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The trade relations between the developed and developing countries in the past have been essentially colonial in nature and hence biased against the latter. The pattern of comparative advantage between the developed and the developing countries in which former specialize in industrial production and the latter specialize in the agriculture production, has led to the phenomena of unequal exchange and adverse terms of trade for the developing countries. The regional economic groupings within the developed countries and the international financial institutions have further strengthened this trend. As a result, the share of the developed countries in the world trade remained high. Not only this, the major portion of the developed countries trade is among themselves, whereas the developing countries have a very low proportion of their trade among themselves. By way of economic cooperation, the developing countries of every region can become more and more inter-dependent on each other, thereby reducing their dependence on the developed countries (Madaan, 1996).

India and Afghanistan have a strong relationship based on historical and cultural affinities. This connection goes beyond governmental interactions, finding its roots in the historical exchanges between the people of both nations. The Strategic Partnership Agreement (SPA), signed in October 2011, further solidifies this relationship by outlining key areas of collaboration. Under the SPA, there is a commitment to assisting in the reconstruction of Afghanistan's infrastructure and institutions. India also extends support in the form of education and technical assistance to enhance indigenous Afghan capabilities across various sectors. Additionally, efforts are made to encourage investments in Afghanistan's natural resources. To promote economic ties, India grants duty-free access to the Indian market for exports from Afghanistan. The agreement emphasizes a commitment to an Afghan-led, Afghan-owned, broad-based, and inclusive process of peace and reconciliation. India advocates for sustained and long-term international commitment to Afghanistan. Regular high-level exchanges characterize the diplomatic ties between the two nations, underscoring the importance both countries place on maintaining a strong and enduring relationship (Ministry of External Affairs, 2017).

Afghanistan’s bilateral trade with India has been growing steadily and got a big boost in recent years. India’s trade with Afghanistan at current prices increased from US$ 40.8 mn in 2001 to US$ 896.4 mn in 2022. Her total bilateral trade with Afghanistan accounted for US$ 14086.0 mn during 2001-22. India’s exports to Afghanistan have been growing faster than her imports from latter. India’s exports to Afghanistan have increased from US$ 20.9 mn in 2001 to US$ 481.6 mn in 2022. As regards to India’s imports from Afghanistan, these have increased from US$ 19.9 mn during 2001 to US$ 414.8 mn during 2022. Cane or beet sugar and chemically pure sucrose; Medicaments consisting of mixed or unmixed products; Vaccines for human medicine; Cumin seeds; Women's or girls' tracksuits and other garments; Woven fabrics; Nuts and other seeds; Wheat and meslin; Chewing tobacco, snuff and other manufactured tobacco, etc. were the major items of India’s exports to Afghanistan during 2001-22. However, India’s imports from Afghanistan have shown modest diversification. The most important items of India’s imports from Afghanistan were Lac; natural gums, resins, gum-resins, balsams and other natural oleoresins; Dried grapes; Fresh or dried figs; Fresh or dried pistachios, shelled; Juniper berries and seeds of anise, badian; Fresh or dried almonds, shelled; Dried apricots; Saffron; Plants, parts of plants, incl. seeds and fruits, used primarily in perfumery, in pharmacy; Dried, shelled beans of species; etc. (Uncomtrade, 2023).

1.1 Key Economic Indicators of India and Afghanistan during 2022:

Table 1.1 shows the key economic indicators for India and the Afghanistan during 2022. In 2022, India's population was 1417 million (mn), with a GDP of US$ 3416.6 bn, compared to the Afghanistan’s population of 41.1 mn, with a GDP of US$ 14.2 bn. India is approximately 3287.3 square kilometers (sq.km) geographically, while the Afghanistan is approximately 652.9 sq. km. In terms of per capita Gross National Income (GNI), both countries differ significantly. The per capita GNI of the Afghanistan was US$ 380, which was less than India's per capita GNI worth US$ 2390. In 2022, the life expectancy at birth stood at 67 years in India, while it reached 62 years in Afghanistan Further, the proportion of the urban population in the total population in India and the Afghanistan was 36 per cent and 27 per cent respectively, in 2022. The Human Development Index (HDI) developed by the United Nations Development Programme (UNDP) has shown a big difference in HDI ranks for India and the Afghanistan, as shown in Table 1.1. India was ranked 134, while the Afghanistan was ranked 182nd in 2022. Despite such differences in economic indicators, India and the Afghanistan have enjoyed warm and cordial relations, and there is room for expansion.

Table 1.  Key Economic Indicators of India and Afghanistan during 2022

Sr. No.	Indicators	India	Afghanistan
1	GDP (US$ bn)	3416.6	14.2
2	Total Area ('000 Km Sq.)	3,287.3	652.9
3	Population  (mn)	1,417.2	41.1
4	Life Expectancy at Birth (yrs).	67	62
5	Urban population (% of total population)	36	27
6	Per Capita GNI (US$)	2,390	380
7	HDI Rank	134	182

Source: (i). World Bank 2024, World Development Indicators

(ii).UN Comtrade database 2024.

