Indo-Kazakhstan Trade:
Barriers and Prospects

Jaspreet Kaur*
& Sandeep Kaur**

Abstract

The degree of Indo-Kazakhstan bilateral trade is not so relevant but it has been growing fast in last few years. This increase is exhibiting increasing role of the republic in India’s trade. As per Indicative Trade Potential (ITP), there exists a vast scope to increase and diversify this bilateral trade. India has major potential in machinery and transport while Kazakhstan can expand the exports from its traditional sectors of mineral and metals. Potential in different products reveals the opportunity for diversify the trade in future. It would enhance the benefits for both the countries in long term.

Key words:   Bilateral trade, trade potential, barriers, ITP

Introduction

The end of Cold War and disintegration of Soviet Union in December 1991 led to the emergence of the sovereign republics of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan in the middle of Asia continent. Since their independence, these five former Soviet republics (together termed as Central Asia or Middle Asia) have been the focus of the World attention due to its location, minerals, natural resources and destabilized political system. Central Asian Republics (CARs) have a wealth of natural resources such as oil, gas and metals, as well as commodities like cotton, grain, and cereals. Among these five republics, Kazakhstan and Turkmenistan are oil and gas exporters thus richer than others. Kazakhstan has the largest oil and coal reserves in the region. According to British Petroleum (B.P.) Statistical review of World Energy (June 2011), with 3 percent of world’s proven oil reserves, it is the eleventh largest oil reserves in the world and probably has the greatest capacity for production growth of any non-OPEC member. Also, Kazakhstan is the only Central Asian republic with huge reserves of coal which accounted for about 4 percent of total world coal reserves. After Turkmenistan, it has larger reserves of natural gas in region.

Map I: Geographical view of Kazakhstan

Source: https://maps.google.com/. Accessed  2012, February17.

Kazakhstan has a top position in oil and gas production in Central Asia region and it has an expanding mining sector. Table I shows that in 2000, Kazakhstan has produced 35.3million tons of oil (700,000 barrels per day) which increased to 81.6 million tons (more than 160, 0000 barrels per day) in 2010. In 2010, it has produced 2.1 percent of total world oil production. Kazakhstan has the potential to be a world-class oil exporter. Natural gas production has increased from 10.4 billion cubic meters in 2000 to 33.6 billion cubic meters in 2010. Though Kazakhstan's economic future is linked to oil and gas development; It  has also the World’s second largest uranium, chromium, lead and zinc reserves, the third largest manganese reserves and the fifth largest copper reserves. In 2009 Kazakhstan became the world's leading uranium producer with almost 28 percent of world production then 33 percent in 2010 and about 35 percent in 2011. It has the largest silver, zinc and nickel markets in West Asia. The republic also exports iron and diamonds. It also has enormous agricultural potential with its vast grassland. The republic is the 6th largest global producer of cereals and has self-sufficiency in food production (Jadraliyev 2010, p.17).  

Table I: Oil and Gas Production in Central Asia

Countries	Oil (million tones)				Natural Gas (billion cubic meters)
	2000	2005	2010	Share	2000	2005	2010	Share
Kazakhstan	35.3	62.6	81.6	2.1	10.4	22.6	33.6	1.1
Turkmenistan	7.2	9.5	10.7	0.3	42.5	57.0	42.4	1.3
Uzbekistan	7.5	5.4	3.7	0.1	51.1	54.0	59.1	1.8

Note: Share indicates percentage share in world’s total production.
Source: B. P. Statistical Review of World Energy, June 2011.

