Deepening economic ties with each of the five Central Asian Republics is feasible and would be rewarding.
At the present juncture, none of the five Central Asian Republics represent a strategic market for the distant Americas or the developed Western Europe. Their geographical remoteness, small population, low household incomes, and the high cost of doing business tend to keep them away. However, for nearby China, as well as Iran and Turkey, such disadvantages are relatively manageable. Besides the historical trade connections, Central Asia’s energy and mineral resources hold attraction for them. Also, the import baskets of each of the five nations are easy to meet, particularly for China, the world’s largest manufacturer of consumer goods.
China’s significant presence in Central Asia is notable. It not only meets the region’s merchandise requirements but also provides essential capital for their development. China’s economic agenda, focusing on hydrocarbons and infrastructure, has eclipsed geopolitical concerns and elevated its regional influence, even surpassing Russia. The establishment of the Shanghai Cooperation Organisation (SCO) in 2001 further solidified China’s engagement with these countries and marked its own global emergence. However, there remains in the region, apprehension about China’s expanding influence despite its economic benefits.
Since 2016, India has been a member of SCO. With Russia already involved, China’s ability to wield pronounced strategic influence through its economic power has got somewhat limited. The Central Asian Republics (CARs) show pragmatism in accepting Chinese economic support without allowing it to infiltrate their social or religious fabric. That reassures Turkey, India, Iran, Pakistan, and Russia who continue to maintain engagement with the region. The CARs also actively participate in multilateral institutions like the UN, World Bank, and WTO, gaining proficiency in international practices.
The enthusiasm shown by the CAR leaders during the first virtual summit meeting with Premier Modi in January 2022 bodes well, and India should now delineate newer roles it can play vis-a-vis them. Each CAR has its own uniqueness and growth potential, and India should strive to provide tailored assistance in this regard.
KAZAKHSTAN
Capital city: Astana
Kazakhstan, the largest CAR, boasting 85% of India’s geographical size, is sought after owing to its abundant resources, including uranium, gold, iron ore, coal, and more. With three-quarters of its land suitable for agriculture, it has developed robust extractive, processing, and machine-building capabilities, notably in tractor assembly. Emphasizing democracy and moderate Islam, Kazakhstan has bolstered its international standing, aspiring for a permanent Security Council seat like India. Its burgeoning economy contributes nearly 70% of the combined GDP of CARs second only to Russia in Eurasia. With liberal trade policies and focus on skill-building, Kazakhstan attracts high-tech industries, including nuclear.
Kazakhstan supports India at various international fora. Their high-level bilateral visits and the India-Kazakhstan Intergovernmental Commission, established in 1992, have emphasized cooperation in meeting India’s energy and uranium needs, along with fulfilling Kazakhstan’s desire to expand its trade and commerce in agriculture, mining, healthcare, pharmaceuticals, railways, defense, space, IT, and education. India’s ONGC Videsh, with a 25% equity, extracts oil from the Satpayev offshore in Caspian Sea, which has a potential of 2.8 billion barrels. India has expressed interest in securing similar interests in Kashagan oilfields besides mining uranium assets. 90% of India’s imports, accounting for about $500 million, comprise metals and minerals mainly iron, steel, zinc and compounds, salt, sulfur, and lime.
A handful of Indian companies viz Tatas, BHEL, ONGC, Apollo Hospitals, Sun Group, and Punj Lloyd, have established manufacturing or processing facilities in Kazakhstan. Additionally, London based Laxmi Mittal, acquired the Karmet Steel plant, becoming the largest steel producer. Collaboration exists between Kazakhstan’s National Company Kazatomprom and Nuclear Corporation of India in fuel supply, reactor design, uranium mining, and nuclear medicine, although progress has been tardy. Besides nuclear cooperation, India must pursue its 2011 offer to share expertise in space research, satellite manufacturing, and remote sensing techniques. Collaboration in pharmaceutical manufacturing is also sought by Kazakhstan. India can technically support enhancing the wheat, rye, barley, flour, and rice production, leveraging its low-cost production advantage. Scope for assisting the Kazak Navy in the Caspian Sea and joint production of equipment for defense surveillance including manufacture of torpedoes have been highlighted. Setting up Indian ventures , both private and government-owned, in Kazakhstan is understandably the preferred option. Bilateral exchanges have discussed association with the extensive Indian medical care and private education industries in transport, tourism, and construction-related fields.
