Afghanistan is a land of unified Pashtun tribes founded in 1747. The country, with a total area of 652,230 sq km, has a harsh and mostly dry topography. With Iran, Turkmenistan, Uzbekistan, Tajikistan, China, Pakistan and India (disputed because in PoK) surrounding the country, Afghanistan is landlocked. However, the country is located in a strategic hotspot as its landmass acts as a bridge between South Asia and Central Asia. Following the September 11 attacks in 2001, the USA intervened in Afghanistan along with the Northern Alliance and toppled the Taliban government. The country witnessed its first presidential election in 2004 and National Assembly election in 2005 under the UN-sponsored process of Afghanistan’s political reconstruction (CIA, 2018). Being a war-torn country for years, Afghanistan suffers from extreme economic backwardness. The country experiences low levels of employment, poor public infrastructure and weak governance which are aggravated by regular security threats and high levels of corruption.

In 2017, Afghanistan had a GDP of USD 20.20 billion and recorded a total foreign merchandise trade amounting to USD 8.62 billion. The country’s foreign trade is highly imbalanced with exports worth USD 0.83 billion and imports worth USD 7.79 billion. In 2017-18, the trade deficit was valued at USD 6.96 billion, approximately 33 percent of the GDP. Due to the lack of economic development, the country is highly dependent on foreign aid. In 2017, Afghanistan received a total committed aid worth USD 3.47 billion out of which it disbursed USD 2.69 billion (NSIA, 2018). Even though the committed aid received by the country is increasing, the Aide Effectiveness[i] of Afghanistan has been following a downward trend since 2010. In 2016, the Aid Effectiveness was USD 117.28, 49.25 percent less than in 2010 (World Bank, 2016).


India has shared long historical ties with Afghanistan. India was one of the non-communist countries to accept the legitimacy of the Soviet government in the country. After its downfall, India continued to extend its support to the successive governments until the Taliban came into power in 1996. With the downfall of the Taliban and the establishment of the international government in 2001, India resuscitated its ties with Afghanistan. India’s model of development cooperation follows a demand-driven ‘soft power’ approach where assistance is provided as per the needs and requests of the Afghan Government. India has provided millions of dollars of aid for its reconstruction and development. In 2017, India was amongst the top ten international donor countries with assistance worth USD 30.45 million (NSIA, 2018).

The bilateral trade between the two countries received a significant boost with the Bilateral Trade Agreement signed in 2003.It reduced tariff barriers on multiple commodities. The total bilateral trade in 2017-18 was valued at USD 1.14 billion, with exports amounting to USD 709.75 million and imports amounting to USD 433.78 million. Major exports to Afghanistan include tobacco, synthetic fibres, vaccinations for polio, wheat, transmission line, other medicinal drugs, and cables with steel core. Major items of import primarily include dried fruits along with pulses, saffron, woollen carpet yarns, and old antiques (DGFT, 2018).


A significant stepping stone in India and Afghanistan’s relations was the Strategic Partnership Agreement signed in 2011. Six primary projects were undertaken which include rehabilitation of schools along with providing food assistance (USD 321 million disbursed), supply of 250,000 tonnes of wheat, construction of a power line from Pul-e-Khumri to Kabul (USD120 million), construction of the Salma Dam Power Project (USD 130 million), construction of the parliament building (USD 178 million), and rehabilitation of Delaram-Zaranj road (USD150 million). The agreement also defined India’s security relationship with Afghanistan. India agreed to train Afghan security forces but restrained from the deployment of Indian troops in the country (Price, G., 2013).

These projects are envisioned to secure India’s strategic and economic interests in the country. The Delaram-Zaranj road reduces Afghanistan’s dependency on Pakistan. The economic impact of its construction can be seen with an 81 percent increase in the population of the town Zaranj since 2004 and the increase inland valuation (D’Souza, 2016). The road will also facilitate the movement of goods from Iran’s Chabahar Port and rival China’s OBOR initiative. It is also expected to increase Afghanistan’s trade by 50 percent. The construction of a 220kV DC transmission line from Pul-e-Khumri to Kabul will significantly improve the power situation in Kabul. The Salma Dam inaugurated in 2016 is expected to produce 43 MW of electricity for 40,000 families in Herat district (Tolonews, 2016).

