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Trade between NER and Myanmar
At present, four LCSs are in operation, through which trade between India and Myanmar is
conducted.
Moreh in Manipur is the busiest LCS, handling almost 99 per cent of the NER’s trade with
Myanmar. Exports through Moreh LCS increased from US$ 0.1 million in 1995-96 to a peak
of US$ 13.5 million in 2006-07 and then declined to US$ 1.5 million in 2009-10. Imports, on
the other hand, witnessed relatively less fluctuations, increasing from US$ 1.7 million in
1995-96 to US$ 2.1 million in 2009-10. The interesting development is that the second half
of previous decade witnessed a rise in Indian export through Moreh, compared to previous
two periods, whereas import declined consistently from US$ 72 billion in 1995-96/1999-2000
to US$ 38 billion in 2005-06/2009-10.
The field survey conducted across nine LCSs in the NER clearly shows the LCSs suffer from
tremendous ‘infrastructure deficit’. Unavailability of electricity, bad road, manual handling of
goods, unfriendly exchange rate and many such barriers are making the trade at border a
costly affair. Undoubtedly, these are the barriers which are prohibiting the official trade to
grow at the NER. As a result, unofficial (informal) trade is very much rampant. Although
congestion at border is not a problem in the NER, unfriendly trading environment is making
the trade expensive. The field survey shows transaction costs at LCSs are very high, which
vary between Rs. 2500 to Rs. 500 per transaction. The high transaction cost at border can be
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mitigated through implementation of trade facilitation measures and policies, one which
should focus on reducing the number of agencies providing clearances.
Our assessment is that trade creation can take place only if measures are taken, in particular
to improve the quality of infrastructure at border, connectivity to the rest of state and the
region and improvements in the supply capacities from the Indian side. Informal/illegal trade
is a feature of border trade taking place with both neighbours. This trade is taking place
through well-established trade points that have historically been by the people of the region.
The informal/illegal trade taking place through Moreh-Tamu is thriving on the back of the
supplies being provided by both China and Thailand. As a result, trade comprises of products
that are well beyond the 40 items that have been identified by India and Myanmar as a part of
their Border Trade Agreement of 1994, as amended in 2008. The magnitude of
informal/illegal trade taking place on Moreh-Tamu border may prompt the authorities to put
regulations to check the growth of this trade. In this context, our assessment is that since the
trade point existing in Moreh symbolises the historical links that existed between the people
living in the border areas, it would makes little economic sense to impose policy induced
barriers. Rather, steps must be taken to recognise the so-called informal trade and to get it
included in the formal statistics. Further, the available infrastructure and connectivity must be
improved to enable greater trade flows to take place through border trade points like Moreh.
Our view is that trade flows can be improved by adopting two sets of strategies for
Bangladesh and Myanmar. In case of the former, there are immense possibilities of
promoting vertical trade or “fragmentation”, provided appropriate investments are made on
two sides or the border on activities that give rise to trade complementarities. For instance,
the NER, which is a hub of fresh fruits and vegetables, can act as a source of raw materials
for the upcoming food processing sector in Bangladesh. Furthermore, Indian entrepreneurs
and technologists can help strengthen the food processing sector by extending the
development of this sector. And, finally, this investment should take up primarily in the SME
sector.
Yet another sector that can be considered in this regard is the textiles and clothing sector.
NER has traditionally been a treasure trove of handloom and niche fabrics like the “Assam
muga”. Although the uniqueness of “Assam muga” has been recognised through the grant of
“geographical indication”, the artisans have remained in the poverty trap because of
inadequate demand for their product. Linking the “Assam muga” producers to the clothing
industry would provide a definite boost to these producers.
While the above examples were intended to highlight the potential for vertical integration that
exists between the NER and Bangladesh, the strategic imperative of promoting these
activities cannot be overlooked. As mentioned above, promotion of such activities would lead
to strong trade complementarities, thus promoting trade between the two countries. Thus,
India’s exports of raw materials can be matched by its imports of processed products from
Bangladesh. This pattern of trade will enable Bangladesh to export higher value added
products and can thus help reduce its large trade imbalance with India.
