India’s Balance of Trade with SAARC Nations: A Vicennial

India’s Balance of Trade with SAARC Nations: A Vicennial

Analysis

Dr. K.S. Meenakshisundaram

Director, AMET Business School, AMET Deemed to be University,

Chennai. Email: [email protected]

Dr. A.S. Kannan, Professor

Department of Management Studies, Sri Manakula Vinayagar Engineering College,

Madagadipet, Puducherry. Email: [email protected]

ABSTRACT

South Asian Association for Regional Cooperation (SAARC) among 8 nations, viz.,

Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, is found to

be positively contributing to trade growth in the region. Many studies on SAARC in the past

covered only less than a decade and revealed mixed results as to whether India is a clear

beneficiary or not. The purpose of this study is to analyse the Balance of Trade situation

between India and SAARC nations. Data pertaining to 21 years from 1998 to 2018 as found

in World Bank database are analysed using Growth Rate Analysis, and ANOVA of Microsoft

Excel and SPSS packages. The findings revealed sustained overall growth in Net BoT position

in favour of India for the entire study period in respect of all the SAARC member-nations

though the year-on-year growth rates are found to be oscillating in many cases. The

correlation between India’s Exports and Imports with SAARC nations is found to be positive

and statistically significant. ANOVA results in significant variations in India’s Exports as well

as Imports with each of the member nations. The study failed to take into account the impact

of macro-economic variables such as Gross Domestic Product, Inflation, etc. Further research

by taking into these would be a welcome step. Moreover, future efforts may consider the

invisible imports and exports which is missed in this study.

Key Words: Balance of Trade, Growth Analysis, India, SAARC nations,

Journal of Xi'an University of Architecture & Technology

Volume XII, Issue II, 2020

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1.0 Introduction

The term ‘balance of trade’ (widely known as BoT) refers to the trade balance of a country vis-

à-vis its exports and imports with another country. If exports from country A exceeds imports

from the same country, then it is referred as “Trade Surplus”, conversely imports exceed

exports, it is “Trade Deficit” situation. As an emerging economy, India has trade relations with

most of the countries in the world. It has bilateral movements of goods with SAARC nations

as well. South Asian Association for Regional Cooperation (SAARC) is an intergovernmental

organisation between its member nations, viz., Afghanistan, Bangladesh, Bhutan, India, the

Maldives, Nepal, Pakistan, and Sri Lanka. These 8-nations house more than a fifth of world

population with just about 4 percent of the global economy, according to International

Monetary Fund 2015 data.

Chart 1: Gross Domestic Product of SAARC nations in 2015 (IMF Data)

As can be seen from the above chart, India’s GDP is 8.6 times greater than its next-following-

neighbour Pakistan, 1538 times larger than the smallest economy in the group (the Maldives).

Since the formation of SAARC in Dec. 1985, India witnesses gradual increase in bilateral trade

with all the member nations. However, there are ups and downs during certain periods. As of

2019, nine nations were granted observers status on SAARC, viz., Australia, China, the

European Union, Iran, Japan, Mauritius, Myanmar, South Korea and the United States. Few

more nations have requested to be part of SAARC or an Observation nation. SAARC

Secretariat is housed at Kathmandu, the capital city of Nepal.

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2.0 Brief Review of Relevant Literature

Interestingly there are several studies on India’s trade with SAARC nations with some of them

reading it from a member-country point of view. Way back in 2000, Hussain studied trade

relations of SAARC countries with reference to Bangladesh. His study found the intra-regional

investment to be low with India being the major investor. He opined that structural rigidities,

political disturbances, natural calamities, dependence on industrialised countries plague the

trade growth in the region. Venkatesh, in his 2006 dissertation, studied India’s Trade

Relationships with SAARC countries. His study specially focused on SAPTA in promoting

intra-regional trade and concluded that SAPTA did not contribute much to the development of

India’s trade with member countries. He also found that significant proportion of trade

potential was yet explored during the study period. Similar efforts were made by Akram,

Ciddikie & Khan in 2014. Their study for the period of 7 years ending 2012-13 examined

India’s bilateral trade with each of the member countries and observed the necessity to

recognise the informal trade relations among the members.