In December 2015, the construction of the Afghan Parliament was completed with the help of Indian assistance. The Turkmenistan-Afghanistan-Pakistan-India (TAPI) 1,735 kilometre-long gas pipeline is expected to generate employment and revenue worth USD 450 million annually for Afghanistan (D’Souza, 2016). This project has faced multiple delays due to several factors including India-Pakistan relations. India should work towards a speedy completion of the project especially in the light of Iran sanctions. These highly visible investments have helped India build its reputation as Afghanistan’s responsible regional stakeholder.


India has also taken initiatives on smaller scales in the form of Small Development Projects (SDP) like supporting the Afghan Ministry of Health, building cold storage facilities near Kandahar, renovation of the Indira Gandhi Hospital, etc. India invests in capacity building which includes various scholarships and training grants for civil servants, 20 Indian technical advisors in Afghan ministries under a trilateral agreement with the UNDP and training of Afghan security personnel (Price, G., 2018). SDPs have followed a more decentralised approach where Afghan ownership and participation have been encouraged.

In 2016, the Indian government announced the approval of the third phase of SDPs comprising 92 projects in Afghanistan. These projects include demonstrative nurseries, canals, health, education, labour, information and small infrastructure projects (EOI, Kabul, 2018). If these projects are implemented in a timely manner, they can prove to be transformational in rebuilding Afghanistan. However, India should be carefully monitoring the implementation of these projects to ensure that they do not turn in ghost projects.

Indian businesses too, have been increasing their presence in the country. The largest Indian business activity in Afghanistan is the successful tender by a consortium of seven Indian public- and private-sector companies, led by SAIL, to develop the Hajigak iron ore mine with a planned investment of USD 6.6 billion (EOI, Kabul, 2018). Prominent companies undertaking business in Afghanistan include KEC, AIPL, Phoenix, APTECH, Gammon India, KPTL, ANAAR Group and Spice Jet. The inauguration of the Dedicated Air Cargo Corridor in June 2017 between Kabul-Delhi and Kandahar-Delhi further facilitates integration with free movement of freight by avoiding transit issues with Pakistan (MEA, 2017).


India can further diversify its engagement with Afghanistan. The agriculture sector provides opportunities for investment. Agriculture employs a majority of the labour force. Years of war and droughts have severely affected the production of major crops like cereals, fruits as well as livestock (D’Souza, 2016). Investments in agriculture are even more necessary to reduce the illegal farming of poppy seeds. Revenues generated from poppy production are used to finance insurgencies. According to a 2016 report by the UN International Narcotics Control Board (INCB), the level of illicit opium cultivation in Afghanistan continues to be high in absolute terms despite the decrease in the area under poppy cultivation (The Diplomat, 2016). Investments in agriculture have to be complemented by investments in the country’s irrigation system as the lack of infrastructure to divert water from water-rich areas to arid areas acts as a severe challenge.

Afghanistan also has a rich resource base of minerals like iron, copper, zinc, and sulphur. According to the Afghan Ministry of Mines, the country has half a trillion cubic metres of liquid gas reserves along with an additional potential for exploration of oil and gas (D’Souza, 2016). Investments in exploration could help India develop Afghanistan into an energy source. The country’s industry and manufacturing sectors can also be investment avenues for Indian businesses as Indian goods and services are considerably cheaper than their western counterparts (Mullen, R, 2013). Indian manufacturing companies can set up units in Afghanistan and the goods can be sourced into India as well as sent across Central Asia. However, Afghanistan faces a shortage of skilled labour. This gap can be met by India undertaking SDPs focussing on vocational training of the Afghans.

Afghanistan’s economic development and stable security conditions are essential for India’s strategic interests in Central Asia. The country connects India to the energy-rich Central Asian countries along with access to new markets. This link is essential for India due to its ever-increasing energy needs. India’s engagement in Afghanistan is a long-term commitment. For India’s future interests in the country, it needs to invest in building better economic opportunities that prevent insurgencies. Afghanistan’s domestic stability is important for India’s regional integration. India should not slack on its economic diplomacy especially with China’s increasing interest in Afghanistan.


[i]Net Official Development Assistance (ODA) received per capita (current USD)



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