In case of border trade with Myanmar, efforts would have to be made by both Government of
Manipur and the Government of India to address the supply-bottlenecks that have caused a
huge trade imbalance against India in the trade taking place through the informal trade point,
or “Gate No. 2”. There is evidence of demand for Indian products in Myanmar and therefore
it is important to widen the market for these products. While the market for traditional
products is well recognised, it is important that non-traditional products are identified for
possible export to Myanmar.
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Government of Manipur has been arguing that industrialization must precede the opening up
of trade. The Government has argued that local industry like agro-processing, horticulture,
textiles, etc. must be encouraged through the employment-led expansion of the regional
market, which can result in substitution of imported product with local produce while at the
same time servicing external demand. It has further been pointed out that there is ample scope
for the development of manufacturing/processing units for medicines, rubber goods, cycles
and cycle parts, pharmaceuticals, edible oils, petroleum products, cement, cotton yarns, etc.
We would argue that a well-honed strategy, which has a medium-term perspective, needs to
be put in place. This strategy should be developed in the context of the closer economic
integration that India is seeking with its immediate neighbourhood, the ASEAN region.
While the infrastructure needs have been given serious attention, including the discussions on
the Asia Highway Project that would go through Moreh, the stakeholders seem to be some
distance away from putting in place plans that would help in exploiting the markets in the
South East Asia. From India’s point of view, the lack of initiative on this score seems
particularly stark given that the country had signed the India-ASEAN Free Trade Agreement
almost a year and a half ago, and that the first phase of implementation of this FTA have
already been gone through since the FTA became operational in January 2010.
Policy Recommendations and the Way Forward
NER is critically located for it holds the key to India’s economic integration efforts with its
neighbours in South and South East Asia. A logical starting point for an exercise for
enhancing trade and investment cooperation involving the neighbouring countries, with
whom India shares common land frontiers, is to study the dynamics of trade taking place
through the local trade points. Over the years, both the Government of India and the
Governments of the State where these trade points exist, have realised the importance of
these trade points and have set up Land Customs Stations (LCSs) with the objective of
brining the informal/illegal trade taking place onto the formal channels. An elaborate plan has
now been drawn up to convert a number of these LCSs into Integrated Check Posts (ICPs),
which would provide better facilities to the traders.
The recommendations of this study are presented in four parts. The first relates to the policy
measures that are needed to provide impetus to border trade. The second would cover the
infrastructure and trade facilitation measures that must be taken to provide added incentives
to the traders. The third relates to the payments arrangements, without which trade will
always face impediments. And, finally, suggestions would be made as to how the supply-side
issues can be addressed, keeping in view a medium term perspective.
Policy Measures
1. Development of “border haats”, alongside upgrading the LCSs into ICPs, would
provide tremendous boost to border trade. While steps have already been taken to
open border on the India-Bangladesh border, similar initiatives can also be taken on
the India-Myanmar border.
2. The Border Trade Agreement between India and Myanmar needs to be revisited with
a view to substantially increase the list of products in which barter trade is allowed at
present. The list of 40 items has lost its relevance while the normal or regular trade
has gained the popularity over time. With almost all possible tradable items being
traded through Moreh, the most important trade point on the India-Myanmar border,
artificial barriers like the ones imposed through the Border Trade Agreement would
only result in the development of a parallel economy. Government may, therefore,
allow normal trade to take place in accordance with the Foreign Trade Policy.
Infrastructural bottlenecks
1. All the LCSs covered by the study lack essential infrastructure necessary to promote
border trade. Road connectivity needs to be improved. Government of India and the
State Governments should give priority to upgrading of the National Highways and
the State Highways linking the LCSs with the rest of the country. Up gradation of the
road infrastructure will help in improving the supplies of goods from the rest of the
region and would help in reducing the large trade imbalances that India faces exist at
some of the trade points, in particular at Moreh. This study has pointed out that there
is a demand for Indian products in Myanmar, and possibly, beyond, which can be
satisfied by connecting these trade points with the rest of the country. Local enterprise
will also receive an additional incentive to go beyond the borders if the problems of
connectivity are addressed.