Today in world scenario, energy plays an important role in the formation of a country‘s foreign and security policy. India is also looking for the nuclear energy option and sources beyond the Middle East. As a current example is, Indo-U.S. nuclear agreement, as well as consistent engagements with the countries of Eurasia, Africa and Latin America, should be seen in this perspective (Sachdeva 2010, p.126).
Kazakhstan’s industrial sector depends mainly on the extraction and processing of the natural resources and also on heavy industry specializing in construction equipment, tractors, agricultural machinery and military products. The manufacturing activities are limited to textile, chemical products and fertilizers. The former Soviet republic is in transitional phase. Also, it has rapidly growing middle class and signs that the hydrocarbon prosperity is being felt widely. Thus, there have been required huge imports in pharmaceuticals, tea, food processing, machinery and equipments, paper and paperboards, consumer durables and services. On the other hand, India has a proficiency to provide these requirements. Thus, it has two-fold significance for India.
India and Kazakhstan had been a historical trade tie since Silk Road period. The Silk Routes were important paths for turbans, guns, and technological exchange for Ancient China, Ancient India, Ancient Tibet, Persian Empire and Mediterranean countries for almost 3,000 years (Kaur 2011, p. 250). Trade interaction reached its heights during the Kushans (first to the third century A.D.) when there was extensive exchange of goods, men, ideas and culture between the two regions (Agarwal 2006, p.3). However, these exchanges had almost been frozen when Central Asia got incorporated into socialism under USSR. In the post Soviet Socialist era, keeping in view their economic and strategic interests India is strengthening its relations with Central Asian Republics (CARs). Table II depicts India’s trade trends with Kazakhstan during 1995-2010.Table depicts that India’s exports to republic has been continuously increasing during the study period (except 1996) from US$ 8.55 million in 1995 to US$ 146.21 million in 2010 i.e. increased by 21.60 percent. The highest growth in exports has accounted in 1996-97 when it grew by 244.69 percent. However, India’s imports from Kazakhstan have fluctuated with a propensity to increase. It reached to a level of US$ 157.50 million in 2010 from US$ 7.95 million in 1995, while its growth rate has remained lower than that of India’s exports to Kazakhstan i.e. 19.77 percent. On an average, in last fifteen years India has imported commodities of US$ 47.58 million from Kazakhstan.
Table also reveals that the total trade between India and Kazakhstan has grown by 20.06 percent, from US$ 16.50 million in 1995 to US$ 303.71 million in 2010. The average trade during this period was of US$ 113.88 million. During 2007-2008, imports grew more than 500 times. It may be due to the shot up in mineral and oil prices in international market. The Balance of trade during initial periods of study i.e. in 1996 and 1997 was in favor of Kazakhstan. After 1997 and prior to the financial crisis in 2008 India has a positive trade balance with republic. However, today India’s trade balance with Kazakhstan is negative, over the last three years there is not much change in that volume (-11.40 in 2008 to -11.29 in 2010). On an average, for whole study period the balance of trade has remained in favor of India.
The percentage share of India in Kazakhstan’s global exports, imports and total trade is negligible during the study period. But all shares have a tendency to increase. Table III reveals that in 1995 India has a share of only 0.18 percent in Kazakh’s total trade which increased to a highest level of 0.53 percent in 1998. Since 1999 it continuously declined (expect 2001) till 2007 (0.20 percent). However after 2007, India’s share in republic’s total trade has improved a little and reached to 0.37 percent in 2010. Share of country’s exports to Kazakhstan has increased from 0.15 percent of total exports of later in 1995 to 0.28 percent in 2010; while, India's share in its total imports has been increasing from 0.22 percent in 1995 to 0.61 percent in 2010. However, the average shares of Indian exports, imports and total trade in Kazakhstan’s global exports, imports and total trade (0.20 per cent, 0.54 per cent and 0.33 per cent respectively) are still less than one.

Table II: India’s Trade Trends with Kazakhstan (US$ million)

Note: Values in parentheses show percentage change.             
Source: UN Comtrade, 2011.

Table also depicts that the percentage share of Kazakhstan in India’s global exports, imports and total trade is worse than the later’s share in former’s global exports, imports and total trade, during the study period. In 1995 Kazakhstan has a share of only 0.02 percent in India’s total trade which increased slightly and reached to 0.07 percent firstly in 1997 and then again in 2001. The share of Kazakhstan in India’s global trade fluctuated between 0.05 and 0.06 percent during 2002-2010. Share of Kazakh’s exports increased from 0.03 percent of total exports of India in 1995 to 0.07 percent in 2010; while, its share in Indian imports increased slightly from only 0.02 percent in 1995 to only 0.06 percent in 2010. Even then Kazakhstan is still a very weak trade partner of India as its annual average share of exports, imports and total trade in India’s global exports, imports and total trade is still negligible i.e. 0.08 per cent, 0.03 per cent and 0.05 per cent. On the other hand, India has somewhat better performance in Kazakhstan’s trade data.

Table III:  India-Kazakhstan Bilateral Trade Share (Percent)

 Source: UN Comtrade, 2011.

It has been supposed that the slight trade trends between India and Kazakhstan might be due to India’s late entry in Central Asia. In initial years of independence of the CARs, India’s closer ties with Russia stopped it from developing closer relations with the region. More recently, India is moving closer to CARs with its inclusion in the Shanghai Cooperation Organization (SCO) in 2005 as an ‘observer’ (Pahariya 2009, p.5). Overall, during the recent years there registered a faster growth than earlier in Indo-Kazakhstan trade trends.

