Why did India invest up to $3Bn in Afghanistan?

In today's Finshots we ask why India would invest massive sums of money in a wartorn country

The Story

India has made big investments in Afghanistan. Take for instance this excerpt from an article in Bloomberg outlining the scope and scale of some of our investments—

In 2015, Prime Minister Narendra Modi inaugurated the new Afghan Parliament house, built by India at a cost of $90 million, describing it as his country’s tribute to democracy in Afghanistan. The following year, Modi unveiled the renovated 19th century Stor Palace in Kabul, that was home to Afghan King Amanullah Khan during his reign in the 1920s. In 2016, he inaugurated the Salma Dam, a significant infrastructure undertaking in the western city of Herat that allows water access to the surrounding districts and the irrigation of thousands of hectares of land. With its investments in other highway and building projects, in total, India has put around $3 billion into Afghanistan, making it one of the largest regional donors to the country.

Now, why would anyone in their right mind make such sizeable investments in a wartorn country? What good does it do, when we know there’s a high likelihood of failure?

Well, believe it or not, there’s actually some merit to the madness.

Take, for instance, trade with Afghanistan. Ideally, you’d want to ferry goods using the shortest path imaginable. It's simply easier this way. Unfortunately, the shortest path happens to involve Pakistan. And Pakistan as you may have guessed isn’t exactly going to let Indian goods simply travel through their lands — at least not when it's bound for Afghanistan. So India needs an alternative. And that alternative is….Iran.

Iran’s Chabahar port offers access to Afghanistan. You could ship your goods to the port and then use Iran’s highways to gain access to the Afghan border. The only problem — The highway network in Afghanistan made transit difficult. And the only option available, in this case, was to invest in Afghanistan’s road infrastructure — which is how the Delaram-Zaranj highway came to be. In fact, the Indian government also rebuilt and upgraded facilities at Chabahar, including a railway line between the port and the border. And all in all, they spent close to $134 million in a bid to facilitate ease of trade.

Then there’s development aid — the kind where India invests in Afghanistan hoping that the country can achieve some degree of sustainability. Take for instance the construction of the Salma Dam (alluded to earlier). India is believed to have invested close to $290 million in the hope that the dam would extend irrigation and electricity benefits to a country starved of both. You could now turn around and ask — “How does this help India?”

Well, the answer isn't clear cut. But perhaps we could speculate about the motives. For one, many people believe that this is simply a gesture of good faith. That this is what “lending a helping hand” looks like. Even others contest that this would allow Afghanistan to progress and perhaps someday tap into their own resources. If that did happen, India would be in pole position to trade and engage with the Afghan government and we are pretty sure you can see how that may benefit India.

But even if you discount both theories, you could still argue that India’s commitment to Afghanistan may perhaps be motivated by a desire to limit Pakistan’s influence. If Afghanistan were to become a key ally of India, then that makes it so much more easier for us to navigate the complicated geo-political realities of this part of the world.

However, as you are already aware, Taliban’s takeover presents many challenges to these aspirations. The Indian government took a gamble hoping Afghan national forces would triumph at some level. But since they’ve been routed out, the question now is — “How does India protect its investments in the country?” And what does the future hold for India-Afghanistan ties.

That is something that we can’t know for sure. At least not until things settle down.

Until then…

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