Indo-Myanmar Border Trade

The last decade of the 20th century marks the beginning of a new era of economic integration of countries across the globe. With the emergence of the World Trade Organization (WTO) the institutional framework for freer multilateral movement of goods and services has been strengthened. Parallelly, countries in different parts of the globe have formed regional trading blocks within which trade barriers are removed to a greater extent than what has been possible at the multilateral level. By and large, the process of global economic integration has proved to be beneficial for most countries and the countries that have failed to integrate appear to have been left behind. Yet the process cannot be hailed as an unmitigated boon. While integration opens up new opportunities besides providing wider choice to consumers, it also demands painful adjustments and relocation from people whose trade may be rendered uncompetitive in the post integrated world.

India’s North-eastern region is one of the pockets that do not seem to have profited in the changed economic environment. In the strong state controlled economic regime of pre-liberalized India, the region had not fared very well either. In the first two decades of economic planning (i.e., in nineteen fifties and sixties) the region had very little to show in terms of economic achievements. In the subsequent two decades fiscal inflow to the region were stepped up, partly to counter the sense of neglect by the central government among the people in the region and partly necessitated by political reorganization of the region with formation of fiscally unviable states. These inflows generated some government sector expansion led growth in the economies in the region. In the post 1991 liberalized and globalized economic environment, where economies are to be largely market driven, the region has found itself in yet another phase of retarded economic growth. While the evidence of globalization of the Indian economy is visible in the region in the form of wider range of goods displayed in the market places for consumers of the region to choose from, there is hardly any visible impact of the process in the form of a boost to production and income generating activities. On the contrary, there are instances of closure of small scale industrial units that thrived under protections available in the earlier regime and loss of farm income due to inflow of cheaper import of commodities like areca nut.

With its geographical remoteness, inherent deficiency in infrastructure and the bad publicity for recurrent ethnic strife and militant activities, the region obviously could not become an attractive destination for private capital investment. But in the period in which closer cross-border economic ties are being forged in many parts of the world, border trade has come to be looked upon with a lot of expectations in this region as a means for breaking free from the shackles of geographical isolation. All but two per cent of the boundary of the region happens to be international border which is shared with Bhutan, China, Myanmar and Bangladesh. While trade with Bangladesh and Bhutan has assumed importance in the wake of attempts to forge greater South Asian regional co-operation, trade with Myanmar has acquired added significance in the context of India’s proclaimed ‘look east’ policy because of Myanmar’s geographical proximity to the prosperous economies of South-East Asia and China. In other words, trade across Indo-Myanmar border is perceived as not merely a two-country affair but a via-media for closer economic ties even with counties to the east and south east of Myanmar.

In the above context, this paper attempts to assess the extent to which the expectations regarding these prospects of Indo-Myanmar border trade though the North Eastern Region are realizable and discuss the issues that need to be addressed for realizing these potentials. It begins with an assessment of the volume and composition of the border trade and then takes up the constrains and distortions the trade currently suffers from and goes further to visualise the prospect of the trade if the problems identified are addressed.

Indo-Myanmar Border Trade Agreement between the governments of the Republic of India and the Union of Myanmar was signed on January 21, 1994 with the goal of formalisation of border trade practices and set such trading activities in a congenial mode1. The agreement initially provided for cross border trade in twenty two products, mostly agricultural/primary commodities produced in the trading countries (not the third country products that dominate the informal border trade as will be discussed later). In 2001 a few more items were added to the list of tradable items. In practice, the agreement actually does not go much beyond according a formal sanction to exchanges traditionally going on between the local populations in the border areas of the two countries. But it holds significant symbolic value in terms of furthering economic ties between the two countries.

The agreement specified that trade should be conducted through the designated custom posts, viz, (a) Moreh in India (Manipur State) and Tamu in Myanmar, (b) Champhai in India (Mizoram State) and Hri in Myanmar and (c) other places that may be notified by mutual agreement between the two countries. Following the signing of the agreement the two land customs stations (LCS) at Moreh and Champhai on Indian soil were notified. However, the Champhai station has not become functional till date and all official or formal Indo-Myanmar border trade has been taking place through the Moreh-Tamu route.

