Central Asia’s Growing Trade Ties with India

Initially, Central Asia was under the shadow of two powerful neighboring countries, but in the 21st century, the landscape of geopolitics was shifting towards a multipolar powerhouse. In geopolitics and geoeconomics, analyzing it, Central Asia started shifting its dependence from neighboring countries and inviting other players from two continents, Asia and Europe. After understanding the dependence of these states, Central Asian countries started to become independent players in the regional and global arena.

Geographically, Central Asia is a landlocked country where they don’t have direct access to sea trade and are dependent on neighboring countries, which are Russia, Europe, and China. But Central Asia needs an alternative plan where they can access sea trade, which helps them boost their economy, so they need a strong navy presence in the particular sea region for the safe trade that is near them but they don’t have. Basically, Central Central Asia countries are rich in oil and gas, also known as the “second Middle East” or “second Persian Gulf.”

When they open the market, they dread to allow other players that they involve in their internal issues in their state. At that time, India announced the Connect Central Asia policy, which helped them trust India. Historically, India and Central Asia had good trade and relationships, but as time progressed, these ties weakened. After the initiatives, central Asia started shifting its interest towards India, which is the first country to have a huge impact on trade and investment. India is one of the largest energy-consuming countries, while Central Asian countries are major exporters of oil and gas.

After announcing the Connect central asia policy, central asia utilizes this opportunity to boost trade and investment in their region. Below the table column share the trade between India and central asia.

India’s Trade with Central Asian Countries 2015-2021 (in US$ million)

Source:Link Credit:ISAS

Central Asia Seeks New Partnerships Beyond Russia and China

After Russia invaded Ukraine, which passed economic sanctions from various states and institutions to crumble the Russian economy, this not only affected the Russian economy but also Central Asia. After the COVID-19 pandemic, the inflation rate in Central Asian countries started increasing, which resulted in high costs of living, a rising risk of poverty, and an increase in the price of basic commodities. This conflict created global food and energy crises.

Since 2022, the full scale of Russia’s invasion in Ukraine has directly affected Central Asian countries, where Russia forced CA countries to vote in UNSC favors for them and mobilized Central Asian countries to re-export electronic components from household appliances in Russia for military purposes, imposing a ban on exports to members of the Eurasian Economic Union.

Central Asian people are seasonal migrants to Russian remittances, which are the major source of their income for households. According to an estimate released by the World Bank, the flow of remittances is expected to decline by 33 percent in Kyrgyzstan, 21 percent in Uzbekistan, and 22 percent in Tajikistan.

After analyzing the situation of Russia, China rapidly started to increase trade and investment with Central Asian countries, where they can strengthen their footprints using this situation, which is fraught with Russians. In the past five years, imports from China to Central Asia increased but suddenly decreased due to the pandemic. After the pre-pandemic in 2021, imports started increasing again. However, in 2022, Russia experienced a full-scale invasion, which dramatically increased by 44 percent in imports from China. Below, the chart shows the import of Chinese goods to Central Asian countries.

Source:Link Credit:The Diplomat

China is the most important foreign trade partner for Central Asian countries and a big threat to Central Asian countries. In the previous year, BRI Investment China used their debt-trap diplomacy as an invisible arm to interference in political and legislative bodies, which caused a big political issue. Between 2014 and 2019, there were five major corruption scandals involving a Chinese company and elite-level local politicians, including two former prime ministers and two former mayors of large cities, which were clearly seen as a threat to their country’s sovereignty and security.

Boosting Trade: Central Asia growing economic ties with india

After India announced the “Connect Central Asia Policy,” the purpose of this policy was to strengthen India’s political, security, economic, and cultural connections. But due to the limited route, connectivity is not very effective in the initial days. In 2015, Indian PM Modi visited five Central Asian countries and signed 22 agreements on defense, military and technical cooperation, trade, tourism, and culture, which set the stage for economic growth. In 2016, India and Iran signed to develop and operate the port’s Shahid Beheshti terminal, which saw Central Asian countries shift towards India, where their policies were effective for them to maintain their economies and political stability and trade them through the Indian Ocean region.

The Delhi Declaration urged Central Asian countries to consider joining India’s connectivity initiatives, including the International North-South Transport Corridor (INSTC) and the Ashgabat Agreement on International Transport and Transit Corridor.

In the recent geopolitical landscape, India is the rising power and a significant player on the global stage, with the fastest-growing economy in the world. In the upcoming decade, the service sector, robust IT industry, and increasing manufacturing capabilities advancements in IT and digital infrastructure will position India to become a manufacturing hub in the future, which will attract central Asia to shift towards India and, as a result of foreign investment, India will develop the developing countries through their FDI and trade.

In the second meeting of the India-Central Asia dialogue held in October 2020, India announced a US$1 billion Line of Credit for priority developmental projects in diverse fields, such as connectivity, energy, info-tech, healthcare, education, agriculture, etc.

Export and import data Between central Asia and India (in US$)

Source: Ministry of commerce and industry

Government of india

After understanding the potential of India, Uzbekistan signed nine bilateral agreements for sector-wise cooperation in which Indian firms were interested in investing in developing airports, air corridors, and cargo infrastructure in Uzbekistan. India has established campuses in Tashkent and Andijan for education, and Sharda University in Andijan. India supports Uzbekistan’s startup environment through iCreate, DevIT, and partnerships in innovation, technology, and research. India also participates in Uzbekistan’s energy sector. India hosted the second meeting of the India-Central Dialogue recently, the first of which was conducted in 2019 in Uzbekistan.

According to the Center for Economic Research and Reforms (CERR), Uzbekistan’s GDP increased by 5.6% in the first six months of 2023, higher than the same period in 2022 (5.4%). Uzbekistan’s economy is expected to maintain stability through the year and is expecting higher investments from India. The manufacturing industry Industrial production grew faster, with manufacturing growing by 6.3% and mining by 0.2%. Power supply grew by 9.9%, while agriculture experienced acceleration. Market services volume increased by 12.3%, while retail turnover slowed. Foreign trade turnover increased by 19.4%. upcoming events India plans to push health sector, technology cooperation, connectivity sharing, and defense cooperation through the SCO and ICAD summits.