Vadra (2012) analysed India’s trade with SAARC nations for 12 years till 2010 and studied the

success of SAPTA (SAARC Preferential Trade Agreement) in enhancing the balance of trade

in favour of India. In the same year, Vilas & Babar published their work on trade among

SAARC countries. Their study took into account 7-years data from 2000 to 2006 and observed

a noticeable growth in intra-regional trade among member nations during the study period.

Ambrose and Sundarraj (2014) examined the recent trends in India’s Trade with SAARC

nations by taking into account the data from 1996 to 2013. They used OLS Regression model

using time as a dependent variable, and found that India’s Exports and Imports with

Bangladesh, Pakistan and Sri Lanka to be statistically significant at 1% level.

Hussain et al. (2017) studied the regional trade between Pakistan and India for 60 years from

1951 to 2011, and found the decision of India declaring Pakistan as Most Favoured Nation has

resulted in trade gains in favour of India, and the status of Pakistan Government had significant

impact on mutual trade.

The role of India in binding SAARC nations with reference to cultural exchange rate is

examined by Masood (2018). He studied the four sets of soft powers, viz., state-to-state, state-

to-people, people-to-state, and people-to-people. Naseri & Sidana (2018) focused their

attention on agricultural trade relationship of India with SAARC nations. Their study covered

a decade from 2005-06 to 2014-15, and found that India’s Balance of Trade to be favourable



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against all SAARC neighbours, except for Afghanistan in 2006 to 2015, and Bhutan in 2007

and 2008. Elahi (2018) viewed the bilateral trade between Bangladesh and India as an dumping

issue. In his dissertation he examined a trade dispute settlement between Bangladeshi battery

exporter Rahimafrooz and Indian Government.

Arul Kumar & Gopalsamy (2019) concentrated their studies on foreign trade relationship

between India and Nepal. Their study was with special reference to agricultural products’

exports to and imports from Nepal for 5 years between 2013 and 2018. Their study found

highly positive correlation between exports to and imports from Nepal’s agricultural products.

Bhattarai’s (2020) paper analysed economic growth and development in SAARC countries and

found India’s performance is note-worthy, and other member-nations could emulate the same.

The above and other studies (which are not reviewed here for want of space) are observed to

lack a lengthy study spanning two decades or more. Furthermore, use of analytical tools are

found to be wanting in many of the above studies though not in all. This paper attempts to

bridge these gaps by studying India’s Balance of Trade with member nations for a prolonged

period of 21 years from 1998 to 2018 by using World Bank data.

3.0 Purpose and Methods

The purposes of this study are: (i) to analyse the Balance of Trade situation between India and

other SAARC countries; (ii) to ascertain the magnitude and direction of relationships between

India Exports and Imports with SAARC nations; (iii) to examine whether there are statistically

significant variations in export as well as import dealings of India with SAARC partners. In

order to attain these objectives, the study considered data from World Bank sources on India

Exports and Imports with SAARC nations for a period of 21 years (from 1998 to 2018). India

Exports and Imports data with Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan

and Sri Lanka are taken into consideration for analysis. For the purpose of analysis, in addition

to descriptive statistics, compounded annual growth rate (CAGR), Year on year Growth Rate

(YoY GR), Correlation analysis, and Analysis of Variances are used.

4.0 Analysis and Discussion

This section is dealt with in four parts. The first part focuses on India’s Balance of Trade with

other SAARC nations; the BoT of India with each of the members along with the year-on-year

growth rate in BoT and the overall growth trends are analysed and interpreted. In addition to

these, the Compounded Annual Growth Rate in BoT for 3 seven years’ periods (1998 to 2004;



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2005 to 2011; and 2012 to 2018) are analysed. The second part analyses the correlation of

India’s Export-Import Trade with member nations along with their levels of statistical

significance. The analysis of variance (ANOVA) in India Exports as well as Imports with

SAARC member nations are covered in the third and fourth part of this section.

4.1 India’s Balance of Trade with SAARC nations

This section of the paper presents the analysis of India’s Balance of Trade with SAARC

member nations. The Net Balance of Trade, Year-on-Year Growth in Balance of Trade and

the Linear trend in YoY Growth in BoT are presented in chart form.