Soon after the border trade agreement, there was a spurt in formal trade across the Moreh–Tamu sector. Starting from about Rs.15 Crores in 1995-96, the trade volume quickly reached Rs.46.49 crores and Rs. 62.39 crores in 1996-97 and 1997-98 respectively. But in the next year the volume fell sharply. This followed the restriction imposed by Myanmar authorities that exports from India should precede imports from Myanmar with effect from 26 November 1997. In the following years though there has been some recovery, the trade volume has not revived to anywhere near the levels of 1996-97 and 1997-98.

It is worth noting here that in the total volume of Indo-Myanmar international trade, formal border trade across the North East is virtually negligible. For instance, in 2002-03 formal border trade across the North East constituted only 1.05% of India’s export, 0.71% of import and 0.79% of volume of trade with Myanmar. As percentage of combined domestic income of the seven states of the North Eastern Region also this trade is virtually negligible.

The composition of exports and imports for the peak year of Indo-Myanmar border trade and the latest year for which data is now available is presented in tables 2 and 3. It is clear from the figures in the tables that with the decline in the volume since the peak year of 1997-98, the diversity of the formal border trade has also got drastically reduced. In the value of export from India, the share of wheat flour has drastically come down from 76% to less than 10%. According to information provided by customs officials at Moreh LCS, the decline in the export of wheat flour is not because of Indian wheat becoming uncompetitive but because of a bilateral trade arrangement between Myanmar and Australia, under which now Myanmar sources its wheat flour import from Australia, albeit at a costlier term. Buffalo appall (a dried buffalo meat product) is now the most important item of export. Soyabati nuggets and cumin seeds are the two items which continue to be exported.

The decline in the diversity of imports from Myanmar through the formal channel is even more drastic. Imports are now virtually restricted to only one commodity, namely betel nut.

Part of the explanation for the decline of formal border trade can be traced to the rigidities in the existing trading arrangements. The agreement of 1996 not only limits the items to be traded across the border, but in practice it also limits the free flow of trade. First of all, as per the agreement trade will be barter in nature in the sense that value of export by each trader will have to be matched by the value of the trader’s import. The stipulation creates hurdles for export and import to flow freely. Traders also face difficulty in sending and receiving consignments and getting their dues cleared. Secondly, since as per the existing arrangements, trade transactions are to be recorded in hard currencies, gross over-valuation of Myanmar’s currency as per their official exchange rates discourages trade to flow through formal channels. While as per the official exchange rate Kyat 1 is rated at about Rs. 7, in the informal market at the time of this field survey, the going exchange rate was Kyat 20 to 21 for a Rupee at the Moreh Tamu sector and Kyat 18 for a Rupee in the Champhai-Rhi sector. These informal rates are market determined and reflect the true exchange value of the currencies of the two countries. The artificial official exchange rate leaves trader with little incentive to move trade to the formal channels. Thus while informal trade continues to be the mainstream of exchange of goods across Indo-Myanmar border, the formal flow has practically dried up.

All the studies on border trade in India’s North Eastern region that have come up in the last decade or so insist that the volume of informal border trade exceed that of formal border trade by several times. These reports further show that this is truer for Indo-Myanmar border trade than the other components, say the Indo-Bangladesh trade. But because of the clandestine nature of this part of border trade, it is difficult to directly estimate the volume and composition of these trade flows. For the present paper, the volume of informal Indo-Myanmar border trade has been estimated indirectly from custom seizure data by using the methodology and parameters used by the Indian Institute of Entrepreneurship for their estimations for the year 2000-012. A comparative picture of the estimates obtained for the year 2003-04 with those of the Indian Institute of Entrepreneurship for the year 2001 is presented in table 4. The table shows that the total volume of Indo-Myanmar informal border trade has more or less been stagnant during the period 2000-01 to 2003-04 during which India’s volume of trade increased by 51.30%3.

However, a significant change in the importance of the trade routes can be seen from the figures. The Manipur border route, which is relatively better connected with the commercial hub of Mandalay in the heartland of Myanmar, continues to account for the substantial part of this informal trade. But the trade flow through that route has declined in absolute term. In contrast, the volume of trade through Mizoram route has rapidly grown. (Interestingly the growth of informal trade in this sector kept pace with that of the volume of India’s trade.) Consequently, despite the locational disadvantage, the Mizoram sector’s share in the volume of informal trade has sharply improved.