2. Although the LCSs exist in most of the border trade points that were included in the
study, inadequate infrastructure and other facilities at these LCSs prevent conducting
high volumes of trade. Communication systems are in a general state of disrepair in
most of the border trade points. In some cases, like Moreh, where communication
systems are in place, the service is highly erratic. Most of the other infrastructural
facilities are either non-functional or are unavailable. These include weighbridges,
warehouses and dumping sheds.
3. Since food items account for a significant proportion of trade taking place through the
border trade points, specific infrastructural needs of these products would have to be
addressed. Animal and plant testing and quarantine facilities, conforming to
international standards, need to be put in place near the LCSs to prevent spread of
undesirable pests and pathogens. Since a significant proportion of the traded products
are in the nature of perishables, establishment of cold storages would not only in fetch
better value for the products; there would be an additional incentive for expanding
both the volume of products being traded at present and the range of products being
traded through the LCSs.
4. Upgrading the infrastructure should be done with a view to improving the efficiency
of the customs authorities so that the lead-time for clearances is reduced to the bare
minimum. Appropriate trade facilitation measures are needed to reduce the
transactions cost. These would involve reducing the number of clearances required for
trade transactions. It may be mentioned in this context that the use of information
technology (IT) and information technology enabled services (ITES) has provided
fillip to trade facilitation in many countries and these experiences need to be
replicated in India to facilitate border trade.
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Payments Arrangements
1. India-Myanmar trade has steadily increased over the past decade. Two-way trade
between the two countries increased from around Rs. 1,000 crores in 2000-01 to more
than 7,000 crores in 2009-10. India faces a huge trade deficit: in 2009-10, the deficit
was in excess of Rs. 5,100 crores. The trade deficit should register a decline during
the previous fiscal year since in the first nine months of the fiscal, exports from India
had exceeded the level recorded in 2009-10, and imports were barely one-half of the
previous year’s level.
2. The official statistics, however, does not provide the true indication of the level of
trade relations between India and Myanmar because of the presence of informal trade.
This form of trade takes places almost entirely through the land border that connects
Moreh in Manipur to Tamu in Myanmar. Imports consist of precious stones,
agricultural commodities including beans, vegetables and fruits, besides electronic
equipment. Quite clearly, the goods that are traded through the informal/illegal
channels are well beyond the 40 items that have been included in the Border Trade
agreement between India and Myanmar. Most of the products coming through Moreh
are not of Myanmarese origin - they are produced in China and elsewhere.
3. Trade through the informal channel takes place through head-loads. Consequently,
there are no official accounts kept on the volume/value of trade. Trade seems to be
flourishing since there are no explicit checks at the border by the governments on
either side. The magnitude of trade taking place in phenomenal. According to the
traders, daily imports are in the vicinity of Rs. 3-4 crores. As is usually the case, any
estimate of this kind are likely to be underestimates of the actual level of trade taking
place. This is borne out from the evidence presented by studies conducted around
2009, which have estimated that the value of informal border trade transacted through
Moreh is estimated at about Rs. 2000 crores a year. Thus, even if the number provided
by the traders is considered, annual trade taking place through informal channels is
between Rs. 1100 and Rs 1450 crores. And, this trade balance is hugely against India
given the large quantities of Chinese (and some Thai) products being imported. As
against this, imports to India through the LCS in Moreh were a mere Rs. 16 crores
during 2009-10. The numbers for informal/illegal trade clearly suggest that these trade
and related activities are sustaining the economy of the region.
4. Informal trade is heavily skewed against India. Traders on the Indian side of the
border report that the infrastructure facilities are well developed on the other side of
the border at Namphalong (Tamu). About 700-800 well stocked shops form the basis
for imports from Myanmar. The situation across the border in Moreh is in sharp
contrast – there are less than 100 shops. There is clearly no momentum in India’s
exports to Myanmar.
