Boosting India’s Foreign Direct Investment in Afghanistan

By Guru Amrit Khalsa & Avanti Narayanan

Arch-span construction near Tarin Kowt

India’s investment opportunities in Afghanistan cover a range of sectors, including infrastructure. Source: USACE Afghan Engineering District-South, used under a creative commons license.

Increased Indian economic investment in Afghanistan would be a positive scenario from the perspective of the United States, India and Afghanistan: a win-win-win, so to speak. India’s contribution is especially important against the backdrop of the U.S. drawdown in Afghanistan. During the fourth U.S. – India Strategic Dialogue held on June 24, Secretary Kerry and Minister Khurshid reaffirmed the “importance of taking concrete steps to promote expanded private investment and trade in Afghanistan.” Such efforts align closely with the stated policy of U.S., Afghan and Indian officials.

During a recent appearance at CSIS, Robert Blake, Assistant Secretary of South and Central Asian Affairs at the State Department, expressed his appreciation for, “the very important role that India is playing on the regional front, to help with the New Silk Road regional economic vision.” Former secretary of state Hillary Clinton played a major role in devising the New Silk Road strategy, rolled out in 2011, that envisions Afghanistan as the center of a regional trade hub. Likewise, numerous State Department officials continue to emphasize that they see India as central in realizing the potential of the New Silk Road.

Last November, President Karzai stated that Afghanistan is “ripe and ready” for more foreign investment from India. He told Indian business leaders in Mumbai that same month that, “The competition [to invest] is strong. Now even Western companies are coming in large numbers. But we want to welcome you with a red carpet while others will get a grey carpet.”

India has already played a notable role in recent development efforts in Afghanistan. A little over a year ago, Ambassador Nirupama Rao stated, “Our intention is to invest and endure [in Afghanistan], and that’s the approach we are taking.” In 2012, the government of India committed to a wide-ranging development assistance program with Kabul and “contributed nearly $2 billion to stabilization and reconstruction projects.” Among the most prominent areas of assistance were renewable energy development, sanitation, road construction, vocational training and education.

India’s fast-approaching graduation from the World Bank’s International Development Association (IDA) will cause India to naturally progress from a recipient of aid to a significant donor and player in international development efforts. The next step is to boost current efforts to increase India’s Foreign Direct Investment (FDI) in Afghanistan. Initial efforts have already been taken, but there is much potential in this area waiting to be tapped.

In June 2012, the Ministry of External Affairs and Confederation of Indian Industry jointly hosted a large conference to encourage investment in Afghanistan titled the Delhi Investment Summit on Afghanistan. Over 200 organizations sent representatives, with companies based in India, China, Pakistan and the United States all in attendance. A group of Indian businesses headed by the state-run Steel Authority of India was awarded rights to invest in Afghanistan’s Hajigak iron ore reserves, an initiative worth around $11 billion. During the conference, Indian foreign minister S.M. Krishna said, “Let the grey suits of company executives take the place of olive green or desert brown fatigues of soldiers, and CEOs the place of Generals.”

On March 17, 2013, a group of Indian companies from diverse sectors including agriculture, manufacturing, energy and transportation took part in a conference in Kabul designed to enhance economic ties between India and Afghanistan.

The opportunities for Indian investors are significant. Afghanistan’s abundant mineral fields have long been attractive to Indian businesses, while Kabul’s efforts to pass “a number of laws designed to make the country friendly for foreign investment” only serve to reduce barriers to trade. Proposed legislative reforms by Afghanistan include permitting foreign investors to take 100 per cent ownership of shares in Afghan companies and the removal of export taxes of items manufactured in Afghanistan. This, combined with Afghanistan’s construction of tax-free zones, is an added incentive for Indian investors.

The international community must, of course, acknowledge that there are also many challenges ahead. In Afghanistan, security concerns are an omnipresent part of private sector calculations. However, Afghan foreign minister Zalmai Rassoul has pointed out that, “While it’s true that there are certain areas in Afghanistan where the security situation is not ideal, we should remember that these areas represent a small part of the country.” Corruption is also an enduring problem. Yet, in the words of Fahim Hashimi of the Afghanistan Chamber of Commerce and Industries, “From a decade of turmoil, conflict and mismanagement, to an emerging market; Afghanistan has come a long way.”

The time is now ripe for India to host another investment summit on Afghanistan, similar to the one New Delhi held last year. Under the auspices of such a conference, it is also vital for U.S. companies to continue their robust participation in the dialogue, focusing their attention on revitalizing Afghan-driven businesses and entrepreneurship. These continued efforts should in turn ensure the formation of an enduring trilateral investment partnership, with adequate consideration given to the Afghan investment climate and economic priorities.

Ms. Guru Amrit Khalsa and Ms. Avanti Narayanan are researchers with the Wadhwani Chair in U.S.-India Policy Studies at CSIS.

2 comments for “Boosting India’s Foreign Direct Investment in Afghanistan

  1. E V Narayanan
    August 7, 2013 at 08:57

    Knowing fully well tha Afghanistan is rich in minerals,Indian entrepreneurs
    are enthusiastic in investing in that country When you talk of Silt Route
    You should read a book titled Delhi Chungking by KPS Menon.I have to stop here as
    someone is waiting to see me

  2. abhineet sharma
    August 22, 2013 at 10:36

    Primarily, the problem with the indian private investments today is that indian private investors (other than mines and mineral indian govt backed investors) want to watch Afghanistan’s situation after the NATO forces leave. Currently Afghan economic structure is totally based on the foreign aid, giving the economy an artificial boom and purchase power. Once NATO quits these aid will also decrease affecting directly the country’s economy

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