Composition of Trade
           
Table IV depicts the percentage share of India’s top ten exports to Kazakhstan during the period 1995, 2000, 2005 and 2010. Since 1995, there has been observing much more changes in composition of India’s exports to Kazakhstan. Five new commodities arrange their place in export basket, between 1995 and 2010. Also, the percentage share of top ten commodities in India’s total exports to Kazakhstan is hovered between 92.93 per cent in 2010 and 100 per cent in 1995. However, the performance of top ten commodities remains quite fluctuating. Coffee, tea, mate & spices and pharmaceutical products have been the peak commodities in the Indian export basket to Kazakhstan, over the period. Coffees, tea, mate & spices’ has a share of more than 77 percent in total exports to Kazakhstan in 1995. The other major commodities exported by India to Kazakhstan have included Pharmaceutical products (12.7 percent); tobacco& manufacture tobacco substitutes (7.4 percent) and nuclear reactors, boilers, machinery & mechanical appliances, computers (1.0 percent).
In 2000, there are some changes in India’s export composition toward Kazakhstan. The share of coffee, tea, mate & spices has been declined from 77.2 percent in 1995 to 41.7 percent in that year. But it still ranked first in top ten commodity list. Other commodities were articles of leather saddler & harness, travel goods, hand bags, articles of gut (12.4 percent); pharmaceutical products (10.8 percent); rticles of iron & steel (7.7 percent) and nuclear reactors, boilers, machinery & mechanical appliances, computers (5.5 percent). Three new commodities rticles of iron & steel; articles of apparel & clothing accessories-not knitted or crocheted and iron & steel  joined the export composition. In 2005, the major share was constituted by coffee, tea, mate & spices (27.9 percent) followed by pharmaceutical products (22.6); nuclear reactors, boilers, machinery & mechanical appliances, computers (12.9 percent); articles of leather, saddler & harness, travel goods, hand bags, articles of gut (7.7 percent) and articles of apparel & clothing accessories-knitted or crocheted fabrics (6.5 percent). Two new commodities electrical machinery & equipments and residues from food industries’ animal feed came in composition.
Pharmaceutical products became the uppermost commodity in Indian export basket to Kazakhstan during 2010. It has been a continuously increasing share from 12.7 percent in 1995 to 32.04 percent in 2010.

Table IV: India's Top Ten Export Commodities to Kazakhstan

1995	2000	2005	2010
Coffee, tea, mate & spices (77.2)	Coffee, tea, mate & spices(41.7)	Coffee, tea, mate & spices (27.9)	Pharmaceutical products (32.04
Pharmaceutical products  (12.7)	Articles of leather, saddler & harness, travel goods, handbags etc.(12.4)	Pharmaceutical products (22.6)	Coffee, tea, mate & spices (29.3)
Tobacco & manuf. tobacco substitutes (7.4)	Pharmaceutical products  (10.8)	Nuclear reactors, boilers, machinery & mechanical appliances, computers (12.9)	Articles of apparel & clothing accessories-knitted or crocheted fabrics (16.3)
Nuclear reactors, boilers, machinery & mechanical appliances, computers (1.0)	Rticles of iron or steel (7.7)	Articles of leather, saddler & harness, travel goods, handbags, articles of gut (7.7)	Articles of apparel & clothing accessories-not knitted or crocheted (4.9)
Oils & resinoids, perfumery, cosmetic or toilet preparations (0.8)	Nuclear reactors, boilers, machinery & mechanical appliances, computers (5.5)	Articles of apparel & clothing accessories-knitted or crocheted (6.5)	Nuclear reactors, boilers, machinery & mechanical appliances, computers (3.5)
Miscellaneous manufactured articles (0.3)	Articles of apparel & clothing accessories-knitted or crocheted fabrics (5.2)	Iron & steel (4.1)	Articles of leather, saddler & harness, travel goods, hand bags, articles of gut (1.9)
Preps of vegs, fruits, nuts, etc. (0.2)	Articles of apparel & clothing accessories- not knitted or crocheted fabrics (3.0)	Electrical machinery & equip. & parts, telecommunications equip., sound recorders etc. (2.8)	Ceramic products (1.5)
Optical, photographic, cine. measuring, checking, precision, medical /surgical instruments (0.2)	Iron or steel (1.7)	Articles of apparel & clothing accessories-not knitted or crocheted (2.4)	Rubbers & articles thereof (1.1)
Articles of apparel & clothing accessories-knitted or crocheted fabrics (0.2)	Optical, photographic, cine. measuring, checking, precision, medical or surgical instruments & accessories (1.6)	Rticles of iron or steel (2.3)	Electrical machinery & equip. & parts, telecommunications equip., sound recorders (1.1)
Plastics & articles thereof (0.07)	Plastics & articles thereof (1.5)	Residues from food industries, animal feed (1.2)	Oils & resinoids, perfumery, cosmetic or toilet preparations (0.9)

Note: Figures in parentheses show percentage share of India’s exports to Kazakhstan. 
 Source: UN Comtrade, 2011.