Chart 2: Trends in India’s Balance of Trade with Afghanistan (1998 to 2018)

Chart 2 presents the trends in India’s Balance of Trade with Afghanistan for 21 years from

1998 to 2018. It can be observed that the lowest BoT was recorded in 1998 and the highest

was in 2011 (381.76 Mn USD). The YoY Growth in BoT is found to peak in 2002 (at 3535%),

with the overall growth tend to be steadily raising in the two-decades of study period. The next

chart presents the analysis with respect to BoT with Bangladesh.

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Chart 3: Trends in India’s Balance of Trade with Bangladesh (1998 to 2018)

Chart 3 presents the trends in India’s Balance of Trade with Bangladesh for 21 years from 1998

to 2018. It can be observed that the lowest BoT was recorded in 1999 (651.88 Mn USD) and

the highest was in 2018 (7,927.06 Mn USD). The YoY Growth in BoT is found to peak in

2007 (at 64%) and in the years 1999 as well as 2009 it was at the lowest (-26%), with the

overall growth tend to be progressively growing in the two-decades of study period.

Chart 4: Trends in India’s Balance of Trade with Bhutan (1998 to 2018)

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Chart 4 presents the trends in India’s Balance of Trade with Bhutan for 21 years from 1998 to

2018. It can be observed that the highest negative BoT was recorded in 1999 (-101.78 Mn

USD) and the highest positive BoT was in 2018 (398.11 Mn USD). The YoY Growth in BoT

is found to peak in 2003 (at 2619%) and in the year 2006 it was at the lowest (-639%), with the

overall growth tend to be steadily raising in the two-decades of study period.

Chart 5: Trends in India’s Balance of Trade with the Maldives (1998 to 2018)

Chart 5 presents the trends in India’s Balance of Trade with the Maldives for 21 years from

1998 to 2018. While the highest net BoT with Maldives is found to occur in 2017 (206.31 Mn

USD), the lowest is recorded in 1999 (7.25 Mn USD). The Year-on-Year Growth Rate in BoT

was at the highest in 2000 (176%), the lowest growth is recorded in 2010 (-34%). The overall

trend for YoY growth in BoT is found to be continuously galloping over the study period.

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Chart 6: Trends in India’s Balance of Trade with Nepal (1998 to 2018)

The next chart covers BoT with Nepal. The low point of BoT is observed in 2001 and the high

point in 2018 (6,939.78 Mn USD). The lowest growth in YoY BoT is found in 1999 (-1945%)

and the highest in 2003 (1795%), with the overall growth to be gradually raising one.

Chart 7: Trends in India’s Balance of Trade with Pakistan (1998 to 2018)

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India’s BoT with Pakistan is presented in Chart 7, which indicates 2010 to be the year in the

maximum BoT is attained (1,929.55 Mn USD), and in 1999 the lowest happened. In 2006 the

highest growth rate in BoT (84%) is noticed while the lowest in 2000 (-1249%). The overall

trend is found to be gradually raising throughout the study period of 21 years.

Chart 8: Trends in India’s Balance of Trade with Sri Lanka (1998 to 2018)

The next chart deals with India’s BoT with Sri Lanka. The net BoT is computed to be the

highest (5,841.49 Mn USD) in 2014 and the lowest in 1998 (414.30 Mn USD). Quite

interesting the lowest growth rate in BoT with Sri Lanka is noted in 2009 (-43%) while the

highest growth rate happened in the succeeding year (2010, 99%). However, the overall trend

is found to be steadily progressing up over the study period.

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Table 1 presents the Compounded Annual Growth Rate of India Exports to SAARC nations in

3 divisions of 7 years each, viz., 1998 to 2004, 2005 to 2011, and 2012 to 2018. The trends in

CAGR are shown in the analysis column using the Sparkline tools available in Microsoft Excel.

Accordingly, Afghanistan, Maldives, Nepal, Pakistan and Sri Lanka are found to show

gradually declining trends in India Exports to these countries during the 3-broken periods.

Bhutan showed a “Fall and Rise” trend, while Exports to Bangladesh showed a “Rise and Fall”

trend in the 3-periods of seven years of CAGR computation. Following table (2) summarises

India Imports from various SAARC nations along with Sparkline analysis.