A possible explanation for this change in relative importance of the trade routes can be traced to the internal conditions in the two states of Manipur and Mizoram on the Indian side of the border. Two factors, not unrelated to each other, seem to be at work. First, Manipur continues to be embroiled in social conflicts and extremist activities of hordes of underground organizations which have contributed to sustaining if not aggravating the general economic environment in the state. Apart from frequent disruptions due to bandhs and clashes, transaction costs are kept high by rent seeking activities which are directly or indirectly perpetrated by extremism. Under such conditions it is not surprising that border trade, as any other economic activity, suffers. In contrast Mizoram has acquired as the most peaceful state in the entire North East. Political and social stability has turned business environment conducive for economic ventures. With slogan of ‘peace pays’ the state is now in an economically upbeat mode. Border trade must have flourished with the general upswing of economic activities in the state. Secondly, relatively faster growth of per capita income in Mizoram in the last few years must have contributed to the faster growth of demand for these imports in that state, whereas sluggish economic growth in Manipur has prevented a similar growth of imports to that state.

Composition of informal imports from Myanmar has been worked out from inputs gathered from traders and other persons involved with the trade in Manipur and Mizoram. The table-5 depicts the composition. The figures there point out some interesting features.

The composition of imports to Mizoram is quite distinct from those to Manipur; though because of higher weightage the Manipur pattern dominates the overall composition. Textile and Footwear dominate imports to Mizoram. The group includes blankets and ready made garments among other things. Blankets come as far as from China and South Korea and find their way to markets outside the two states, in Guwahati and Shillong and even beyond. Garments and footwear imported to Mizoram mostly come from Thailand and these are designed to suit the tastes and preferences of the consumers in the state.

In the imports to Manipur electrical and electronic goods dominate over other groups. Within the group, generator sets, inverters and inverter battery are important components. These are mostly cheap and of inferior quality Chinese products, typically targeted to backward economic situations marked by power shortage.

One major item of import to Mizoram is livestock which originates in Myanmar and caters to the local demand for meat. Though there are no official restrictions or customs barriers to import of livestock, informal route is preferred as this obviates the need of check up of the state of health of the animals.

As per earlier reports (Rao et al, 1997), the composition of informal exports from India to Myanmar used to be very varied and ranged from basic necessities like medicines and kerosene, to household consumption items such as clothes (mainly lungis), manufactured food products and household appliances like sewing machines, pressure cookers and bicycles to construction materials such as C.I. sheets and paints, to machinery and equipments and farm inputs such as fertilizers. The information collected in the present study shows that the diversity of exports has been reduced over the years. However, medicines and fertilizers are still exported in large quantities and these two items these days dominate the composition of informal export from the Indian side.

The sources and destinations of Informal imports and exports at the time of the present study have broadly remained the same as reported by Indian Institute of Entrepreneurship report a few year back (Indian Institute of Entrepreneurship, 2001: p 238-240). Almost the entire informal export from Indian side originates in Uttar Pradesh, Delhi, Haryana, Punjab region and ends up in different parts of Myanmar extending to as far as Yangon. Cotton yarns, which used to be exported through both formal and informal channels, traveled further as this item originated in Gujarat in western India and ended up not just in Myanmar but even in China.

As for informal imports, excepting the farm products such as animals, beans and pulses and precious stones such as jade and ruby which originates in Myanmar, everything else comes from a third country which is either China or some ASEAN Countries or South Korea or Japan. While the imported precious stones usually go well beyond the North East region to markets in the rest of India, the other items are more or less absorbed by consumers in the region. A few items like Chinese and Korean blankets find their way to markets in the neighbouring state of West Bengal too.

However, there are a few changes in the direction of informal trade at the time of the present study from the reports of the previous studies. In the Manipur sector, the diversity of the source of informal imports has decreased over the years. About 80% of the imports are now Chinese products. Chinese factories have reportedly been set up well within Myanmar to cater to this (and also perhaps other) markets. In the Mizoram sector, where ready made garments and footwear are important components of informal imports and growth of which are driven by growth of income and consumption in the state, the informal imports originates from Thailand. It seems that textile manufacturers in Thailand have gathered good market intelligence regarding tastes and preferences of consumers in Mizoram and managed to exploit the market, which Indian textile industry has failed to cater to.