 

However, the share of coffee, tea, mate & spices has been declined to 29.3 percent in 2010. Other major exports has included articles of apparel & clothing accessories-knitted or crocheted fabrics (16.3 percent); articles of apparel & clothing accessories-not knitted or crocheted (4.9 percent); nuclear reactors, boilers, machinery & mechanical appliances, computers (3.5 percent); articles of leather, saddler & harness, travel goods, hand bags, articles of gut (1.9 percent); ceramic products (1.5 percent) etc. Thus table shows that coffee, tea, mate & spices; pharmaceutical products; textile products and machinery & equipments constituted major share in export commodities of India to Kazakhstan.
Table V presents the percentage share of top ten Indian imports from Kazakhstan market, during 1995, 2000, 2005 and 2010. Metals like zinc, Iron, copper, salt & sulphur, lead etc have been in top ten imports by India, since 1995. However, their ranks and shares has to be changed, e.g. in 1995 iron & steel was the top most import commodity with a share of 37.6 percent of total imports from Kazakhstan. After that there were salt, zinc, lead and aluminum in list (all in descending order share wise). In 2000, the picture has changed. Pearls, stones, prec. metals, imitation jewelry, coins constituted major share (66.4 percent) followed by iron & steel (22.8 percent); salt, sulphur, earth & stone, lime & cement (5.7 percent) and zinc & articles (4.2 percent). In 2005, iron & steel experienced a rise-up with 58.3 percent share in total imports. Other major imports in that year included salt, sulphur, earth & stone, lime & cement (26.7 percent); pearls, stones, prec. metals, imitation jewelry, coins  (7.8 percent); raw hides & skins & leather (5.2 percent) and nuclear reactors, boilers, machinery & mechanical appliances, computers (0.8 percent). In 2010, India’s exports to Kazakhstan changed a spot with zinc & articles (31.9 percent) became the primary import. Pearls, stones, prec. metals, imitation jewelry, coins and salt, sulphur, earth & stone, lime & cement occupied 19.9 percent of total Indian imports from republic; while Iron& steel has been occupying forth position in list (19.2 percent). Other chief imports in 2010, has included inorganic chem., org/inorg compounds of precious metals, isotopes (4.6 percent); lead & articles thereof (1.4 percent); lac, gums, resins, etc (1.2 percent); raw hides & skins & leather  (0.99 percent); base metals nesoi, cermets, articles etc (0.3 percent); miscellaneous chemical products (0.2 percent).
Thus, it can be said that the Indian imports from Kazakhstan are highly concentrated around few commodities such as zinc & articles; Pearls, stones, prec. metals, imitation jewelry, coins; salt, sulphur, earth & stone, lime & cement; Iron & steel; lead & articles thereof etc. Overall, there are a handful sector specifically mineral products, stone/glass, chemicals & allied industries and metals, those dominated in bilateral trade between India and Kazakhstan during study period. Mineral products were ahead in both exports and imports. As Kazakhstan’s traditional sectors both minerals and metals earn more than 88 percent of Kazakhstan’s total earnings from trade with India. It indicates country’s specialization in these two sectors. India’s traditional sector of textile also has a good share in country's export basket to Kazakhstan whereas it also sold vegetable products to India in 2010. However, over the last five years (2005-09), the composition of bilateral trade (exports as well as imports) has remained more or less unchanged.