KYRGYZSTAN
Capital city: Bishkek
Kyrgyzstan is a country of 6 million and a significant portion lives in poverty despite its pursuit of liberal economic and democratic policies While the currency and economy remain stable, the nation’s primary industries are agriculture producing cotton, tobacco, wool, and meat, and mining resources such as gold, and mercury. Despite recent improvements in education and skills, high unemployment persists, although the development of various services has helped to mitigate it. Gold extraction at Kuntor, in joint venture with a Canadian entity, accounts for 50% of exports and 25% of GDP. Despite being landlocked and lacking hydrocarbons, it taps into inland water for hydroelectric power. It faces transportation bottlenecks, lack of robust banking facilities, and outdated investment norms, that hinder further growth.
Bilateral trade with India remains under a billion dollars, despite the mutual cordiality and frequent official interactions. Imports from China, Russia, Turkey, and Kazakhstan are more significant, while outward trade, is mainly with Switzerland, Uzbekistan, Kazakhstan, Russia, UAE, and Afghanistan though lacks diversification. Geopolitically, both nations have mostly been on the same page. The Kyrgyz Republic has sought Indian assistance to develop textiles, apparel-making, artificial fibers, silk, pharmaceuticals, banking, and appropriate technology for mineral exploration. Stepping up aid for these, along with agriculture, food processing, tourism, and IT, through substantively increased lines of credit and ITEC programs, is feasible as well as desirable.
Through such measures, the groundwork for India’s involvement in gold mining and processing, infrastructure development for the metal industry, and dairy enhancement could be laid. Kyrgyzstan’s abundance of natural resources and near self-sufficiency in human skills make it one of the lowest-cost producers in Eurasia. Inadequate transportation infrastructure diminishes this advantage. Addressing a portion of such deficiency through higher financial and technical aid could yield significant benefits for India.
TAJIKISTAN
Capital city: Dushnabe
The smallest Central Asian Republic, Tajikistan, is geographically closest to India and separated from POK by a small Afghani strip called the Wakhan Corridor. It shares 1,400 km long border with Afghanistan to the South, Kyrgyzstan in the North, Uzbekistan to the West, and China in the East. Besides significance in India’s Afghanistan policy, Tajikistan’s strategic location and predominantly mountainous terrain, has made it a playground for major powers of Russia, US, Iran and China. Economically, the poorest, with almost a third of its population living in abject poverty, it exhibits all the characteristics of underdevelopment. The limited arable land is primarily used for cotton-growing, although the country possesses minerals like bauxite, silver, uranium, and limestone.
Unfortunately, the menaces of drug trade and maladministration have hindered its potential for growth. China remains the primary supplier of both essentials and consumer goods. The limited exports of aluminum, hydro-based electricity, cotton, textiles, and fruits are mainly directed to Turkey, Kazakhstan, Iran, and Afghanistan. Despite signing numerous bilateral agreements on trade, economic cooperation, agriculture, energy, and defense, India has not yet prioritized trade with Tajikistan. Despite the relationship being labeled as a strategic partnership, India’s presence in Tajikistan’s remains minimal. A bilateral investment protection arrangement exists, and a few Indian firms are involved in power transmission, luxury hotel construction, natural gas exploration, and hydro-generation facility renovation. The Indian government has extended a credit line of $5 million and provided training slots under both ITEC and ICCR.
The small yet strategically located country holds tremendous potential for expanding its hydroelectric power, estimated annually at 527 billion kWh, with only 7% currently being exploited. Utilizing a portion to produce and export aluminum , warrant greater Indian attention as well as assistance. India requires both electricity and bauxite which could potentially be processed locally. However the long-distance transmission arrangements across inhospitable terrain and the cooperation of both Afghanistan and Pakistan to establish power connectivity across their territories are major constraints. India must also fulfill promises of cooperation to support IT, pharmaceuticals, textiles, and metal processing crucial for Tajikistan’s development. The lack of a land route compels manufacturing and processing, with Indian capital and enterprise, largely remaining within Tajikistan.
TURKMENISTAN
Capital city: Ashgabat
Turkmenistan, despite a modest population of 8 million, is a significant nation in southern Central Asia, bordering primarily Afghanistan and Iran. Its economy relies heavily on labour-intensive agriculture, particularly cotton and wheat production accounting 10% of GDP. Endowed with natural gas deposits, Turkmenistan effectively markets them to maximize value. Its policy of permanent neutrality and non-discriminatory relations with neighbors, coupled with a focus on foreign investment and trade diversification, has been fruitful. Infrastructure projects, including gas and oil pipelines to China, Iran, and the EU, have boosted extraction and reduced reliance on Russia. As the fourth largest global gas producer and a per capita income exceeding $18,000, Turkmenistan has achieved upper-middle-income status.
