Forest Services
India’s Neighbourhood Policy and Trade: Current Landscape
India’s neighbourhood policy, primarily targeting South Asia, aims to foster regional stability and economic growth. As of 2023, India’s trade with South Asian neighbours stands at approximately USD 17 billion, constituting less than 2% of India’s total trade (Ministry of Commerce, 2024). This modest volume contrasts sharply with India’s dominant 70% share of South Asian regional trade (SAARC Secretariat, 2023), underscoring India’s economic pre-eminence but also highlighting underexploited trade potential. The Foreign Trade (Development and Regulation) Act, 1992 and the Customs Act, 1962 provide the legal framework for trade policy and import-export regulation, while the Special Economic Zones Act, 2005 facilitates trade infrastructure development.
UPSC Relevance
- GS Paper 2: International Relations – India’s regional trade agreements, neighbourhood policy, and economic diplomacy
- GS Paper 3: Economic Development – Trade policy, regional connectivity, infrastructure development
- Essay: Role of trade in India’s foreign policy and regional integration
Legal and Institutional Framework Governing India’s Neighbourhood Trade
Article 246 and Entry 14 of the Union List empower the Parliament to legislate on foreign trade, enabling the central government to regulate trade with neighbouring countries. The Department of Commerce under the Ministry of Commerce and Industry oversees Free Trade Agreements (FTAs), including the South Asian Free Trade Area (SAFTA) Agreement, 2004 under the SAARC framework. The Directorate General of Foreign Trade (DGFT) implements foreign trade policy, while the Department for Promotion of Industry and Internal Trade (DPIIT) manages industrial and trade promotion. Regional bodies like SAARC and BIMSTEC provide platforms for economic cooperation and integration.
- MEA: Formulates foreign and neighbourhood policy, including trade diplomacy.
- DPIIT: Negotiates FTAs and promotes trade facilitation.
- DGFT: Implements export-import regulations and trade policy.
- SAARC and BIMSTEC: Regional economic cooperation frameworks.
- National Productivity Council (NPC): Supports capacity building and trade facilitation.
Economic Data and Trade Trends with Neighbouring Countries
India’s bilateral trade with Bangladesh reached USD 14 billion in 2023, a 20% increase over the previous year (Bangladesh Export Promotion Bureau, 2024). Exports to Nepal rose by 15% to USD 3.5 billion in FY 2023-24 (Nepal Department of Customs). The India-Myanmar-Thailand Trilateral Highway, a key regional connectivity project, is projected to increase regional trade by 30% by 2025 (MEA). Despite these gains, India’s overall trade with South Asia remains low relative to its total trade portfolio, reflecting structural challenges.
| Parameter | India | China |
|---|---|---|
| Trade Volume with Neighbouring Regions (2023) | USD 17 billion (South Asia) | 40% increase in trade with Central and South Asia (2015-2023) |
| Regional Infrastructure Investment | INR 1,200 crore allocated in 2023-24 Budget for connectivity | Extensive infrastructure via Belt and Road Initiative (BRI) |
| Trade Agreements | SAFTA, BIMSTEC FTAs, multiple bilateral FTAs | Multiple FTAs plus infrastructure-led trade diplomacy |
| Trade Facilitation Mechanisms | Lacks unified mechanism; non-tariff barriers persist | Integrated trade facilitation and customs cooperation |
Structural Barriers and Gaps in India’s Neighbourhood Trade Policy
India’s neighbourhood policy underutilizes existing FTAs due to non-tariff barriers such as customs delays, inconsistent standards, and inadequate infrastructure. The absence of a unified trade facilitation mechanism across South Asian countries impedes seamless commerce. Private sector engagement remains limited compared to China’s aggressive infrastructure investments under the BRI, which have boosted trade volumes by 40% in Central and South Asia from 2015 to 2023 (World Bank, 2024). India’s focus on political and security dimensions often overshadows economic integration efforts.
- Non-tariff barriers: Customs inefficiencies, regulatory discrepancies.
- Infrastructure deficits: Limited cross-border transport and logistics facilities.
- Lack of unified trade facilitation: No common platform for South Asian trade coordination.
- Underutilization of FTAs: Low private sector participation due to procedural complexities.
- Comparative disadvantage vis-à-vis China’s BRI-led connectivity projects.
Significance of Trade in Geopolitical Stability and Economic Growth
Trade integration in India’s neighbourhood directly supports geopolitical stability by fostering interdependence and reducing conflict incentives. Enhanced trade can accelerate economic growth, create jobs, and improve regional connectivity. India’s dominant share in South Asian trade (70%) confers responsibility to lead regional economic integration. Leveraging trade will also counterbalance China’s expanding influence in South Asia and the Bay of Bengal region.
Way Forward: Rebooting India’s Neighbourhood Policy Through Trade
- Strengthen trade infrastructure: Increase investment in cross-border roads, railways, and logistics hubs, expanding on projects like the India-Myanmar-Thailand Trilateral Highway.
- Address non-tariff barriers: Harmonize customs procedures, adopt mutual recognition of standards, and digitize trade facilitation processes.
- Enhance institutional coordination: Establish a unified South Asian trade facilitation mechanism under SAARC or BIMSTEC to streamline regulations and dispute resolution.
- Expand private sector engagement: Facilitate market access for SMEs and encourage joint ventures with neighbours.
- Leverage FTAs effectively: Revise and operationalize SAFTA and bilateral FTAs to maximize trade potential and reduce tariff and non-tariff barriers.
- Integrate economic diplomacy with security policy: Use trade as a strategic tool to strengthen bilateral ties and counterbalance regional competitors.
Practice Questions
- SAFTA is a free trade agreement under SAARC aimed at reducing tariffs among South Asian countries.
- BIMSTEC includes South Asian and Southeast Asian countries but is not a formal trade agreement.
- India has a unified trade facilitation mechanism across all South Asian countries under SAARC.
Which of the above statements is/are correct?
- The Foreign Trade (Development and Regulation) Act, 1992 empowers the central government to regulate foreign trade.
- The Special Economic Zones Act, 2005 governs tariff rates for imports and exports.
- Article 246 of the Constitution empowers Parliament to legislate on foreign trade.
Which of the above statements is/are correct?
What legal provisions empower India to regulate foreign trade?
Article 246 of the Constitution and Entry 14 of the Union List empower Parliament to legislate on foreign trade. The Foreign Trade (Development and Regulation) Act, 1992 provides the statutory framework for regulating foreign trade in India.
What is the significance of SAFTA in India’s neighbourhood trade?
SAFTA, established in 2004 under the SAARC framework, aims to reduce tariffs and promote free trade among South Asian countries. India, holding 70% of regional trade, uses SAFTA as a platform to enhance economic integration with neighbours.
How does India’s trade volume with South Asia compare to its total trade?
India’s trade with South Asian neighbours was approximately USD 17 billion in 2023, constituting less than 2% of India’s total trade, indicating significant untapped potential in the region.
What role does the India-Myanmar-Thailand Trilateral Highway play in regional trade?
The India-Myanmar-Thailand Trilateral Highway is a regional connectivity project expected to boost trade by 30% by 2025 by improving transport infrastructure and facilitating cross-border commerce.
How does China’s Belt and Road Initiative (BRI) affect India’s neighbourhood trade strategy?
China’s BRI has significantly increased trade connectivity and volumes with Central and South Asia through infrastructure investments, achieving a 40% trade volume increase (2015-2023). This presents a competitive challenge to India’s relatively limited infrastructure-led trade diplomacy.
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