5. At the same time, however, there is evidence that there is a market for Indian products
in Myanmar, some of which are currently being supplied at sub-optimal levels. Field
surveys undertaken have revealed that products like tea, confectionery products,
cosmetics, tyres utensils, fruit juices and processed food products are inconsiderable
demand, although they face serious competition with the Chinese products.
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6. Besides supply-bottlenecks, trade expansion from India seems to have suffered
because payments arrangements remain the most serious hindrance. The absence of a
realistic exchange rate appears to be a major factor impeding growth of exports to
Myanmar.
7. The official exchange rate of the Kyat is hugely inflated. According to some
estimates, in 2010, one US $ was equivalent to 1000 Kyat in the informal market,
while the official exchange rate was 5.5 Kyat per US $. Recent reports indicate a
gradual appreciation of the Kyat in the informal market. By June 2011, a 20 per cent
appreciation in the value of the Kyat was registered.
8. Going by the official rate, one Kyat is equivalent to over Rs. 8.50. The informal rate,
one that is used for the conduct of informal trade, one Rupee was equivalent to 25-30
Kyat. The official rate of the Kyat is therefore 210 times higher than the one being
used in the grey market through which the informal/illegal trade is taking place.
9. United Bank of India (UBI) and the Myanmar Economic Bank have entered into MoU
for opening letters of credit (LC). At present, settlement can be made in two
currencies, viz. Singapore dollars and Euros. However, not even one LC has been
opened so far. Given the vexatious problem of the Kyat-Rupee exchange rate, the lack
of interest in using LC is not entirely unexpected.
10. The rupee is widely accepted as the currency for conducting India-Myanmar trade at
the border. It is therefore strongly recommended that India-Myanmar trade should be
denominated in Rupees. There are several advantages that could accrue to India as a
result, which are enumerated below:
a. Use of Rupees would help avoid the use of third country currency, which not
only involve complex procedures, but also result in considerable delays and
commensurate increase in transactions cost.
b. Rupee has been relatively more stable than most of the so-called hard
currencies, including the Euro. With the Euro-zone embroiled in a crisis, there
are uncertainties regarding the stability of the Euro, which is one of the
currencies that is being used for settlement of India-Myanmar trade. A more
stable exchange rate regime that Rupee trade would bring in would help both
traders and consumers in both countries.
c. Rupee trade may encourage greater use of the formal trade route by traders
who are at present engaged in informal/illegal trade at the border. The use of
LC should increase and as a result border trade could become more
transparent.
d. Assuming that the existing patterns of trade would continue to prevail, one of
the favourable outcomes of introducing Rupee trade would be that Myanmar
would be demanding more products from India in order to use its accumulated
rupee resources, thus evening out the large imbalance in bilateral trade faced
by India.
e. India needs to consider promoting Rupee as a currency for settlement of
bilateral trade with as many countries as possible particularly to counter the
moves of the Chinese government to push Yuan for trade settlement. Over the
past couple of years, China has promoted swap in bilateral trade with a
number of countries, and, as the recent trends show, Yuan denominated trade
is on the rise. Available estimates show that that by the first quarter of this
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year, almost 7 per cent of China’s trade was denominated in Yuan. Recent
projections made by the HSBC Bank show that by 2015, almost 50 per cent of
China’s trade would be Yuan denominated. If India has to establish itself as a
major economic power in the region it has to use its own currency to derive
enhanced benefits from economic engagement with its neighbours.
11. Needless to say, the use of Rupee would require enhanced surveillance by the banking
sector so as to ensure that illegitimate use of the currency is eliminated. Banking
systems in the two countries, led by the UBI and the Myanmar Economic Bank,
should be so developed as to respond to the requirements of the traders.
12. Prompt measures should be taken to promote use of LC. As stated above, the lack of
interest on the part of the traders in LC, particularly those involved in border trade,
has hampered the development of trade through formal channels. It has to be
recognised that even in the best of situations, LC are difficult for the small traders to
handle and, therefore, concerted efforts would have to be taken to ensure that this
instrument is put to use. It may be suggested that the traders associations involved in
border trade together with export promotion councils, like the SHEFEXIL, and the
banks undertake a series of programmes to popularise the use of LC.