Accordingly, Afghanistan is the only country to show gradually raising trend in India Imports,

while a gradually declining trend is observed in Bhutan, Nepal and Sri Lanka trade dealings.

“Rise and Fall” trends are observed in case of Bangladesh, Maldives, and Pakistan.

India Exports to

CAGR

(1998 to

2004)

CAGR

(2005 to

2011)

CAGR

(2012 to

2018)

TRENDS ANALYSIS

Afghanistan 39.66% 19.01% 6.15%

Bangladesh 8.08% 12.45% 8.40%

Bhutan 34.86% 12.66% 16.19%

Maldives 25.89% 9.60% 8.77%

Nepal 26.95% 18.26% 13.33%

Pakistan 21.49% 14.56% 4.40%

Sri Lanka 16.93% 14.42% 1.53%

Table 1: INDIA EXPORTS CAGR (1995 to 2018)

Source: Computed based on World Bank Data (1998 to 2018)

India Imports

from

CAGR

(1998 to

2004)

CAGR

(2005 to

2011)

CAGR

(2012 to

2018)

TRENDS ANALYSIS

Afghanistan 8.98% 11.61% 16.01%

Bangladesh 0.25% 26.89% 6.04%

Bhutan 30.36% 13.62% 4.92%

Maldives 22.84% 41.29% 15.51%

Nepal 13.75% 5.46% -4.75%

Pakistan -9.43% 12.56% -0.80%

Sri Lanka 36.84% 4.51% 10.91%

Table 2: INDIA IMPORTS CAGR (1995 to 2018)

Source: Computed based on World Bank Data (1998 to 2018)



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4.2 Correlation between India Exports and Imports with SAARC countries

Based on World Bank Data for 21 years (from 1998 to 2018), correlation between India’s

Exports and Imports with each of the member nations of SAARC is determined using SPSS

and the results are summarised thus:

Table 3: Correlation Analysis of India’s EXIM trade with SAARC members

India EXIM

Trade with

Correlation

Coefficient

Level of

Significance Correlation Analysis

Afghanistan 0.928 0.0001 Highly significant and highly positive Correlation

Bangladesh 0.959 0.0001 Highly significant and highly positive Correlation

Bhutan 0.857 0.0001 Highly significant and highly positive Correlation

Maldives 0.578 0.001 Highly significant and moderately positive

Correlation

Nepal 0.622 0.0001 Highly significant and moderately positive

Correlation

Pakistan 0.925 0.0001 Highly significant and highly positive Correlation

Sri Lanka 0.886 0.0001 Highly significant and highly positive Correlation

Source: Computed based on World Bank Data (1998-2018)

Table 3 reveals that there are highly significant and highly positive correlation between India

and (i) Afghanistan, (ii) Bangladesh, (iii) Bhutan, (iv) Pakistan, and (v) Sri Lanka, and highly

significant but moderately positive correlation between India and (i) the Maldives, and (ii)

Nepal.

4.3 ANOVA in India Exports

Null hypothesis developed for testing is stated thus: “There is no significant variation in India’s

Exports to other SAARC countries”. For testing this hypothesis, Analysis of Variance with

Tukey Post-Hoc Analysis is done, and the results are presented in the following tables.

Table 4: Test of Homogeneity of Variances (India Exports)

INDIA EXPORTS to SAARC Nations Levene

Statistic df1 df2 Sig.

Based on Mean 28.55 6 140 0.0000

Based on Median 16.296 6 140 0.0000

Based on Median and with adjusted df 16.296 6 58.117 0.0000

Based on trimmed mean 24.985 6 140 0.0000


The test of homogeneity of variances of India Exports to various SAARC countries, as seen in

Table 4, indicates statistical significance (at 1% level) on all counts – based on mean, median,



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etc. The ANOVA results (presented in Table 5) also indicates high statistical significance

(F=18.37, p-value < 0.001).

Table 5: ANOVA: India Exports to SAARC Nations

Sum of

Squares df Mean Square F Sig.