Table V. India’s Top Ten Import Commodities from Kazakhstan

1995	2000		2005	2010
Iron & steel (37.6)	Pearls, stones, prec. Metals, imitation jewelry, Coins (66.4)		Iron & steel (58.3)	Zinc & articles thereof (31.9)
Salt, sulphur, earth & stone, lime & cement (30.0)	Iron & steel (22.8)		Salt, sulphur, earth & stone, lime & cement (26.7)	Pearls, stones, prec. metals, imitation jewelry, coins  (19.9)
Zinc & articles thereof(10.7)	Salt, sulphur, earth & stone, lime & cement (5.7)		Pearls, stones, prec. Metals, imitation jewelry, coins  (7.8)	Salt, sulphur, earth & stone, lime & cement  (19.9)
Lead & articles thereof  (7.1)	Zinc & articles thereof   (4.2)		Raw hides & skins & leather   (5.2)	Iron & steel (19.2)
Aluminum & articles thereof (4.3)	Articles of iron or steel (0.3)		Nuclear reactors, boilers, machinery & mechanical appliances, computers (0.8)	Inorganic chem., org/inorg compounds of precious metals, isotopes  (4.6)
Wool & fine or coarse animal hair, inc. Yarns & woven fabrics thereof  (3.0)	Raw hides & skins & leather   (0.2)		Aluminum & articles thereof (0.5)	Lead & articles thereof (1.4)
Plastics & articles thereof (2.9)	Silk, inc. Yarns & woven fabrics thereof  (0.2)		Lead & articles thereof (0.4)	Lac, gums, resins, etc. (1.2)
Base metals nesoi, cermets, articles etc. (1.03)	Copper & articles thereof  (0.03)		Base metals nesoi, cermets, articles etc  (0.2)	Raw hides & skins & leather  (0.99)
Raw hides & skins & leather (0.7)		Tools, spoons & forks of base metal (0.03)	Copper & articles thereof (0.1)	Base metals nesoi, cermets, articles etc (0.3)
		Knitted or crocheted fabrics (0.02)	Electrical machinery & equip. & parts, telecommunications equip., sound recorders, television recorders   (0.02)	Miscellaneous chemical products (0.2)

Note: Figures in parentheses show percentage share of India’s imports from Kazakhstan. 
Source: UN Comtrade, 2011.
Trade Potential

Though, Kazakhstan is a very weak trade partner of India but there is huge potential for increasing trade. The high potential in Indo-Kazakhstan bilateral trade pursue from the fact that both the economies are high-growth-large-economies in their respective sub-regions. While both the economies are labor abundant with a growing industrial base, there are certain complementarities in various sectors. Based on these complementarities, both countries can enhance their bilateral trade ties by tapping the untapped potential. This section highlights the India and Kazakhstan’s potential trade areas for enhancing two way flow of trade.
Indo-Kazakhstan bilateral trade potential has been calculated by using the ‘Indicative Trade Potential (ITP)’. The concept of indicative trade potential (ITP) based on trade flow analysis has been used broadly by the International Trade Centre in Geneva (division of the UN system and closely affiliated with UNCTAD and the WTO). ITP isolates total demand and total export capacity thereby providing a rough estimate of how much countries could ‘theoretically’ trade between them(Daya, 2006).  It helps in identify the products for which there are the highest trade complementarities between the exports of a country and the imports of the target country (Helmer & Pasteels 2006, p.11). ITP is defined as;

ITPijk = min (Xik, Xjk ) − Xijk
Where,
ITPijk- Indicative Trade Potential for Country i’s exports to country j
 Xik= Country i’s exports to world
Xjk= Country j’s imports from world
Xijk= Country i’s exports to country j

A positive ‘indicative trade potential’ suggests that a trade opportunity exists. The trade potential indicator assumes that the importing country could in principle absorb perfectly all imports from the exporter. With such a strong underlying substitution assumption, the resulting figures are only indicative but can nevertheless be used in order to rank the products (Helmer & Pasteels 2006, p.11). Unrealized Trade Potential would be the indicative trade potential less any existing exports to that market.
In present Study, ITP is used to find out the India and Kazakhstan’s export potential in each other’s market by examining the trade flows between India and Kazakhstan for the year 2010. Examining the trade flow is vital to examine whether the export capability of India matches the import demand of Kazakhstan and vice-versa. Here, export data is used as the alternative variable for the production of one country and import data can be observed as a substitute for demand in another country. Table VI and VII present an estimate of India and Kazakhstan’s export potential in each other’s market, for major commodities. The major commodity in this section are defined as the commodities included in both major top twenty imports by one country from world as well as major top twenty exports by another country to world.

• India’s Exports to Kazakhstan: Table VI reveals that there exist trade complementarities between the exports of India and the imports of the Kazakhstan for all major commodities. The existence of a high ITP is a necessary condition for trade to take place between the two countries in the short run. Thus, there has been existing highest export opportunity for nuclear reactors, boilers, machinery & mechanical appliances, computers with an undeveloped trade potential of US$ 4312.3 million. After that, there has been commodities electrical machinery & equipments & parts, telecommunication equip., sound recorders (US$ 2496.1 million); mineral fuels, oil, waxes & bituminous sub (US$ 2379.7 million); rticles of iron and steel (US$ 1769.1 million) and vehicles other than railways or tramway rolling stock(US$ 1035.7 million).

Machinery/electrical and transport equipment are major items in India’s export basket but exports of these commodities to Kazakhstan are still marginal. During 2010, out of the total US$ 16849.2 million Indian exports of machinery and instruments, only US$ 6.7 million (0.04 percent of total Indian exports and 0.10 percent of total Kazakhstani imports) had been exported to Kazakhstan.  In the case of transport equipments, a marginal US$ 0.16 million (0.001 percent) of total exports of US$ 13509.2 million had been exported to Kazakhstan during the same period. It has a negligible share of 0.015 percent in Kazakhstan’s import. Thus, there has a probability to increase the exports of these products to Kazakhstan.