Improving the Supply-side Bottlenecks
1. While many of the measures suggested in the foregoing would lead to the removal of
supply-side bottlenecks on the Indian side of the border, there is a need to take a
medium-term perspective to address the supply-side issues so as to make effective use
of the border trade points. For so doing, the Government of India, along with the
concerned State Government, would have to devise an elaborate plan that links the
development of certain sectors in the NER with the trade channels provided by the
border trade points.
2. The NER has been the hub of niche products in handicrafts and handloom, much of
which is in the state of decline for want of effective government intervention. As their
budgetary position has worsened, State Governments have lowered the level of
support that was once given to the artisans. It is suggested that these activities need to
be revived with Central assistance through a well coordinated programme to promote
the artisans. This programme could be modelled on the One Village One Product
movement that was initiated in Japan in the late 1970s, which promoted one
competitive and staple product from a village to improve the living standards of the
population. More recently, Thailand developed the One Tambon One Product (OTOP)
programme to encourage village communities to improve the quality and marketing of
the locally made products, including handicrafts, cotton and silk garments, pottery,
fashion accessories, household items, and foods. The OTOP programme, which is
more relevant for the NER, selected one superior product from each tambon (subdistrict),
granted it a brand (“starred OTOP product”), and provided local and
international stage for promotion of these products. Besides promoting the products,
the OTOP Programme (renamed as the “Local and Community Products”, although
the “OTOP” brand name has been retained), led to promotion of tourism in the
districts from which the products originate.
In case of Bangladesh, the Government of India and the State Governments may also
consider developing a tripartite relationship aimed at promoting trade and investment
in Bangladesh and India. The focus of these efforts should be the support that India
needs to provide to Bangladesh to set up enterprises in the small and medium
enterprise (SME) sector, which are based on resources available in India’s NER. The
sectors that select themselves naturally are food processing and textiles and clothing.
The industries set up in Bangladesh with India’s support can leverage the vast market
in the NER that is waiting to be exploited.
4. Development of local industries is an imperative that must be given high priority,
especially in the face of the penetration of imported products into the local economy.
Industries like agro-processing, horticulture and textiles in which the NER has natural
comparative advantage must be expanded using an employment-led strategy. Such a
strategy will not only result in augmentation of domestic demand, but will also create
a viable industrial base that can service external demand. At the same time,
possibilities of setting up industries for producing rubber goods, cycles and cycle
parts, pharmaceuticals, edible oils, petroleum products, cement must be explored
since the NER either has the raw materials for their development and/or the demand
from the region and the countries around it are large enough to sustain them.
5. Capacity building for officials, entrepreneurs, and traders is needed for strengthening
human resources. This would help improve the quality and delivery services in the
region. State-level trade promotion centres assisted by the apex industry associations
might be the right step for building capacities in the region.
Introduction
India’s North Eastern Region (hereinafter the NER) is among the most endowed states in
terms of the natural resources, including several critical minerals that it possesses, and has
substantial potential for generating one of the preferred low-carbon forms of energy, viz.
hydro-electricity. Besides, NER sits at the door-step of the East Asia, the region with which
India is increasing its economic ties. But despite these advantages, the NER has remained one
of India’s economically laggard regions, which accounts for a mere 2 per cent of India’s
Gross Domestic Product (GDP) in 2009-10. High transactions costs contributed by the
bottlenecks in the transport systems connecting the NER with the rest of India and the
neighbouring countries and the lack of other essential infrastructure have rendered the region
perpetually underdeveloped (Bhattacharya and De, 2006; De, 2008).