Between

Groups 224320690.281 6 37386781.713

18.370 0.000 Within

Groups 284930060.512 140 2035214.718

Total 509250750.793 146


Further as per Table 6 Robust Tests of Equality of Means, viz., Welch and Brown-Forsythe

tests, also indicate 1% level of significance in respect of India Exports to various SAARC

members.

Table 6: Robust Tests of Equality of Means (India Exports)

India Exports to SAARC Nations Statistic** df1 df2 Sig.

Welch 25.036 6 56.311 0.000

Brown-Forsythe 18.37 6 63.14 0.000

**Asymptotically F distributed.


All these clearly indicate that the null hypothesis is to be rejected. Hence, it can be concluded

that there is a statistically significant variation in India Exports to SAARC nations. In order to

further break-down the levels of variation, post-hoc analysis using Tukey’s HSD measure is

done using SPSS package. The results are shown in Table 7.

Table 7: Post-Hoc Analysis: India Exports to SAARC Nations (1998-2018)

Multiple Comparisons using Tukey HSD

Dependent Variable:

India Exports

(I) SAARC

Nations

(J) SAARC

Nations

Mean

Difference (I-

J)

Std.

Error Sig.* Remarks

Bangladesh Pakistan 2,111.90 440.26 0.0000 Statistically

significant variation

(at 1% level)

observed. Null

hypothesis is

rejected. Hence,

there is a variation

in India Exports to

SAARC nations

under study.

Bangladesh Afghanistan 3,052.14 440.26 0.0000

Bangladesh Bhutan 3,179.17 440.26 0.0000

Bangladesh Maldives 3,265.96 440.26 0.0000

Nepal Afghanistan 1,824.60 440.26 0.0010

Nepal Bhutan 1,951.63 440.26 0.0000

Nepal Maldives 2,038.42 440.26 0.0000

Sri Lanka Pakistan 1,533.70 440.26 0.0120

Sri Lanka Afghanistan 2,473.94 440.26 0.0000

Sri Lanka Bhutan 2,600.97 440.26 0.0000

Sri Lanka Maldives 2,687.77 440.26 0.0000



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4.4 ANOVA in India Imports

Null hypothesis developed for testing is stated thus: “There is no significant variation in India’s

Imports from other SAARC countries”. For testing this hypothesis, Analysis of Variance with

Tukey Post-Hoc Analysis is done, and the results are presented in the following tables.

Table 8: Test of Homogeneity of Variances (India Imports)

India Imports from SAARC Nations Levene

Statistic df1 df2 Sig.

Based on Mean 15.534 6 140 0.000

Based on Median 11.835 6 140 0.000

Based on Median and with adjusted df 11.835 6 60.413 0.000

Based on trimmed mean 15.767 6 140 0.000


The test of homogeneity of variances of India Imports from various SAARC countries, as seen

in Table 8, indicates statistical significance (at 1% level) on all counts – based on mean,

median, etc. The ANOVA results (presented in Table 9) also indicates high statistical

significance (F=16.313, p-value < 0.001). Further as per Table 10 Robust Tests of Equality of

Means, viz., Welch and Brown-Forsythe tests, also indicate 1% level of significance in respect

of India Imports from various SAARC members.

Table 9: ANOVA: India Imports from SAARC Nations

Sum of

Squares df

Mean

Square F Sig.

Between Groups 3446720.766 6 574453.461 16.313 0.000

Within Groups 4929890.579 140 35213.504

Total 8376611.346 146


Table 10: Robust Tests of Equality of Means (India Imports)

India Imports from SAARC Nations Statistic** df1 df2 Sig.

Welch 59.291 6 53.695 0.000

Brown-Forsythe 16.313 6 69.381 0.000

**Asymptotically F distributed.


All these clearly indicate that the null hypothesis is to be rejected. Hence, it can be concluded

that there is a statistically significant variation in India Imports from SAARC nations. In order

to further break-down the levels of variation, post-hoc analysis using Tukey’s HSD measure is

done using SPSS package. The results are shown in Table 11.