While there is a lot of expectation in the air about border trade, more specifically Indo-Myanmar border trade, liberating North East India from the shackles of geographical isolation, any attempt at realistic assessment of such prospects raises a number of questions, such as:

What is the prospect of trade between the North-East India and Myanmar expanding? What is the possibility of moving the existing informal trade to formal channels? and What is the prospect of Indo-Myanmar border trade routes of developing into major trade corridor between India and East and South-East Asia claiming a substantial part of the expected increase in trade traffic as a result of the Free Trade Agreements coming into force?

In this section the scenario for Indo-Myanmar border trade will be discussed keeping an eye on these questions.

One of the apparent constraints on the growth of the trade, which is often talked about, is the poor state of infrastructure, starting with road connectivity and telecommunication to facilities at border transit points and banking and other financial network. State of infrastructure and connectivity influences transit and transaction costs involved in trading. Obviously better connectivity and overall state of infrastructure would lower transit and transaction costs and facilitate trade. But the fact that informal trade continues to sustain with the state of infrastructure remaining what it has been, indicates that its poor state is not the fundamental constraint on the growth of border trade. If other issues related to trade are sorted out and the peoples and the governments on both side of the border get to view trade to be beneficial prospect, the infrastructure bottleneck can be dealt with a suitable investment package. Insight gathered in my investigations, directs me to argue that the institutional factors, especially those relating to trade and exchange rate policy of Government of Myanmar, are more fundamental hurdles in moving towards an orderly and legitimate system of Indo-Myanmar border trade.

The currency exchange system still operating in Myanmar is akin to, indeed in a more severe form, what India used to have prior to 1991. There is an official exchange rate which is grossly over-valued and an unofficial market determined rate which is a more realistic reflection of the currency’s actual worth. For instance, while the official exchange rate for US $ 1 was Kt 5.7 at the end of 2003, the free market rate was Kt 850 for US $ 1 (The Economic Intelligence Unit, 2004: p. 18-91). This implies that officially the Re was equal to about Kt 0.09, unofficially it was roughly equal to Kt 19. In the field survey for the present study the unofficial exchange rate for the Re was found to be Kt 18 in Mizoram sector in July 2004 and Kt 21 in Manipur sector in July 2005. These numbers imply that officially the Kyat is about 200 times over-valued in relation to the Indian Rupee.

The discrepancy has contributed to diversion of trade to informal channels in which the exporters can realise value at the unofficial exchange rate. The overvalued official currency exchange rate is not only a disincentive for carrying trading activities in the official channel, but it also does not provide banks much opportunities to deal with foreign exchange transactions. Lack of involvement of banks and other financial institutions obviously constitutes a weakness for the trading system.

Foreign Trade Law of Myanmar provides for transit trade, under which goods can be imported to Myanmar for final delivery in a third country. The overseas buyer or seller can appoint a Myanmar resident or enterprise as a conduit for the transit. The transit involves payment of some nominal commission to the conduit, 2.5% customs duty, a transit movement cost and a service charge to the concerned authorities. For the purpose of determining the import duty, the price in hard currency is converted into Kt at the official exchange rate (Indian Institute of Foreign Trade, 1995: p. 43-44). The process results in artificially lowered price of the goods for the buyers in the final destination. The unusually low price of third country products imported to India from Myanmar in informal border trade can be partly ascribed to this factor. The effect is akin to dumping of the goods on the final importer. Hence the transit trade works as an unfair competition for domestic producers in the destination country. Though the Myanmar Government also loses in terms of customs per unit of a good, the loss per unit is likely to be compensated at least in parts by the larger volume in demand due to suppressed price. Thus, the revenue effect of the mechanism for Myanmar Government cannot be ascertained without working out the various elasticities.