The relation between trade, infrastructure and economic development within countries (read
India) is a much debated issue. Most trade economists have a view of a world in which
countries freely exchange goods, factors of production and technology. Free trade in goods
leads to equalization of factor prices across countries. In the neo-classical growth models,
capital and labour play the central roles as two main factors of production. From the
perspective of conventional one sector neo-classical growth theory, international linkages do
not matter, but from the trade perspective they are the crucial determinants. Although
infrastructure plays an important catalytic role, it gets virtually no explicit mention in the
relevant literature on trade and inclusive growth. 4, 5
It has also been argued that greater
openness of an economy is potentially beneficial to all but appropriate policy designs are
essential for realizing the benefits (Basu, 2006). The link between trade and infrastructure
development in the NER must be seen in this perspective. As the principal nodes of the
national market are far away, markets across the border can act as the vents for surplus
generated in the NER.
The region is unique in terms of the opportunities it offers. While it is an industrial desert
where almost all immediate consumables are imported from outside the region, the NER is
the focal point of trade within a vast area. About 96 per cent of this region’s borders form
India’s international boundaries; it shares borders with the China in the north, Bangladesh in
the southwest, Bhutan in the northwest, and Myanmar in the east. NER’s locational
advantage provides a backdrop to its development as a base for cooperation not only with the
Association of Southeast Asian Nations (ASEAN) but also with neighbouring countries such
as Bangladesh, Bhutan, and Nepal.
Over the past several years, a number of regional and sub-regional initiatives have been taken
by countries in the South and South East Asia, which would help shape the economic
geography of the region. These include the enhanced cooperation among the members of the
South Asian Association of Regional Cooperation (SAARC) that have agreed to set up a
South Asian Economic Union, the Bay of Bengal Initiative for Multi-sectoral Technical and
Economic Cooperation (BIMSTEC)6
, the Asia-Pacific Trade Agreement (APTA)7
. Besides,
India has adopted the “Look East” policy and is engaged in deepening economic cooperation
with ASEAN and countries belonging to the East Asia Summit (EAS), which brings together
ASEAN and six of its partner countries, including India8
. Providing fillip to these initiatives
is not possible without the NER playing a pivotal role
Research Objectives and Data Sources
This study has following specific objectives:
Review of India’s trade with Bangladesh and Myanmar and the changes in recent past
(the most recent three-year period may be considered).
o The focus of this exercise is on India’s trade that is taking place through the
NER.
Identification of commodities that can help in expanding India’s trade with the
neighbours through the NER given the existing resource endowments and market
demand for products
o This exercise entails identification of commodities that India currently exports
or can export to Bangladesh and Myanmar in future, but also the products that
the NER can import from India’s neighbours
Identification of constraints, procedural and otherwise, that imposing limitations on
the expansion of India’s trade with Bangladesh and Myanmar through the North
Eastern states.
o Issue like availability of trade finance is also discussed.
Identification of supply-side constraints that are limiting India’s exports of
commodities to Bangladesh and Myanmar that are produced in the NER and suggest
measures that need to be adopted to deal with this problem.
Exploration of India’s investment opportunities in Bangladesh and Myanmar with
buy-back provisions that can eventually promote border trade through the LCSs
existing in the NER.
The above mentioned issues have been dealt with using data and information obtained from
both primary and secondary sources. Data from primary sources have been collected through
extensive field visits in identified LCSs. Field visits and primary survey helped us to make
assessments of the ground reality of both hard and soft infrastructure.
Structure of the Study
The following chapter presents a brief overview of the NER economies and includes a
discussion on the recent macroeconomic performance of the region. Chapter 3 provides a
detailed account of the NER’s trade with Bangladesh. The chapter presents an analysis of the
trade flows and their patterns with the individual states in the NER. Chapter 4 presents the
NER’s trade with Myanmar. This discussion also includes the NER’s trade with Myanmar
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through land border. Based on the evidences presented in Chapters 3 and 4, policy initiatives
that need to be undertaken for the development of trade and investment in NER along with
Bangladesh and Myanmar are enumerated in Chapter 5. This component of the report has
been benefited from the past discussions with the Ministry of DONER. It would be further
strengthened based on the inputs to be received from the stakeholder consultations that would
be held in Shillong under the aegis of the NEC.