Like other Central Asian Republics (CARs), Turkmenistan is keen to enhance relations with India both geopolitically and economically. Regular exchanges of official visits and the signing of agreements and understandings on collaboration in energy, agriculture, IT, pharmaceuticals, and tourism have been taking place. Commissions and Working Groups have been established to broaden trade, economic, scientific, and technological cooperation. A significant outcome was the 2010 agreement on the $10 billion and 1,735 km long TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline. Upon completion, it would deliver a substantial amount to India, meeting a significant portion of its annual gas imports. Prolongation of the Afghan conflict and deteriorating relations between India and Pakistan have stalled the construction of the pipeline. Without It taking off , the bilateral trade and Indian investments remain limited, Turkmenistan seeks increased collaboration with Indian firms in infrastructure, telecommunications, satellites, and GPS systems. A transport corridor agreement had been signed in 1997 linking Mumbai to Iran’s Bandar Abbas and enabling rail transport of goods across Iran to various cities in Turkmenistan, then onward to Uzbekistan. It envisaged rail route, involving Turkmenistan, Kazakhstan, and Iran, to facilitate goods transportation to the Persian Gulf. Additionally, Turkmenistan is part of the North-South Transport Corridor, connecting India’s western coast to Russia via Iran.
UZBEKISTAN
Capital city: Tashkent
Uzbekistan is centrally located and due to having borders with all CARs , it has become a hub of transit corridors. Its large size and the fertile river valleys of Syr Darya and Amu Darya yield large quantities of wheat, high-quality cotton, and wine-grade grapes. The Fergana valley is rich in natural resources of natural gas, coal, gold, silver, uranium, and non-ferrous minerals. While hydrocarbon reserves are modest, gold production is among the highest. Together these earn 40% of foreign exchange. The country’s open-door policy and move towards globalization have attracted investment from China, South Korea, Russia, and USA in gas, oil, telecom, mining, automotive, and powertrain manufacturing. Such endowments and policy measures have led to robust economic growth, making Uzbekistan a middle-income nation despite its large population. While agriculture remains the main pursuit, the services have surpassed industry in contribution.
Bonhomie persists in bilateral ties between India and Uzbekistan in international and economic matters, with frequent interactions. Uzbekistan supports India’s entry to the Security Council. India imports raw materials for fertilizer-making, uranium, and light military aircraft. Significant collaboration in solar energy, ITES-based technology, and agricultural mechanization is underway. ONGC and GAIL have been granted extraction access to natural gas and oil assets jointly with Uzbek government entities. Together they produce and distribute LPG and CNG in Tashkent, Samarkand, and Bukhara. India exports pharmaceuticals, tea, machinery, and surgical goods and pays for technology transfer effected by the joint ventures covering textiles, pharmaceuticals, industrial explosives, stainless steel kitchen wares, and luxury hotel construction.
India is progressing in enhancing economic engagement with Uzbekistan. Providing support and risk mitigation to Indian businesses willing to set up manufacturing facilities and markets overseas should yield commensurate benefits. Strengthening economic ties would solidify the strategic partnership and foster greater geopolitical understanding. However, Uzbekistan’s well-developed ties with China, Iran, Afghanistan, and Pakistan, may pose challenges as would the lack of direct connectivity except by air.
In summary, India’s efforts to significantly and rapidly enhance economic ties with the Central Asian Republics (CARs) must be backed by its extensive soft power in health care , education , agriculture and mining technology and skill building particularly IT. Diversifying its services exports would greatly offset their low availability of trained work force—in course of time that might even facilitate an extent of migration of Indian nationals to these countries. Kazakhstan and Uzbekistan, followed by Kyrgyzstan, offer greater promise as priority destinations for economic engagement. In effecting noticeable economic strengthening , competition would emerge from other countries already present in these markets and which do not lack the formidable transportation bottlenecks that India faces.
However these can be overcome through assiduous follow up with each CAR to firm up alternate routes and modes of carriage. India’s relationships with the region are not limited by any past or recent adverse factors. Building economic ties with these countries, should not be unaffordable in material terms for India. In fact, the resulting geopolitical and other benefits would notably outweigh the costs incurred.
Dr Ajay Dua, a development economist, is ex Union Secretary, Ministry of Commerce & Industry.