production, supplies of raw materials and services. They are also increasingly getting integrated into the East-West Trans-Eurasian transit economic corridors.

In the past decades, the economic performance of Central Asian countries had gone up due to high commodity prices. The combined economy of the region stood at over US$ 339 billion, with varying levels of development and purchasing power in each country. Kazakhstan is the richest with a per capita income of US$ 11,580 and Uzbekistan the poorest with US$ 2,150 in 2017.

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Uzbekistan is the most populous country (over 30 million) accounting for 45% of Central Asia’s total population. It thus has the potential to emerge as a strong and sizeable consumer market with an average annual GDP growth of more than 8% over the past decade.

It plans to invest US$ 55 billion to modernise its industry and develop new infrastructure in over 900 projects in the gas and petrochemical sectors, as well as in the construction of new roads and airports. In the next five years, its production of industrial goods is project to increase by 1.5 times.

Uzbekistan is also looking at upgrading high-value-added food processing and textile industry sectors, opening up opportunities for Indian companies. Uzbekistan has a liberalised trade regime. Its textile sector, among others has attracted foreign investments from China and other countries. Intra-regional trade in Central Asia accounts for only 7% of the region’s total trade, which creates more opportunity for individual countries to seek trade partners outside the region.

Uzbekistan is the only observer state of the WTO. But doing business in the country is not always easy as indicated by its low rank in the ease of doing business index. Businesses complain about arbitrary seizures of goods & frequent changes in customs procedures without prior notification. Excessive documentation and a lack of proper protocols make the importing process very difficult, costly and time-consuming. But with a new dispensation in Tashkent now, all of these problems are being addressed and eased gradually.

Opportunities for India

India’s current trade with Central Asia is minimal – just about US$ 1.5 billion which is a mere 0.11% of India’s overall trade. The complementary aspects of Indian and Central Asian economies mean that the potential for trade is extremely high.

After experiencing a complete breakdown in the manufacturing sector, supply of raw materials and lack of markets, Central Asian states are fast getting linked to the global market for production, supplies of raw materials and services. However, the changing economic environment – prolonged recession in Europe, financial crisis in Russia, fall in oil prices, etc – is opening new vistas of opportunities for the Central Asia-India trade partnership to grow. New business centres, shopping malls, cultural centres, sports complexes, roads, etc are being planned in various Central Asian cities along the oil-rich Caspian region in the west. Central Asian traditional sericulture and cotton textile industry had declined over the last many decades. However, sericulture is once again developing as a major economic source for the rural population in Uzbekistan and Kyrgyzstan.

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After China and India, Uzbekistan is the third largest producer of silk to the world markets, producing 20,200 tonnes of cocoon per year. Central Asian countries have been showing interest in learning from India’s silk industry. The Indian experience has been viewed as attractive for creating jobs in rural areas, removing poverty, and as a means to preserve national traditions.

All Central Asian states produce cotton of high quality. Like China, Indian companies can consider setting up integrated textile plants in the region to manufacture good quality cotton and blended fabrics. Setting up textile units can be a highly profitable venture for Indian companies, since the lucrative European markets are only 10-12 days away by road transit freight from Central Asia.

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