Challenges to India-Myanmar Trade and Connectivity

Prabir DeRIS

4 February 2013

Presentation at Brainstorming Session on India-Myanmar Strategic Partnership, Organised by RIS, 4 February 2013

Three stylized facts

• Unlike many LDCs, India is having trade deficit with Myanmar (US$ 780 million in 2011-12)

• India provides higher market access to Myanmar than China (export to India was 12%, compared to 4% in China in 2011)– Both India and China provide DFTP to Myanmar

• Adjacent, but China engages border for tradewith Myanmar, whereas India uses ocean as principal mode of exchange of goods.

What India imports from Myanmar….

96.351216.00Total of above0.222.78Natural rubber, balata, gutta-perch40010.242.99Ginger, saffron, turmeric (curcuma)09100.253.21Tubes, pipes and hollow profiles, 73040.324.01Sheets for veneering (including44080.415.16Commodities not specified according99990.445.53Human hair, unworked, whether or no05010.587.37Ammonia, anhydrous or in aqueous so28140.9011.34Plywood, veneered panels and similar4412

46.29584.14Dried leguminous vegetables, shellec071346.71589.47Wood in the rough, whether or not4403

Share in Total Import (%)

Import(US$ million)Product DescriptionHS Code

Year: 2011

What India exports to Myanmar….

67.11305.95Total of above1.115.08Insulated (including enamelled or 85441.255.69Ball point pens; felt tipped and 96081.687.64Cotton yarn (other than sewing52052.4611.23New pneumatic tyres, of rubber.40113.5115.98Cane or beet sugar and chemically 17014.9222.44Flat-rolled products of iron or non72104.9822.72Oil-cake and other solid residues, 23045.7926.41Meat of bovine animals, frozen0202

14.9368.05Medicaments (excluding goods of 300426.48120.71Other tubes and pipes7305

Share in Total Export (%)

Export (US$ million)Product DescriptionHS Code

Year: 2011

Bilateral trade is regarded as intense but overall trade intensity showing a

decreasing trend

Trade Intensity Index (TII)

Relatively high trade complementarity, showing high

prospects of bilateral tradeTrade Complementarity Index (TCI)

Long border, but no trade at border………

Zorinpuri(proposed)

Mizoram

RihZokhawthar(Champai)

Mizoram

TamuMorehManipur

Pan SaungNampongArunachalPradesh

LCS in Myanmar

LCS in IndiaNER State in India

Trends in India-Myanmar Bilateral Trade

Total length of border: 1643 km

…..border is yet to be engaged for a healthy bilateral trade

• What we trade through ocean, doesn’t match with what we trade through border.

• Mismatch negates the comparative advantage of goods.

• Products loosing competitiveness, disadvantage to production networks, and slowing down the economic exchange expansion between the two countries.

PulsesBetel nutGinger2009

PulsesGingerBetel nut2007

PulsesGarlicBetel nut2001

Import Item3

Import Item2Import Item1

Year

Soyabari2009

Cumin seedsSoya gridSoyabari2007

Cumin seedsSumon rose powder

Soyabari2001

Export Item 3

Export Item 2Export Item1

Year

India’s Top Three Traded Items with Myanmar at Moreh-Tamu Border

Some major deterrents to trade prospects at border

• Borders are open and porous• Large informal trade• Smuggling of goods, drugs and narcotics, and human

tracking• Political disturbances, etc.• Ransoms of insurgents groups (operating in both India and

Myanmar), strikes, ethnic conflicts, etc. at the border areas• Lack of basic trade infrastructure • Positive list of trade items • Exchange rate anomaly and inadequate banking• L/C does not work, a.o.

India’s recent initiatives to strengthen trade at border

• India and Myanmar have agreed to upgrade the status of border trade to normal trade, but process has been slow.– The border trade agreement between the two countries, which was

made on Jan. 21, 1994, allowed only 18 kinds of goods. – In 2008, both the countries expanded the tradable items from 18 to

40. – In December 2012, DGFT raised the number of border trade items to

62. Rice, wheat, corn, medicines and 18 other items were added to the list of goods for trade at India-Myanmar bordering areas.

– The other newly added items include agricultural tools, bicycles, coal, garments, edible oil, electrical appliances, steel products, tea, beverages, motor cycles and spare parts, semi precious stone, sewing machines and three wheelers/cars below 100cc.

• ICP at Moreh with an investment of Rs. 13.60 billion• Road from Imphal to Moreh has been widened, except few

places. • Link road from Champai to border in Mizoram (links to

Kaladan) is ongoing.

Myanmar has introduced some important trade facilitation measures

• Separate Ministry handling border trade• Commercial tax and income tax for export has been

reduced to zero from 10% except for 18 special commodities such as cigarettes and alcohol.

• No income tax on CMP exports, which was earlier 10%. • New export and import items have been allowed.• Export Import Law has been promulgated in September

2012• Cargo inspection stations at road checkpoints have been

reduced.• Government monopoly in trading (e.g. palm oil, diesel) has

been curtailed.• Automation of trade procedures such as (i) Online

Licensing System, and (ii) Border Trade Online System (BTOS) has been introduced.

