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The economic 'great game'

Farhad Peikar
Since US and NATO leaders announced the departure of their troops from Afghanistan in 2009, Kabul has been searching for new regional partners. India, which has built new political, cultural, and trade relations…
5.05.2015  |  New York

President Mohammaed Ashraf Ghani’s recent trip to India has shifted the focus of Afghan-Indo relations from contentious security ties to a more pragmatic economic cooperation and investment.  If the latter materializes, it would not only benefit the two countries but Afghanistan could also serve as a catalyst, connecting South and Central Asia and boosting trade in the region.

Although the April 27-29 trip did not yield any bilateral agreements between the two nations, it restored friendly tone among officials and moved discussions from traditional security concerns and India’s military assistance to potential areas for economic cooperation and investment. President Ghani invited Indian businessmen to invest in his country’s natural resources, which are estimated to be between 1 to 3 trillion dollars.

Great expectations

Kabul and Delhi signed a strategic partnership in in October 2011, which beside other areas of cooperation significantly increased India’s commitment to train Afghan security forces. When former President Karzai visited India in 2012, he presented Indian officials with a “wish-list”, asking for tanks, helicopters and heavy artillery guns among other military equipment.   The request for military assistance created new tension with Pakistan, India’s archrival, with which it has had three wars, and put India in an uncomfortable position.

India is one of the world’s largest arms importers, but its capabilities to provide lethal military hardware to other countries are exceptionally limited. India has already provided training for Afghan security forces in its military institutions, provided non-lethal equipment such as transport vehicles to the Afghan military, and continues to provide thousands of scholarships for Afghan youths annually to study at its universities.  As part of $2.2 billion in assistance, India has also supported the Afghan health care system, invested in its infrastructures, and contributed to the development of democratic institutions.

However, Karzai’s request for more military assistance was not an easy pill to swallow.  India is well aware of the sensitivities in the region, and does not want to feed into Pakistan’s fear of getting sandwiched between India and its ally – Afghanistan.  India has faced dire consequences for its engagement in Afghanistan. India’s diplomatic buildings— including its embassy in Kabul— have been attacked, and diplomats and aid workers have been killed. The origins of most of those attacks have been traced to militants supported by the Pakistani military.

When President Ghani took office, he placed his predecessor’s request for military assistance from India on hold. The “wish-list” had increased tensions with Pakistan without any dividends. Although Prime Minister Narendra Modi’s administration reportedly decided in February this year to deliver three transport helicopters to Afghanistan and firmed up plans to purchase small arms, field mortar and air support platforms from Russia to equip Afghan forces, the slow delivery has disappointed officials in Kabul.

Ghani finally decided to forgo the Indian military assistance for the sake of improving his relations with Pakistan, the country that he hopes could help bring Taliban to the negotiating table.

Ghani’s first foreign trip to China, his closer relationship with Islamabad, including the Pakistani military, and skipping trips to visit India until April all fed notions in Delhi that the new Afghan leader was choosing rapprochement with its rival over ties with India.  However, Ghani’s trip to India seems to have quieted some of those concerns, especially when Ghani and Modi emphasized their shared goals for economic cooperation, playing up Afghanistan’s role as a transit link between India and Central Asia.

Economic opportunities

With arms assistance completely off the agenda— at least for the time being— both countries agreed to accelerate the process for a bilateral motor vehicle agreement, which would allow Afghan and Indian trucks to haul commercial goods between the two countries. A reconfirmation of working on the Chabahar port, connecting land-locked Afghanistan to the sea through an Iranian port, was another major achievement of the trip.  Chabahar port would also allow India to connect to Tajikistan via Afghanistan. 

However, there are many hurdles to both projects because they are contingent on goodwill of regional countries and major global developments.

The truck agreement between Afghanistan and India would be a non-starter, unless Pakistan allows both countries’ vehicles to pass it territory. Kabul and Islamabad signed Afghanistan Pakistan Transit and Trade Agreement (APTTA) in 2010, allowing Afghan trucks to enter its soil, but it doesn’t allow them to access Indian market through Wagah and Attari borders. Last year, Islamabad also refused to sign the South Asian Association for Regional Cooperation’s Motor Vehicle Agreement, which would remove restrictions on vehicle movements among SAARC member nations. Islamabad’s reluctance has prompted India to opt for a sub-continental deal with Nepal, Bhutan and Bangladesh, an accord to be concluded in June.

India has already built around 200 kilometers of road in western Afghanistan that would connect the country to Iran’s Chabahar port. However, the Chabahar project is contingent on the 5+1 group’s agreement with Iran on its contentious nuclear program, and the lifting of economic sanctions on Tehran. If finalized, the Iranian port would not only help Afghanistan lessen its dependence on Pakistan’s transit to sea, but might also put pressure on Islamabad to join the Indo-Afghan truck transit agreement.

Trading with giants

During the trip to Delhi, Ghani said his landlocked country was ready to serve the region as a land bridge connecting South-Asia to Central-Asia, whose large untapped energy reserves have created competition among India, China and Pakistan. Pakistan stands to gain a larger portion of the pie if it allows the Afghan and Indian vehicles to pass its territory, but the deal might irritate China, its main ally in the region.

While a more economically integrated Asia is one of main Chinese regional goals, Beijing might fear that India’s reach to Afghanistan, could also increase its trade connectivity with Central Asia.

China shares around 3,000km of border with Central Asian states of Kazakhstan, Kyrgyzstan, has made huge inroads in the region in the past decade and invested massively in its oil companies.  In comparison, China’s main economic rival, India, lags on all those fronts and except for daily flights, it has no other connectivity with the landlocked Central Asia.

China’s trade volume with the region has climbed from $1 billion in 2000 to over $50 billion in 2013. By the end of this year, 25 per cent of Chinese annual gas consumption will be supplied by Central Asian states.

China has also proved to be Pakistan’s strategic economic partner. Late last month during his trip to Islamabad, President Xi Jinping pledged $45 billion of investment in Pakistan’s power, rail and road networks. Once completed, the new transit route would connect China to Arabian Sea, making Pakistan a key economic partner in South Asia. Hence, under pressure from Beijing, Pakistan might stall both the SAARC and a trilateral land transit agreements with Afghanistan and India.

Impoverished Afghanistan has the potential to link energy-hungry India and Pakistan with Central Asian untapped resources, but that chance might once again fade due to economic competition in the region.


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