Michaely (1994) used TCI to assess prospects for Latin American trade arrangements. Kiran and Madaan (2022) analyzed trade complementarity between India and UK for the period 2001-20. The authors were of the view that the level of complementarities in bilateral trade is above the normal which implies that there is fuller utilization of their bilateral trade. The UK's export complementarities with India were higher as compared to India's export complementarities with UK.

The proposed study is based on secondary data. Both published and unpublished sources of data are used. The data is mainly collected through various online and offline sources viz., Uncomtrade, World Bank, UN Publications, Economic survey of India and through various Books, Periodicals and Journals. Data related to complementarity of trade are based on Harmonized System coding at 6-digit level. To analyze the trade potential, the trade complementarity is estimated for the period of 2008-19. Countries with greater complementarity have more opportunities to trade with each other. For expansion of India's trade with Afghanistan, it is important that the trade profiles of the countries match i.e. what is exported by India should be imported by Afghanistan. The index lies on the range 0-100. The Trade Complementarity Index (TCI) can be constructed between India and Afghanistan as under:

TCIikj = 100 - ∑ (│Mik – Xij│÷ 2)

 Here, Mik = Share of good i in all imports of country k (Afghanistan), and

Xij = Share of good i in the global exports of country j (India).

Export Complementarities of Indiaand Afghanitsan:

For expansion of India's exports to Afghanistan and vice-versa, it is necessary that the trade profiles of the countries match i.e. what is exported by India may be imported by Afghanistan, and what is exported by Afghanistan may be imported by India. It is, therefore, important to examine whether India's export profile with Afghanistan, and Afghanistan's export profile with India has become similar over the period of time and facilitate growth, or not. The estimated export Trade Complementarity Index can show how well the export profile of India/Afghanistan match with import profile of Afghanistan/India. The index lies on the range 0 to 100. It takes the value 100, when a composition of import needs in Afghanistan matches perfectly with exports of India. At the other extreme, where India's export has no relevance to the import needs of Afghanistan, the index takes the value of zero. The complementarity index measures the degree of common characteristics between the export profile of India and import profile of Afghanistan. Similar is the case of the export profile of Afghanistan and import profile of India. The extent of complementarities reflects the probability of success of a regional trading arrangement countries with greater complementarities have more opportunities to trade with other. As such, it is assumed that higher the TCI more favourable are the prospects for India's exports to Afghanistan and Afghanistan's export to India. Changes over time may tell us whether the trade profiles are becoming more or less compatible. It may be noted that high complementarities indices may be misleading if the countries are geographically distant, or if the size their economies differ significantly.

Table 2. Export Complementarity Index of India and Afghanistan with each other during 2008-2019

(Per cent)

Year	India's Export Complementarity Index with Afghanistan	Afghanistan's Export Complementarity Index with India
2008	70.1	55.1
2009	88.7	64.0
2010	92.2	71.1
2011	87.5	73.8
2012	87.5	82.8
2013	86.0	85.6
2014	86.7	84.9
2015	88.0	69.0
2016	87.0	74.5
2017	65.9	65.1
2018	67.3	69.8
2019	58.8	53.6
Avg. (2008-2019)	80.5	70.8

Source:UN Comtrade database 2024.

The TCI of India's exports to Afghanistan, and Afghanistan's exports to India during 2008-19 has been computed as shown in table 2. It is clear from the table that India's exports complementarities with the Afghanistan has been declining, and reached to 58.8 per cent in 2019 from 70.1 per cent during 2008 with average of 80.5 per cent. However, Afghanistan’s export complementarities with India have been declining from 55.1 per cent in 2008 to 53.6 per cent during 2019 with average of 70.8 per cent. Overall, there is a great complementarity in their bilateral trade. However, some suitable and effective steps to undertake for controlling the falling trend.

1. Madaan, D. K. (1996). Indo-Bangladesh Economic Relations and SAARC. New Delhi: Deep and Deep Publications..

2. Michaely, M. (1994). Trade Preferential Agreements in Latin America: An ex Ante Assessment, World Bank Policy Research Working Paper 1583.

3. Ministry of External Affairs. (2017). India-Afghanistan relations.

https://www.mea.gov.in/Portal/ForeignRelation/1Afghanistan_October_2017.pdf. Accessed on December 10, 2023.

4. Kiran, M., & Madaan, D. K. (2022). India-UK trade complementarities. Arthavati: An International Journal, 9 (1/2), 66-79. https://arthavati.org/wp-content/uploads/2023/03/Arthavati-Journal-Vol-9.pdf#page=72, as accessed on March 14, 2024.

5. UN Comtrade Database. (2024). https://comtradeplus.un.org/TradeFlow, Accessed on March 15, 2024.

6. World Bank. (2024). World Development Indicators. https://databank.worldbank.org/ source/world-development-indicators