 

• Kazakhstan’s Exports to India: Table VII reveals the existence of a high ITP for five out of ten commodities. Mineral fuels, oil, waxes & bituminous sub with undeveloped potential of US$ 41032.9 million has followed by pearls, stones, prec. metals, imitation jewelry, coins (US$ 3640.1 million); electrical machinery & equipments & parts, telecommunication equip (US$ 2185.2 million); iron & steel (US$ 2598.6 million) and ores, slag & ash (US$ 1167.5 million). Thus, the principal items that can be imported from Kazakhstan are mineral products, natural or cultured pearls and metals.

India spends a big part of its export earnings on the imports of mineral products especially mineral fuels and oils etc. On the other hand this commodity is the major item in Kazakhstan‘s export basket. In 2010, India imported mineral products of worth US$ 22.74 million from Kazakhstan (0.05 percent of Kazakh’s total global exports and 0.02 percent of India’s total global imports). Hence, the republic has a potential to export more mineral fuels to India. Hate (2007) considered Kazakhstan as an alternative of Iran to fulfill India’s energy needs. Kazakhstan also has a potential in metals. During 2010, out of the total US$ 20370 million Indian imports of metals, only US$ 60.6 million (0.8 percent of total Kazakh exports and 0.3 percent of total Indian imports) are exported by Kazakhstan. The republic has exported almost all metals to India except base metals and its articles which comprises the 6 percent of India‘s total metal import from world in 2010. To enhancing exports of metals, republic’s focus, therefore, may be on this product.
Kazakhstan is in transaction period and it has been increasing its demands for services sector. According to International Trade Statistics- 2010 of WTO, in 2009 Kazakhstan imports the services of total US$ 48.15 million from world. Out of that India has a negligible share of just 0.001 percent (US$ 0.06 million). On the other hand, India’s total service exports in the same year were of US$ 87434 million. Considering EU-27 as a single unit, it ranked among the top five countries in the export of computer and information services, commercial services, communication services and personal services (WTO 2011). As India ranked among the top exporters of commercial services in world; it has a huge potential for exports of services to Kazakhstan.
Overall, the potential for cooperation between the two countries is almost remained untapped and thus there exists a vast scope to increase and diversify the bilateral trade.

Trade Barriers
           
The potential for Indo-Kazakhstan trade has been restricted by many trade barriers. These constraints and limitations should be examined to tap the real potential of this bilateral trade and also to understand the future course of their relationships. Some of these obstacles are:

• Geographical and Political Barriers: The biggest obstacle in enhancing bilateral trade is the lack of direct access between India and Kazakhstan. Kazakhstan is a land-locked country. It shares borders with Russia, Uzbekistan, China, Kyrgyzstan, and Turkmenistan and Caspian Sea. Since Kazakhstan and India do not share borders efforts are being made to improve regional cooperation to establish transport corridors. Presently, trade is occurred through the black sea, China and via Iran- Afghanistan-Pakistan. Some businessmen carry goods with them by air from India to be sold in Central Asian markets. This can hardly be called a cost effective way of doing business (Sarma 2010). Due to the New Delhi’s troubled relations with Islamabad and China, India cannot exploit its physical closeness to Kazakhstan. Also, there are unstable political situations in Pakistan and Afghanistan which directly affects the Indo-Kazakh trade. Indian companies are on the other hand, walking around the options of taking up internationally funded projects and launched joint ventures in Kazakhstan in different areas to effectively surmount these logistical obstacles.
• Transport Bottlenecks: Transport bottlenecks and inadequate travel links is the main problem of the whole Central Asia. All Central Asian Republics (CARs) are landlocked and situated far from major international seaports and developed country markets. Also, region has difficult topography that complicates their transport links with the other parts of the world, particularly South Asia. Thus, there are high transport costs and long and unpredictable transit times for international shipments to and from the CARs (Ganiev, et al. 2006, p.28). Kazakhstan as a Central Asian country has faced same problems. It has no access to navigable international waterway thus has to depend upon other neighboring countries for trade and transportation routes for their natural resources. There are a few air links between both countries but trade by air cannot be competitive.
• Information Gap: Another important reason for the rather modest level of bilateral trade is that both countries have not enough valid information about each other’s potential as well as prospects. The enormous information gap between two countries keeps them away from realizing the full potential of bilateral relationship. People in Kazakhstan are well informed about Indian tea, films, music, culture, dance, yoga as well as Indian spiritual gurus but are not adequately conversant with the immense progress that India has achieved in the vanguard fields of science and technology like biotechnology, nanotechnology, space, nuclear energy, IT etc. (Sajjanhar 2010, p.3). Also policymakers are not aware about the high quality international education and healthcare services provided by India. Traders and businessmen in India as well as Kazakhstan have not possessed up-to-dates of trade and business regulations and norms of each other country. This is one important constraint due to which bilateral trade and investment flow is affected (Attari 2010).
• Trade Policy Barriers: India has a complex and opaque tariff system with a comparatively high average tariff rate. Moreover, it has many exceptions to the standard “most favored nation” (MFN) tariff rate, which makes difficult for foreign companies to determine the correct tariff rate for their exports. Also, there are common trends of irregular enforcement of existing tariff laws, as well as claims of arbitrary evaluation of imported goods, in country. On the other hand,   Kazakhstan is still passing through the phase of economic transition. In 2006 Asian Development Bank (ADB) commented on Kazakhstan’s tariff structure. According to ADB, Kazakhstan has a rather complex tariff schedule with a large number of tariff bands and a high maximum tariff rate. A serious problem with tariffs in Kazakhstan is that “changes in tariff schedules are rather frequent and unpredictable” (Ganiev, et al. 2006, p.26).

