South Asia has long been one of Asia’s least economically connected subregions. Intraregional trade accounts for a paltry 5% of the total, while regional economic heavyweights India and Pakistan trade at a negligible volume of $2.5 billion annually.
Though progress on economic integration between India and the Association of Southeast Asian Nations (ASEAN) has been made in recent years, both India and Pakistan have begun to increasingly look north and west.
As Kabul increasingly courts Indian trade, New Delhi covets passage through Iran and Afghanistan to Central Asian and European markets. Pakistan is likewise leveraging its geography to secure energy supplies from Iran and Central Asia while deepening integration into value chains in the People’s Republic of China (PRC).
Enhancing connectivity and value chain linkages on a Eurasian scale has become a key economic development pillar for both New Delhi and Islamabad, as both India and Pakistan increasingly seek land and maritime infrastructure corridors into Central Asia, Russia, Turkey, Iran, and eventually Europe.
India’s new strategic imperative
2017 is a landmark year for India’s Eurasian pursuits.
In November, a shipment of wheat left the Indian state of Gujarat’s Kandla port for Iran’s Chabahar port to be transported overland to its ultimate destination: Nimroz, Afghanistan. This marked the operationalization of the port: a new shipping corridor from India through Iran and into Afghanistan, adding to the existing Afghanistan-India air freight corridor. On December 3, Iran officially inaugurated the newly built extension of Chabahar, catapulting the port’s capacity from 2.5 million to 8 million tons of cargo a year.
Although Afghanistan has access to the India-Pakistan Wagah border to export its goods, India cannot currently send its exports back overland through Pakistan into Afghanistan. Emerging India-Afghan connectivity promises mutual benefits, and is already delivering some.
Despite the limitations of one-way trade through Wagah and with a steadily emboldened air freight corridor, Afghan exports to India have increased 227% from $70 million in 2011 to $230 million in 2016. In the same period, imports increased 47% from $103 million to $230 million.
India is also seeking other routes into Central Asia. The 7,200-km multimodal International North-South Transportation Corridor (INSTC) is scheduled to become operational in March 2018, with Mumbai a key maritime transit hub connecting Southeast Asian markets to Central Asia via Iran, to Azerbaijan, onward through Russia, and finally into Northern Europe.
With INSTC expected to reduce transportation distance—and ultimately costs—by 40%-50%, India will be able to boost its energy security through enhanced access to Iranian energy supplies, and make its own exports to the EU more competitive.
New Delhi has also begun to institutionalize linkages to Central Asia. India and the Eurasian Economic Union recently signed a free trade agreement expected to increase trade volumes from $8.8 billion to $30 billion by 2025.
Pakistan’s resurgent internationalism
In 2016, freight transported overland from the PRC arrived for the first time in Pakistan’s Gwadar port to be shipped to Africa and West Asia. Gwadar, just 100 km away from Chabahar, forms an integral part of the promising China Pakistan Economic Corridor (CPEC).
CPEC’s estimated $62 billion worth of infrastructure projects can make Gwadar a lucrative maritime connection point for goods and energy transport. A vital artery of the PRC’s Belt and Road Initiative, CPEC is expected to generate 16,400 MW of new energy by 2018, a 1,100-km motorway between Karachi and Lahore, a reconstructed Karakoram Highway between Rawalpindi and the PRC border, and a Karachi-Peshawar railway upgrade by 2019.
West Asian energy supplies will be routed through Gwadar with new oil and liquid natural gas pipelines planned to satiate Pakistan’s energy needs and earning Pakistan valuable transit revenues through onward export to the PRC, and Central & South Asia. The operationalization of Gwadar and CPEC may position Pakistan as a major regional transit artery, spurring market and energy linkages from Central Asia and the PRC to South Asia and Southeast Asia – making it an integral part of a new maritime Silk Road.
Islamabad is also institutionalizing inter-regional imperatives. Pakistan is not only a signatory to the Quadrilateral Agreement on Traffic in Transit (QATT), along with the PRC, Kazakhstan, and the Kyrgyz Republic, but also serves as the home of the QATT operational Secretariat.
The Turkmenistan-Afghanistan-Pakistan-India pipeline project has also garnered renewed interest of late, as it presents an opportunity for regional cooperation on an unprecedented scale, linking the economies of the four countries to deliver energy security, market integration, and economic growth.
Pakistan’s participation in the annual Heart of Asia Istanbul Conference, its inclusion as a founding member of the Economic Cooperation Organization with Iran and Turkey, longstanding membership in the Central Asia Regional Economic Cooperation program and its recent ascension to the Shanghai Cooperation Organization further showcase Islamabad’s commitment to South-Central Asian linkages, and its understanding of the immense Pan-Eurasian economic potential.
Eurasian integration – a dual pursuit
To realize the potential of regional economic integration, India and Pakistan will likely continue to pursue independent paths. Yet bold, imaginative policymaking should be encouraged in tandem.
The emerging Indo-Afghan-Iranian corridor and INSTC are both pivotal for India’s macroeconomic stability, as is CPEC for Pakistan’s.
South Asia’s collective, imminent demographic youth bulge can be finessed into a true demographic dividend. A truly intraregional South Asian economic vision linking India and Pakistan that creates westward and eastward inter-regional linkages for mutual benefit will help to unleash South Asia’s vast economic potential.
An authentically South Asian economic vision can further catalyze an emerging Eurasian century.