The existing mechanism of formal Indo-Myanmar border trade is akin to barter trade in the sense that export from one country needs to be balanced by import to that country by individual trader. Moreover, for an Indian trader there is the stipulation that exports from India must precede imports from Myanmar. Balancing exports by imports is required to be completed within a period of six months (Indian Institute of Foreign Trade, 1998: p 79-80). The system not only hinders free flow of trade but puts the Indian trader in disadvantage. As reported by Customs Officials posted in Moreh, often due to delay in supply of imports from Myanmar side it becomes difficult for traders on Indian side to complete the balancing obligations within stipulated period. Moreover, such delays expose the Indian traders to greater uncertainty. It is therefore hardly surprising that the spurt in formal border trade following 1994 Border Trade Agreement between Governments of India and Myanmar quickly ended in a whimper.

The narrow range of items identified for formal border trade is another factor restricting the natural trade flows. While both countries may have general negative lists for imports and exports, the scope of border trade needs to be extended to cover all items on which trading is permissible as per the existing rules for external trade of the countries.

It is clear from the above discussion that Myanmar’s economic regime, especially the component related to external trade and currency exchange rate mechanism, is a hindrance to free flow of trade based on economic complementarities under acceptable economic governance. In order to put border trade on a robust footing and to bring the informal trade to the formal channels, several reform measures starting from modifying ground rules for border trade to shift to suitable currency exchange mechanism will have to be devised.

The first best option would have been Myanmar moving to a liberalised economic regime with a floating convertible currency exchange system4. However, there are yet no indications in the horizon of such changes taking place. Apparently the overvalued currency is convenient for the present ruling junta to get its essential imports such as arms and ammunitions cheap, while the flourishing informal trade brings in the essential supplies for the consumption of the masses at the market determined unofficial rate. In the longer run, however, such a distorted system will not help the country in developing its own economic potentials and can in fact push the system towards sudden collapse5.

Since the above-mentioned first best solution is unlikely to happen at least in the foreseeable future, the other alternative that suggests itself is the two countries sit down to discuss the issues and come to some agreements so that at least the following can be achieved:

i. Border trade is liberated from the shackles of the barter system and allowed to take place in the usual form of general international trade. The list of items to be traded should not be restricted to the ones covered in the existing border trade agreements but extended to include all items permissible as per bilateral and multilateral agreements on trade between the two countries.

ii. Trade is officially allowed to take place in the market determined currency exchange rate.

iii. Transit of third country products is allowed openly, but as per rules set under multilateral trade agreements or the regional trade agreement to come to force in the coming years. With customs duties already much reduced in India under WTO obligations and slated to be further slashed between members countries of the forthcoming regional trading block, routing existing informal import flows through formal channels should not be a problem.

iv. The problems of moving the existing informal exports from Indian side to Myanmar in a legal way need to be sorted out. While legally exporting such industrial goods like machinery and medicines should not be a problem, the items like kerosene and fertilisers, which are heavily subsidised for domestic users in India and not meant to be subsidised for exports, will present some difficulties.

If the trade and exchange rate policy related issues discussed in the preceding section are sorted out will Indo-Myanmar border trade flourish? It is conceivable that with trade restricting factors sorted out and a legitimate system of transit trade put in place, formal border trade stands to expand. First of all the incentives for clandestine informal trade will be reduced. With customs duties coming down progressively economic incentives for smuggling should also be reduced.

But the more pertinent issue is to what extent the changes will boost trade in locally produced goods and services between North East India and Myanmar. As the two regions have broadly similar economic structures in which agriculture still dominates and manufacturing activities contribute a rather small component of total production, one may be tempted to conclude that resource base and production compositions in the two regions are competitive rather than complementary which limits the scope for trade between them. However, a closer look points towards many complementarities.

Despite agriculture still commanding a larger share in domestic product of North Eastern region than in that of the whole country, the region is deficient in production of quite a few agricultural commodities. The region is dependent on supplies from other parts of India for its almost entire requirement of pulses and also a significant part of requirement of rice. Rice and pulses being staple food items for the population in the region have steady and stable demand. The supplies from north-western India not only involve large transport cost, but the supply routes are prone to disruption during monsoon due to floods in Assam plains. Myanmar is traditionally surplus producer and exporter of these two products. There is no apparent reason why Myanmar should not be able to supply these commodities to the consumers of neighbouring North East India. Indeed North East India can provide markets for other agricultural products of Myanmar too. For instance, onion from Myanmar often appears in the markets in Manipur whenever there is a shortage of its supply in India. Once border trade is liberalised, the item can be regularly exported to North East India and even beyond. As of now supplies to North East India come from such distant states as Maharastra.

