On 27th of February 2012, I
attended a very interesting talk on “Strategy Formulation and Grand Strategies”.
It was about Nathu La bypass between Sikkim and Tibet, stating the reason why
this bypass was formed between the two rival countries. This made me to think
about the importance of this open trading border posts.
Nathu La is a mountain pass in the
Himalayas, which connects the Indian state of Sikkim and China’s Tibet region.
Because of the Sino-Indian war in 1962, this bypass was sealed. But, it was
re-opened for cross border trade in the year 2006. China is considered to be a
big rivalry for India. If there is conflict of interests, why did India and
China accept to re-open this trading border post? Even now, this bypass is now
guarded by military forces to have a peaceful environment.
The rationale behind this is that both
India and China enjoy a huge economical benefit. Nearly 29 goods from India and
15 from Chinese side are allowed to be traded over this bypass. Approximately US$186,250 worth goods were traded between the
two countries. It is like a direct trade that happens within a single country. If
these goods are imported from China to India, we will be in need of huge amount
of common currencies like Dollar or Euro to trade. Since, it involves a huge
sum, both the countries have to supply their own currency in the FOREX market
and convert them into Dollars or Euro. It is an unnecessary action which
creates a demand for a common currency and makes that currency stronger, and,
as a result, the home currency will depreciate. It is expected that heavy
volumes will be traded across this border in future. If this happens, both the
currencies will lose value. But, the opening of this trade centre allows
traders of two countries to exchange goods directly without the intervention of
the FOREX market. Apart from that, Customs duty can also be avoided for the
traded goods. This encourages the traders to produce and sell more. Paving the way for a major trade route will
also boost the transportation, construction and service industries. This ends
up in a huge employment and it helps in the development of both the economies.
Hi Madu,
ReplyDeleteThe economic benefit of this arrangement is clear, but a business blog, it is also necessary to check if there are any social / political implications of this trade between the two nations.
It would also be useful, if you will consider having a second part to this, giving the history of the Nathula Pass.
I think it's a calculated strategic move by Chinese government.Since introducing its so-called “Good Neighbor Policy,” China has successfully settled border disputes with its 12 neighbors barring India.Its failure to settle border disputes with India casts a dark shadow over its long-term plans in the Great Western Development Strategy.
ReplyDeleteWestern part of the China has countries like Tibet that conflicts with the interest of Chinese government. A friendly relationship(!!!) with India could portray them as a good neighbor to the world.
Other than political motive,the reopening of "Nathula Pass" after being shut for more than four decades because of a war would also exercise a profound impact on China-India border trade activities, the development of China’s western provinces, and the future of India’s northeastern states.