Table VIII: Tariff Structure of India and Kazakhstan (Percent)

	Year	India			Kazakhstan
		Total	Agri.	Non-agri.	Total	Agri.	Non-agri.
Simple Average Final Bound		48.7	113.1	34.6
Simple Average MFN Applied	2010	12	33.3	8.9	9.2	13.7	8.5
Trade Weighted Averages	2009	6.9	44.2	5.1	9.3	19.8	8.3

Source: WTO, World Tariff Profile, 2011.

Table IX reveals the tariff structure of India and Kazakhstan in international trade market. Table reveals that the simple average MFN tariff rate of India was only 12 percent in 2010. It declined from 15.1 percent in 2006. There is decline in both agricultural and industrial average tariffs, due to India's shift towards lower tariffs. The average for WTO non-agricultural products (8.9 percent) is considerably lower than the average for WTO agricultural products, which is 33.3 percent. Kazakhstan is slightly more open with non-agricultural trade than with agricultural trade. Kazakhstan‘s simple average MFN applied tariff is 9.2 percent. Kazakhstan‘s high tariff rate, quantitative restriction and another strict trade policies discourage the foreign traders.

• Lack of Infrastructure: Poor infrastructure is another major hurdle in the growth of mutual economic ties between India and Kazakhstan. For instance, banking in Kazakhstan is not as efficient to handle international transactions. The country is not willing or able to privatize the banking system (Sarma 2010). Also, Indian banks take more interest in west rather than Central Asia due to high returns on investment in developed world. Meanwhile, Punjab national Bank starts operations in Almaty. It has a majority stake in Kazakhstan-based JSC Dana Bank. There is also non-availability of hard currency and lack of conversion facilities that providing a further impediments for the growth of bilateral trade relations (Bhatia 2009).
• The other hurdles: Competition by external players (like EU, China, Russia and USA) with better connectivity with the Kazakhstan and whole Central Asia is also adversely affecting the process. Kazakhstan holds near to fifty percent of its trade with EU and China. This trade, for a variety of political, economic and technical reasons, cannot be diverted to Indian enterprises. So, Indian traders and investors are not prepared to take risk. Additionally, the language barrier together with insufficient marketing through main newspapers by the respective government also confines the development of bilateral commercial relationships.

These hurdles have to be overcome to raise the already initiated trade and economic cooperation to higher level.