Export of such agricultural products on a regular basis can have beneficial effect on farm production in both Myanmar and North East India. Market expansion will be an incentive for farmers in Myanmar to adopt better technology and expand production. Receiving supply of staple food items from the neighbouring country, farmers in North East India will be able to concentrate more on production of high value horticultural and other commercial crops for which the region possesses suitable agro-climatic conditions. Development along such lines can boost farm income on both sides of the border.

Myanmar continues to export forest products like timber and timber based products. Though North East India also used to be rich in forest resources, unsustainable commercial and industrial exploitation of these resources over the years have denuded the region from much of its forest cover. The situation has deteriorated to such an extent that the honourable Supreme Court of India in an order in the year 1998 had to ban felling of timber in the region. Forest based industrial units in the region including the plywood factories have virtually closed down. A new supply line from Myanmar can give a new lease of life to the forest based industries in the region. However, in this context there are a few question marks on the ability of Myanmar to export forest products for a prolonged period. If informal reports of scholars visiting interiors of Myanmar are to be believed, much of Myanmar’s teak reserves, especially the parts falling in areas controlled by rebel groups, have already been depleted. Further, officially there is a ban imposed in 1994 on export of raw timber and hence the item can at best be exported in the form of some value added products (Indian Institute of Entrepreneurship, 2001: p. 137). Unless the trade prospect of timber induces commercial reforestation activities, the Government there may not be in a position to lift the ban. In that case importing timber to resume plywood manufacturing may not happen. Value added timber products can still enjoy a market in the North East and even other parts of India, especially as inputs in the furniture and the construction industry.

Apart from producing agricultural surpluses, Myanmar also has strength in various types of mineral deposits. Granites produced in Myanmar can find a market in North East India where house construction has been a booming activity. As of now heavy and bulky stones like marble and granite used in construction in the North East come, from Rajasthan in western India. Granites from Myanmar should have transport cost advantage in the market in North East India. Myanmar is also famous for high value low volume stones like jade and ruby. Some quantity of these stones is in any case regularly smuggled into India. With per capita income level rising rapidly in India demand for such precious stones used for ornaments can be expected to rise. Accordingly, such stones can be imported to India through the North East though perhaps not so much for sale in the region itself.

Myanmar’s coastal areas are richly deposited with natural gas. Couple of Indian companies including the ONGC are already engaged in exploration and production in the area. With the Indian economy growing rapidly the demand for energy is also expected to rise rapidly, indeed at a faster rate. In that context gas supply from Myanmar can be of great advantage for the Indian Economy. In fact there are already some initiatives towards laying pipelines for importing gas from Myanmar. Since laying pipelines through the Bay of Bengal is likely to be far more expensive than through land, the pipeline should be laid through the North East. A connecting pipeline from Tripura will then enable the country to use the Tripura gas reserves too. The imported and domestic natural gas can be used for thermal power generation and other industrial uses in North East and the rest of the country. It is worth mentioning here that as of now the North East depends heavily on hydel power for its electricity requirement. Though the region has huge untapped potential for hydel power, proposed construction of dams for utilising such potential has run into controversies. Moreover, the supply from existing hydel power projects become insufficient and unreliable in dry winter months, especially in the years of deficit monsoon. Supply form gas based thermal stations can be useful to stabilise the power supply situation in the region.

As most recent reports on Myanmar’s economy suggest, Chinese manufactured products have extensively penetrated Myanmar’s market. The fact that such products have found their way to the markets in bordering states of Manipur, Mizoram and Nagaland, lends credence to such reports. India is yet to aggressively explore the Myanmar market and now may not find it easy to compete with the already established Chinese products. Yet the pattern of exports from India to Myanmar in informal border trade suggests that India, and possibly the North East, can still enjoy a sphere of advantage over other competitors in catering to Myanmar’s requirements.

Despite the North East region’s overall industrial backwardness, the region has come to acquire a significant capacity for refining crude oil. The four refineries of the region, all located in the state of Assam, together have a refining capacity of about seven million tonnes of crude annually. In the event of all the four refineries operating near capacity, the region will have a substantial exportable surplus of refinery products. Exporting these surpluses to neighbouring countries can be a more economical proposition than transporting the same to some distant parts of the country. Already kerosene produced in the region is smuggled across the border to Myanmar as informal export. In a normalised and liberalised trading environment between the two countries kerosene and other refinery products from the North East can easily find outlet in Myanmar.

