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Trade

Cross-border trade is the missing piece for India’s growth

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Bangladeshi citizens waiting in line to have their passports checked at the India-Bangladesh border gate, Petrapole, 23 March 2022 (Photo: Reuters/Debajyoti Chakraborty).

Authors: Durairaj Kumarasamy and Manisha Nayyar, MRIIRS

The potential for cross-border trade between India and its neighbouring countries — Bangladesh, Bhutan, Nepal, Myanmar, Pakistan, Afghanistan and China — has not been fully realised. India’s formal cross-border trade with these countries was about US$2.48 billion in 2021 despite the US$115 billion trade potential. Only nine of India’s seventeen border states are actively engaged in cross-border trade.

This is due to political and security reasons, difficult geographical terrain for connectivity and growing informal trade which has stemmed from open borders in most of the northeastern region.

Borders with neighbouring countries are often not properly fenced and guarded, resulting in insurgency and illegal movement of goods and people. Most of the northeastern region, as well as Jammu and Kashmir, face insurgency issues. Insurgents take advantage of porous borders to escape from the army as they are internationally well-connected and have hideouts in neighbouring countries.

Another persistent issue is the undocumented cross-border migration from Bangladesh to India’s border regions, which results in human trafficking and other crimes. This has catalysed bilateral tensions between the two countries. The realities of the northeastern region pose a challenge to India’s open economic policy as conceptualised by the ‘Act East’ policy, which is currently oscillating between the need for basic economic development in the region and security constraints.

Despite these challenges, northeastern states possess the potential to leverage their strong ethnic and cultural ties with neighbouring countries to facilitate the trade of locally produced goods via border haats (local markets along borders) and other channels. These channels can create numerous employment opportunities for young people.

The proposed increase in border haats with Bangladesh, construction of new airports and the new PM-DevINE scheme (a regional development initiative) allow northeastern states to break the cycle of dependence on the central government.

Both the central and state governments have introduced many developmental and infrastructural initiatives, such as Bharatmala — an intra-national transport network to strengthen land route connections with neighbouring countries.

But despite these initiatives, northeastern states still face an infrastructural deficit. Poor road connectivity and a lack of bridges remain the biggest infrastructural challenge in the border districts of the state. Most villages do not even have access to tap water and electricity, and the Border Area Development Program does not have sufficient funds to fulfil the needs of border districts. Most borderlands lack basic amenities and employment opportunities, causing people to leave.

The central government’s flagship initiatives, Make in India and the Self Reliant India Campaign, are efforts to make India a manufacturing hub. Given that vision, regional integration should be at the top of India’s foreign policy agenda, because it would help overcome constraints to the flow of goods, services, capital, people and ideas — all of which are critical to delivering high economic growth.

The central government needs to increase budget allocations for infrastructure and development initiatives in the border areas to provide necessary facilities for local populations. State governments could establish Export Promotion Zones for border trade through Integrated Check Posts by providing institutional and financial support to local entrepreneurs. They could also initiate an institutional framework at the state level to boost local trade, with designated ministries identifying local challenges and strengths.

The role of sub-regional groupings such as the Bay of Bengal Initiative for Multi-Sectoral Technical Economic Cooperation (BIMSTEC) and the Bangladesh, Bhutan, India, Nepal Initiative in facilitating border trade in India cannot be ignored. These groupings help reduce trade barriers, harmonise trade policies, develop infrastructure, enhance cooperation and promote regional integration which are essential for facilitating cross-border trade.

BIMSTEC is in line with India’s ‘Act East’ policy, which seeks to foster greater regional cooperation in Southeast Asia. During the 2022 summit, Indian Prime Minister Narendra Modi urged BIMSTEC leaders to transform the group into a means of connectivity, prosperity and security — the three drivers of India’s regional diplomacy.

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Trade

Getting Vietnam’s economic growth back on track

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Vietnam’s economy grew 8% in 2022 but slowed in 2023 due to falling exports and delays in public investments. The economy’s future depends on structural reforms and reducing dependency on foreign investment.