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Table 11: Post-Hoc Analysis: India Imports from SAARC Nations (1998-2018)

Multiple Comparisons using Tukey HSD

Dependent Variable:

India Imports

(I) SAARC

Nations

(J) SAARC

Nations

Mean

Difference (I-

J)

Std. Error Sig.* Remarks

Maldives Sri Lanka -455.37 57.91 0.000

Statistically

significant variation

(at 1% level)

observed. Null

hypothesis is

rejected. Hence,

there is a variation

in India Imports

from SAARC

nations under study.

Nepal Maldives 397.17 57.91 0.000

Bhutan Sri Lanka -333.04 57.91 0.000

Maldives Bangladesh -330.29 57.91 0.000

Afghanistan Sri Lanka -324.32 57.91 0.000

Pakistan Maldives 282.22 57.91 0.000

Bhutan Nepal -274.85 57.91 0.000

Nepal Afghanistan 266.13 57.91 0.000

Bangladesh Bhutan 207.97 57.91 0.008

Bangladesh Afghanistan 199.25 57.91 0.013

5.0 Major Findings

The following can be summarised as key findings of the study:

The Net Balance of Trade of India with other SAARC member nations for 21 years period

from 1998 to 2018 are investigated and found that except Bhutan with whom India’s

Balance of Trade is found to be quite oscillating, the BoT position is gradually raising in

case of Afghanistan, Bangladesh, Maldives, and Nepal. In respect of Pakistan and Sri

Lanka the net BoT of India is facing ups and downs – however all times on the positive

side only, indicating that the Exports from India far exceed Imports to India from these two

nations. Further, it is observed that the overall BoT position for India is progressively

raising over the entire study period in respect of all the seven SAARC countries. This

indicates that extending trade relations among SAARC nations has turned out to be highly

beneficial for India (since the Balance of Trade is positive and gradually raising in respect

of all other SAARC nations).

The compounded annual growth rate (CAGR) computed for 7-years period from 1998 to

2004, 2005 to 2011, and 2012 to 2018 are found to be:

o In respect of India Exports: Except Bhutan and Bangladesh (which shows ups and

downs in CAGR), all other nations have shown gradually declining annual growth

rates in exports to them.

o In respect of India Imports: Afghanistan is the sole country to register gradually

raising trends in India Imports, with Bhutan, Nepal and Sri Lanka showing



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gradually declining trends, and mixed trends in respect of Bangladesh, Maldives

and Pakistan.

The correlation between India Exports and Imports with SAARC countries is found to be:

o Highly significant and highly positive in respect of Afghanistan, Bangladesh,

Bhutan, Pakistan and Sri Lanka, and

o Highly significant but moderately positive in respect of Maldives and Nepal.

Analysis of Variance conducted in respect of India Exports with SAARC nations is found

to be statistically significant and resulted in the rejection of null hypothesis. Thus, it is

concluded that there are statistically significant variations in India’s exports to other

SAARC nations. Similarly, the ANOVA on India Imports are revealed that there are

statistically significant variations in India’s Imports to other SAARC countries.

5.1 Limitations of the study

The study is conducted by using 21 years’ data from World Bank pertaining to SAARC nations.

The analyses are done from India’s viewpoint. However, the study fails to consider the possible

impact of political and other issues on the Exports and Imports among SAARC nations. During

the study period, there had been one or two war-like situations between India and Pakistan,

lack of internal peace due to problems of Tamils in Sri Lanka, and the like. These are not

considered in this quantitative analysis approach of the study. Further, the possible

repercussions of invisible imports and exports on the physical movements of goods in the

international arena are not taken into account in this study.

5.2 Further Research

Future researchers on this area may try to apply regression modelling taking into account

various macro-economic factors like Gross Domestic Product of SAARC nations, the

inflationary situations prevailing in most of the developing and under-developed countries, and

the foreign exchange situation which is vital in determining the levels of imports and exports

of a country. Future studies may also include the invisible imports and exports for the purpose

of analysis.



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REFERENCES

Akram, H. W., Ciddikie, M. D., & Khan, M. A. (2014). India’s Trade Relationship with SAFTA

countries: A Review. Journal of Indian Research, 2(1), 46-58.

Ambrose, B., & Sundarraj, P. (2014). A brief analysis on India’s trade with SAARC countries:

Recent trends. Global Journal of Human-Social Science: E Economics, 14(6), 26-30.

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