As mentioned in the previous section, manufactured items such as bicycles, motor parts, fertilisers, medicines and food products like Moltova and Horlicks etc are informally exported from India to Myanmar. Though Chinese penetration might have reduced Indian share in markets for manufactured goods in Myanmar, in certain items like medicines and fertilisers India still commands a substantial share. Once border trade in these items is liberalised, the Indian manufacturers will be able to explore and exploit markets in Myanmar more extensively. The way the Chinese have established production centres near the border and even inside Myanmar to penetrate into cross border markets, the Indian manufacturers can set up production base in the North East for catering to the markets in Myanmar and beyond. Indeed there are now added economic incentives for doing so, as an attractive package of fiscal and other concessions have been provided for new industrial establishments in the region under the North East Industrial and Investment Promotion Policy 2007 of the Government of India. In the process industrialisation of the region will receive a boost.

Another area of potential trade between Myanmar and North East India, which has so far not been explored much, is trade in services like health care, hospitality and tourism, which through backward linkage can generate trade in transport, communication and related services.

Over the last few years facilities for advanced medical treatment have come up in the region. As of now most of these facilities are concentrated in Guwahati, the gateway to the region, but the facilities are availed by people from the neighbouring states too. Softening of the border and allowing freer movement of people across the border can open these facilities for residents of Myanmar too. Some border states like Manipur have rich pool of trained human resource to supply such services. Once demand from across the border is perceived, the necessary infrastructure for providing such services will come up in these border states also, which will make such services more easily accessible to people from the neighbouring areas in Myanmar.

Tourism has been listed by earlier reports as one of the potential service activities on which North East India and Myanmar can mutually trade on (Indian Institute of Entrepreneurship, 2001: p189-207). However, considering the relatively low level of per capita income on both these areas, travel for recreation may not have much mutual demand. High income elasticity as such travel may command, being a luxury item of consumption demand for the service is likely to remain limited in the next few years to come. However, the potential for a special type of tourism activity owing to the ethnicity in the border areas has been detected in course of the field investigation for the present study. All along the Indo-Myanmar border from Arunachal Pradesh through Nagaland and Manipur to Mizoram, there are many ethnic groups living on both sides. The political boundary now keeps many of these ethnic groups separate. A few controlled organised tours of people across border areas took place in the last few years through the Moreh-Tamu point which received enthusiastic support. Softening of the border is bound to increase contact between people sharing same ethnicity across the border. Growth in transport, communication, hospitality and related services will then follow on both sides of the border.

The formal cross border Indo-Myanmar trade has now been reduced to a mere trickle and virtually the entire Indo-Myanmar border trade is now informal in nature. The commodities imported through the informal channels are largely third country products coming from further east and south-east of Myanmar, mostly consumer goods manufactured in China, ASEAN countries or even Korea and Japan. In contrast, the informal exports to Myanmar from the Indian side are manufactured in India itself. However, it is worth noting here that very little of these exported goods are produced within the North Eastern region. The trade in its present form is thus useful for the North East region, for that matter even for Myanmar, only to the extent that these commodity inflows satisfy local consumption demand. But boost to production and income generating activities from this trade is minimal on either side of the border.

The prospect of border trade between North East India and Myanmar is not as bleak as may appear at the first sight. As of now the growth of orderly and legitimate trade between Myanmar and North East India has been kept in leash by factors such as poor infrastructure and, more fundamentally, the rigidities and tangles in the trading arrangement and the over-valuation of Myanmar’s currency as per the official exchange rate. Once border trade is allowed to take place in a transparent and orderly manner, many dynamic economic forces may be unleashed on both sides of the border leading to opening up of mutually beneficial areas of economic cooperation.

Apart from substitution of informal trade by formal trade, an orderly and liberalised system of border trade and transit can make Myanmar-North East India an attractive and economical transit route for trade between China and other East Asian countries on one side and India and Bangladesh on the other. Such transit trade may not directly result in enhanced production of goods in the two regions, but will surely generate spin off growth impetus to services like hospitality, transport and communication linked activities. Whether the North East India and Myanmar can get to provide similar transit route to trade between South East Asia and India is, however, a matter of some debate. (Baruah, 2004: p 23). The answer will critically depend on the comparative transport cost by the alternatives of the maritime route across the Bay of Bengal and the continental route through Myanmar and North East India.

