Report

QUANTIFICATION OF BENEFITS FROM TRANSPORT AND TRADE FACILITATION IN SOUTH ASIA 73
important role in facilitating informal trade at the
border. However, while informal trade may have
initially been confined within short distances and
neighbourhood communities, it has expanded and
enveloped the entire region.
Taneja (2004 and 2005) has intensively worked on
informal trade in the region and has analysed the
magnitude and features of informal trade between
countries. The main finding is that total informal trade
in South Asia is US $1.5 billion, which is 72% of formal
trade (for the years for which data are available). Some
survey results even put the magnitude of informal trade
at more than 100% of official trade, as in the case of
Bangladesh exports to India (Bakht and Sen 2002).
India’s Geographic Position
India is the central actor in South Asia’s informal trade
as it is the only country that shares borders with almost
all the countries and the other countries do not share
borders with each other except India. India is also a
dominant and key player in the region due to its size,
geographic location, and economic performance. India’s
recent high growth can now be shared by the countries
of the subregion. The analysis herein therefore takes
on an Indo-centric approach to demonstrate the gains
from transport and trade facilitation.
Table 9.3 India’s Informal and Formal Trade with
South Asian countries (US $ million)
Trade Balance Total Trade
Informal Formal Informal Formal
Bangladesh (1992-93) 285.0 341.2 313.0 356.9
Bhutan (1993-94) 30.1 4.0 32.6 10.0
Nepal (2000-01) –48.0 –114.0 408.0 396.0
Pakistan (2004-05) 503.8 416.6 524.6 602.0
Sri Lanka (2000-01) 163.7 595. 207.3 685.2
Source: Taneja, 2005.
Some of the features of India’s trade with its neighboring
countries in the region are as follows (Taneja,
2005):
• Although the north-east region of India would
benefit more from trade with Bangladesh, due to
its proximity, Taneja finds this is merely 4% of
Indo-Bangladesh trade while the bulk of the trade
is accounted for by West Bengal, probably due to
cultural and linguistic similarities. Trade has been
very concentrated and localised over land routes.
Both official and unofficial trade surplus is with
India. Although tariffs have come down substantially
in the 1990s, the two countries have the
highest NTB coverage in the region for primary
and manufactured goods (66 and 52% respectively).
There have been stringent over invoicing
of both export and import between India and
Bangladesh. The major official and unofficial trade
items have been found complementary and noncompetitive
to each other. 5 Detailed commoditybased
surveys show that a significant share of
household consumption of goods in Bangladesh
comes from informal imports (Bakht and Sen
2002). 6
• India’s informal trade with Bhutan is three times
as much as its formal trade. Bhutan’s trade deficit
has increased from a low of 4.3% of GDP in 1996
to 16.7% in 2000, and 22.6% in 2001. The 2001
trade deficit was $81.7 million, 56% of which was
with India. The 1995 Agreement between India and
Bhutan allows for free trade between the countries
and unhindered transit facilities to Bhutan’s trade
with third countries. 7 Hence, the high informal
trade figures are surprising.
• India’s informal trade with Nepal is almost as large
as its formal trade. It is observed that in the case of
Nepal, a large part of informal imports to India
comprise third country goods rather than a similar
composition of commodities that occurs with
formal trade. India shares a very porous border
with Nepal and goods are carried across mainly by
motorised and non-motorised transport over land.
However, ambiguities in definition of rules of origin
and consequent harassment by customs officials
have driven traders to informal trade.
• India’s informal trade with Pakistan is estimated
at 87% of formal trade. Informal trade takes place
through five major routes (Dubai-Bandar Abbas-
Herat-Kabul-Jalalabad-Bara, Dubai-Bandar Abbas-
Herat-Kandahar-Wesh-Chaman, Dubai-Bandar
Abbas-Herat-Kandahar-Wesh-Noshki-Quetta, Sind
cross-border, and India-Dubai-Karachi) and six
5
http://www.capexil.com/article/June-22nd-98.html
6
Household surveys comparing consumption with production and imports show a gap attributed to informal imports. For
example 15% of cereal consumption come from informal trade. The ratio ranges from 61% for vegetables to 19% for rice.
All of these were for the period 1995.
7
http://www.nationsencyclopedia.com/Asia-and-Oceania/Bhutan-FOREIGN-TRADE.html (U.S. Library of Congress)