Sum-up

It is quite clear that the potential of both India and Kazakhstan is much bigger than the exiting level of trade. There are enormous complementarities in bilateral trade and investment that need to be tapped. Kazakhstan is rich in mineral resources and is trying to diversify its economy into sectors such as telecommunications, financial services, transport, construction, pharmaceuticals, food processing. On the other hand, India has an advanced technology sector and a highly skilled manpower. It is also ready to help Kazakhstan in its diversification process. However, the two-way trade less than actual potential and remains the most unsatisfactory part of India’s relations with Kazakhstan. It may be due to the lack of land connectivity. The implementation of the International North South Corridor will facilitate cheaper movement of goods. India should also be considered some new trade paths to make direct connectivity between India and Central Asia. These may be via China as suggested by Stobdan (2008). Kazakhstan has good political and economic relations with both China as well as India. Therefore it can play as a mediator in developing these routes. This would further improve the chances of increasing cooperation between South Asia, Central Asia and China, keeping India at the centre (Hussain 2009).
Kazakhstan has a greater importance for India in the context of uranium supply after the Nuclear Supplies’ Group (NSG) waiver. It is the second largest producer of uranium after Australia. Also, unlike Australia and Japan, it does not insist the India to sign the Non-Proliferation Treaty (NPT). The NPT is an international treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy and to further the goal of achieving nuclear disarmament and general and complete disarmament. On the other hand, the republic like other Central Asian countries needs a huge foreign capital in term of FDI for research, manufacture and export of their unknown energy assets. To fully utilize the India’s potential to contribute in transition of Kazakhstan and Kazakhstan’s ability to provide the scare hydrocarbon and uranium resources to India, the process of bilateral cooperation needs to be speed-up in future. It is a good time to negotiate with Kazakhstan for a FTA and to rewrite the history of economic-cultural cooperation between the two countries in order to facilitate future cooperation between India and Central Asia (Pahariya 2009, p.6).

Table VI: Commodity-wise India’s Export Potential with Kazakhstan (2010)

HS Code	Commodity	India’s exports to Kazakh (million US$)	India's exports to world (million US$)	Share of Kazakh in India's exports	Kazakh’s  imports from World (million US$)	Share of India in Kazakh’s  import	Indicative Potential Trade (ITP)	Undeveloped Trade Potential (million US$)
		A	B	C=  A/B*100	D	E= A/D*100	F=   min (B,D)-A	G=F-A
84	Nuclear Reactors, Boilers, Machinery & Mechanical Appliances, Computers	5.1	8149.8	0.06	4322.5	0.12	4317.4	4312.3
85	Electrical Machinery & Equipments & parts, Telecommunication equip., Sound Recorders	1.6	8699.3	0.02	2499.3	0.06	2497.7	2496.1
27	Mineral Fuels, Oil, Waxes & Bituminous Sub	0	37984.1	0	2379.7	0	2379.7	2379.7
73	Rticles of Iron and Steel	0.7	6367.6	0.01	1770.5	0.04	1769.8	1769.1
87	Vehicles other than Railways or Tramway Rolling Stock	1.6	9285.8	0.02	1038.9	0.02	1037.3	1035.7
30	Pharmaceutical Products	46.8	6093.2	0.8	924.7	5.06	877.9	831.1
39	Plastics & Articles thereof	1.6	3638.4	0.04	783	0.21	781.4	779.8
90	Optical, Photographic, Cinematographic,  Medical/Surgical Instruments etc.	0.6	1440.7	0.04	757.2	0.08	756.6	756
72	Iron & Steel	0.01	6996.2	0.0001	498.6	0.002	498.6	498.6
89	Ships, Boats & Floating Structure	0	4223.3	0	404.8	0	404.8	404.8

Source: Author’s Calculations based on UN Comtrade, 2011.

Table VII: Commodity-wise Kazakhstan’s Export Potential with India (2010)

HS Code	Commodity	Kazakh’s export to India (million US$)	Kazakh's export to World (million US$)	Share of India in Kazakh’s exports	India's import from world (million US$)	Share of Kazakh in India’s imports	Indicative Potential Trade          ( ITP)	Undeveloped Trade Potential (million US$)
		A	B	C=  A/B*100	D	E=  A/D*100	F=   min(B,D)-A	G= F-A
27	Mineral fuels, oil, waxes & bituminous sub	0	41032.9	0	110840.7	0	41032.9	41032.9
71	Pearls, stones, prec. metals, imitation jewelry, coins	22.8	1213.1	1.9	68629.9	0.03	1190.3	1167.5
84	Nuclear reactors, boilers, machinery & mechanical appliances, computers	0.05	144.5	0.03	28090.1	0.0001	144.45	144.4
85	Electrical machinery & equipments & parts, telecommunication equip.	0	63.5	0	25209.4	0	63.5	63.5
72	Iron & steel	21.9	3683.9	0.6	10701.3	0.20	3662	3640.1
26	Ores, slag & ash	0	2185.2	0	5540.7	0	2185.2	2185.2
28	Inorganic chem. org/inorg compounds of precious metals, isotopes	5.3	2609.2	0.2	3665.2	0.14	2603.9	2598.6
88	Aircraft, spacecraft & parts thereof	0	100.9	0	3335.5	0	100.9	100.9
73	Rticles of iron & steel	0.01	97.9	0.01	3071.3	0.0003	97.89	97.8
76	Aluminum & articles thereof	0.02	372.8	0.005	2063.5	0.0	372.83	372.8

Source: Author’s Calculations based on UN Comtrade, 2011

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