Baruah, Sanjib (2004), Between South and Southeast Asia: Northeast India and the Look East Policy, CENESEAS Papers 4, Centre for Northeast India, South and Southeast Asia Studies, Omeo Kumar Das Institute of Social Change and Development, Guwahati

Indian Institute of Entrepreneurship (2001), Border Trade with Bangladesh and Myanmar: Pre Investment Feasibility Report, North Eastern Development Finance Corporation, Guwahati

Indian Institute of Foreign Trade (1995), Survey of Export Opportunities in Myanmar, IIFT, New Delhi

Indian Institute of Foreign Trade (1998), Industrial Development and Export Potential of the North-Eastern Region, Volume 1, IIFT, New Delhi

Kondo, Takehiko (2001), How to Normalize Myanmar’s Foreign Exchange Rate, the Japan Economic Review, April 15

Pohit, Sanjib and Taneja, Nisha (2000), India’s Informal Trade with Bangladesh and Nepal: a Quantitative Assessment, ICRIER Working Paper No. 58, Indian council for Research on International Economic Relations, New Delhi

Rao, V. L., Baruah, S., Das, R. U. (1997), India’s Border Trade with Select Neighbouring Countries, Research and Information System for Non-Aligned and Other Developing Countries

Taneja, Nisha (1999), Informal Trade in the SAARC Region, ICRIER Working Paper No. 47, Indian council for Research on International Economic Relations, New Delhi

The Economist Intelligence Unit (2004), Myanmar (Burma), Country Report, May 2004, The Economist

Table 1: Value of Exports and Imports across Moreh-Tamu Sector under Formal Border Trade

Year in Rs. Crores in Rs. Crores in Rs. Crores

1995-96 10.45 5.39 15.84

1996-97 29.79 16.70 46.49

1997-98 25.16 37.19 62.35

1998-99 4.88 3.74 8.62

1999-00 3.31 6.52 9.83

2000-01 5.68 12.41 18.09

2001-02 1.29 8.13 9.42

2002-03 3.84 11.90 15.74

includes insurance, loading and landing costs, local agency commission over and above the invoice amounts

Notes: Estimate for the Manipur sector is based on seizure statistics of Imphal division of the customs department and that for the Mizoram sector on the same of the Aizwal division.

The estimates for 2000-01 are from the Indian Institute of Entrepreneurship study reproduced here for comparison.

2 That study used the modified Delphi technique developed by Alaf Helmer and Norman Dalkey for gathering and processing judgments / informed opinion of knowledgeable persons leading to quantified estimate of a phenomenon not estimable directly. The knowledgeable sources in the context of informal border trade comprised of custom offices, Border Security Force (BSF) personnel, police officers of the border areas, Deputy Commissioners of the border districts, members of Traders’ Associations, people in the intelligence service and individual traders. Through repeated discussion and interactions with these identified knowledgeable respondents, the study arrived at the estimates of annual detection percentages (A.D.P) of illegal trade, i.e., the percentage ratio of detected (by prevention authority) illegal trade to total volume of such trade. The annual detected percentages thus estimated for the two custom divisions relevant for the study were 2% for Imphal and 3% for Aizawl divis ions. (Indian Institute of Entrepreneurship 2001: p106)

3 Calculated from figures in Table 7.1(A) in page S.78 of the Economic Survey 2005-06 of Ministry of Finance, Government of India

4 Asian Development Bank’s Regional and Country Highlights 2007 on Myanmar comments, “The most critical policy issue continued to be the dual exchange rate system. The foreign exchange value of domestic currency has fallen sharply since the second half of 1998, making it more difficult for the country to reform the exchange rate system” (http://www.adb.org/Countries/Highlights/MYA.asp © 2007 Asian Development Bank accessed on July 29, 2007)

5 Kondo (2001) discusses some of the adverse consequences of the existing dual exchange rate system for the economy of Myanmar and also
indicates a way of moving to a unified exchange rate.