Vietnam’s Economic Roller Coaster

After emerging from COVID-19 with an 8 per cent annual growth rate, Vietnam’s economy took a downturn in the first half of 2023. The drop was attributed to falling exports due to monetary tightening in developed countries and a slow post-pandemic recovery in China.

Trade Performance and Monetary Policy

Exports were down 12 per cent on-year, with the industrial production index showing negative growth early in 2023 but ended with an increase of approximately 1 per cent for the year. Monetary policy was loosened throughout the year, with bank credit growing by 13.5 per cent overall and 1.7 per cent in the last 20 days of 2023.

Challenges and Prospects

Vietnam’s economy suffered from delayed public investments, electricity shortages, and a declining domestic private sector in the last two years. Looking ahead to 2024, economic growth is expected to be in the range of 5.5–6 per cent, but the country faces uncertainties due to geopolitical tensions and global economic conditions.

Source : Getting Vietnam’s economic growth back on track

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Thailand’s post-pandemic economic recovery still trailing behind

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Thailand’s economy is struggling to recover from the impact of the COVID-19 pandemic, with slow growth in GDP and GDP per capita. The government has implemented short and long-term policies to address economic challenges.

## Thailand’s Economic Slowdown

Thailand’s real GDP and GDP per capita have yet to outpace pre-pandemic figures, unlike other ASEAN countries. The Thai economy was severely affected by the pandemic, causing a slow economic recovery. The country’s large informal economy and dependence on tourism made it particularly susceptible to the impacts of the pandemic. While economic growth in 2023 was driven by activities in the travel sector, the manufacturing sector continued to contract, and merchandise exports continued to decline.

## Government’s Economic Policies

The new government’s short-term economic policies include providing a one-time digital cash payment to approximately 50 million residents, debt relief measures, and efforts to cut energy and electric train costs. Long-term economic measures consist of new free trade agreements, green industry projects, and a land bridge project. However, these measures have faced criticism from Thai economists due to significant fiscal implications and rising public debt-to-GDP ratio.

## Challenges in International Trade and Industrial Policies

Thailand’s new government is looking to boost international trade through free trade agreements. However, concerns are raised regarding the effectiveness of FTAs in driving global value chains and boosting trade. Additionally, industrial policies that emphasize domestic value added are being reconsidered in light of evidence that it runs counter to development from engaging in global value chains. The success of Thailand’s economic growth goals will depend on how supply-side constraints are addressed and resolved.

Source : Thailand’s post-pandemic economic recovery still trailing behind

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The United States and China’s complex cooperation and rivalry continue

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The US-China relationship in 2023 had complex economic and technological dynamics. While trade remained substantial, there’s also intensified technological competition, as both countries seek to enhance communication and cooperation in 2024.

Economic and Technological Dynamics

The world has witnessed a complex tapestry of economic and technological dynamics between the United States and China, with 2023 marking a period of continued economic interdependence and technostrategic rivalry. Despite a nominal dip in US imports from China, bilateral trade volumes remained substantial. US exports to China totalled US$135.8 billion and imports stood at US$393.1 billion for January–November 2023.

Economic Relations and Tensions

Policymakers, cognisant of the perils inherent in economic decoupling, have started to eschew such a course. High-level meetings and initiatives offered a positive glimpse of potential bilateral relations. In contrast, the high-tech landscape in 2023 was tense. The United States reinforced its global stance against China’s ascendancy, supported by US political parties.

Future Prospects

Moving into 2024, the US–China economic and technological relations are poised to undergo a shift, characterised by enhanced communication, selective cooperation, and balanced management of both interdependence and competition. There is a mutual understanding among senior officials of the potentially devastating repercussions associated with misunderstandings and miscalculations in the US–China relationship. 2024 is expected to witness increased economic dialogues between Beijing and Washington.

Source : The United States and China’s complex cooperation and rivalry continue

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