India can reap rich dividends by a more vigorous engagement with Afghanistan.

When Rabindranath Tagore wrote Kabuliwala, the poignant story of a dry-fruit seller from Kabul who comes to Kolkata and befriends a small Bengali girl, little would he have imagined that it would become one of the most quoted instances of the historical and cultural links between India and Afghanistan.

While the sentiments hold good till date, as obvious from the frequent references to the Kabuliwala at the recent FICCI conference on “Doing Business with Afghanistan”, India and its neighbour have come a long way from trading just in dry fruits.

Bilateral trade has grown to $632 million in 2012-13 thanks to the Preferential Trade Agreement of 2003.

India has constructed the 202-km-long 220 KV DC transmission line from Pul-e-Khumri to Kabul, which has improved power supply to the Afghan capital.

India also helps develop Chabahar Port — with a commitment of nearly $100 million — to provide alternate access to the sea and improve airline connectivity.

Advantage India

President Hamid Karzai has become a frequent visitor to India. New Delhi and Kabul have become strategic partners since 2011 and under the Trade, Commerce and Investment Opportunities Confidence Building Measure (TCI CBM), India is leading the process of regional cooperation for rebuilding Afghanistan and unlocking its huge investment and business potential.

For industry, all this is good news as private sector development in Afghanistan can transform the economy from an aid-dependent to a self-reliant one, generate revenues and create jobs for the young generation.

There are, however, two reasons why India needs to push the boundaries of its involvement further.

First, Afghanistan's proximity to key growth markets and the prospects of it emerging as a significant centre of international trade.

The country is a crucial link between South Asia and Central Asia, and the latter’s untapped market potential and energy resources hold tremendous promise for Indian exports and our energy security.

Enhanced cooperation with Afghanistan could ensure that India is not crowded out in a region where Kabul’s outreach agenda has already brought in Iran, Pakistan, Tajikistan as well as other partners in Europe through bilateral pacts and free trade agreements.

Many opportunities

The second reason is the investment opportunity on offer. Afghanistan is a fast emerging market with flat 20 per cent corporate tax rate, no restrictions on inward or outward capital flows, pre- and post-investment support and smooth facilitation of work and visa permits.

Importantly, Afghanistan has assured Indian investors they would be dealt with on a priority basis.

Sure, the country has its share of problems as a landlocked state with difficult logistics, delays in clearance at intermediate ports and a banking system with limited capacity for issuing high valueguarantees. All this amidst an ongoing security, political and economic transition.

Yet, there are many opportunities for increasing economic growth and transforming lives in Afghanistan.

One area of focus is infrastructure. Afghanistan's growing need for linkages to the world economy offers opportunities in sectors such as power, roads, housing and airports. With abysmally low energy supply and consumption, Afghanistan faces huge demand for power.

The total installed capacity is 1,176 MW, of which 800 MW is operating. Here, India can offer support through projects such as CASA 1000, which aims at connectivity of power grids between Central Asia (Kyrgyz Republic and Tajikistan) and South Asia (Pakistan, Afghanistan).

More than 4,000 km of transmission lines are planned for the next 4-5 years.

Further, with about 8,500 km in regional highways and national highways, Afghanistan has huge requirements of regional highways to foster trade with neighbours such as Iran, Pakistan, Tajikistan, Uzbekistan, Turkmenistan and Russia as well as through Afghanistan to the Middle East, Europe, East Asia and vice versa.

Then there is the construction sector, which is expected to grow on the back of an acute housing shortage, especially low cost housing.

Housing needs have led to demand for steel and cement and India firms can take advantage of international tenders for the same, or even consider setting up production facilities.

New links

Afghanistan’s need for connectivity also offers possibilities in development of provincial airports and local airports, ground handling services including baggage transfer, catering and general cargo management.

Indian firms can also look at setting up of an aviation institute for training pilots, co-pilots and engineers.

Even as Afghanistan charts an aggressive industrial development path, agriculture is changing fast in the country. Indian companies can cater to the new growing need for investments in post-harvest technology, development of integrated value chain, storage facilities and refrigerated transportation.

It is obvious that facilitating Afghanistan’s economic transformation and its integration with the region is an imperative and we all have stakes in it. A strong, stable and democratic Afghanistan will mean a win-win proposition for the region and international community.

(The author is President, FICCI.)

(This article was published on December 24, 2013)
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