Connectivity contrast..…. wide gaps, provide huge investment

opportunities

131616Electric power consumption (kWh per capita), 2010

441Liner shipping connectivity index, 2010

0.179.75Container port traffic (million TEUs), 2010

0.4064.14Air passengers carried (million), 2010

21720Air freight transport (million ton-km), 2010

11.967.4Paved roads (% of road), 2010

41.31382.2Road density (km of road length per 1000 sq. km. land area), 2010

5.121.5Railway density (km of railway length per 1000 sq. km. land area), 2010

1.010.1Internet users (per 100 population), 2011

2.672.0Mobile cellular subscriptions (per 100 population), 2011

1.12.6Fixed telephone mainline (per 100 population), 2011

MyanmarIndiaParticulars

International highway projects in Myanmar

n.a1China – Myanmar Corridor**9n.a1Thailand – Myanmar Highway**8n.a1Bangladesh – Myanmar Highway** 7

n.a1India – Myanmar – Lao PDR – Cambodia -Vietnam Highway**

61201Mekong – India Economic Corridor 5

1,3601Trilateral Highway connecting India, Myanmar and Thailand (also known as BIMSTEC Highway)*

4

1,3025GMS Economic Corridors: East – West, North –South, Western, Northern and Southern Corridors

31,4383ASEAN Highways 111, 112, and 12323,0184Asian Highways 1, 2, 3 and 141

Length (km)#No. of Highways

Particulars Sr. No

International railway projects in Myanmar

• Three missing links (i) Kalay to Tamu (127 km) at Indian border, (ii) Lashio to Rueli (142 km) at Chinese border, and (iii) Thanbyuzayat to Three Pagoda Pass (110 km) at Thai border.

• According to the Myanmar Ministry of Transportation, bridging these three gaps would cost around US$ 823 million. – Kalya to Tamu (US$ 98 million),

Lashio to Muse (US$ 480 million), and Thanbyzayat- Three Pagoda Pass (US$ 246 million).

International port projects in Myanmar

• Myanmar is planning to set-up three major seaports at Kyaukpyu, Kalagauk, and Dawei

• Shipping through Kyaukpyu port would be the shortest trade route from India to China.

• Klagauk port falls along the ADB’sWest-East Economic Corridor (EWEC), linking Indian Ocean with the Pacific, cutting the distance of the conventional circuitous sea route passing the Malacca Strait by almost two-third.

• Dawei port is part of Mekong –India Economic Corridor, links Southeast Asia with vast and growing Indian market.

India – Myanmar infrastructure links and ongoing connectivity projects

• Two major connectivity projects: (i) Trilateral Highway (TH) and (ii) Kaladan Multimodal Transit Transport Project (KMTTP).

• Three upcoming projects: (i) extending TH to connect Cambodia and Vietnam, (ii) India –Myanmar – Lao PDR – Cambodia - Vietnam Highway, and (iii) Delhi – Ha Noi railway link.

• Two important projects: (i) Stillwell Road, and (ii) Tiddim-Rih-Falam Road.

• Mekong–India Economic Corridor (MIEC).

Bilateral infrastructure links

• India – Myanmar Shipping Services• Myanmar Air Services• India – Myanmar Oil and Gas Pipelines• India – Myanmar Telecom Links

Trilateral Highway

Delhi – Hanoi Railway Link

Kaladan Multimodal Transit Transport Project

Mekong–India Economic Corridor (MIEC)

Some major challenges to India-Myanmar connectivity

• Unsupportive financial sector in the area of trade (e.g. workingcapital issues, trade finance, etc.)

• FDI policy is still non-transparent. Economic sanction is fully removed but market-driven normal operation is yet to be restored.

• Volatile Myanmar currency Kyat.• Poor banking infrastructure (L/C payment system not popular yet)• Poor border infrastructure • Ports, shipping and air links are very weak• Trade between India and Myanmar will have to move from Switch

Bill of Lading System to normal Bill of Lading System. • Lack in coordination between public and private sector. Private

sector associations are few in numbers and weak in strength. • Political instability and insurgency in some part of Myanmar (and

also in India’s Northeast) add to the investment risks, lowering in feasibility of cross-border infrastructure development.

Recommendations• Complete the Trilateral Highway before 2015, the year when ASEAN

Economic Community will start operating and a greater part of Asia comes under regional free trade regime;

• Connect the capital cities in India and Myanmar with direct air links and extend it to other import cities such as Mandalay and India’s northeast (Spice Jet to start operation)

• Government may think to call a conference of ports and shipping industries of India and Myanmar, which would help understand the local requirements and build business networks;

• Intermodal operation connecting ports and land would be feasible to access inland areas of Southeast and South Asia, and therefore allow short sea shipping between coast of India and Myanmar;

• Set-up SEZ at Sittwe in Myanmar for Indian investors and build highway linking it to major Indian, Bangladesh and Myanmar cities;

• Improve border infrastructure at Moreh-Tamu or Champai-Rih• Financial market development and market-driven currency exchange rate

stability are essential;• Allow more Indian banks to operate in major Myanmar cities and vice

versa;• Consistent and standardized border crossing formalities and procedures

are very important;• Capacity building in transportation should be taken up on priority

Thank you