CUTS International 67 · #1806, Suggested Contribution M350/US$35 & CUTS International 3 Contents Acronyms 5 Contributors 7 Acknowledgements 9 Foreword 11 Preface 13 Executive Summary

CUTS International 67

Linkages and Impacts of Cross-borderInformal Trade in Agricultural Inputs inEastern South Asia

Research Report

Linkages and Impacts of Cross-borderInformal Trade in Agricultural Inputs inEastern South Asia

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© CUTS International, 2018

First published: February 2018

Cover picture was clicked while conducting field survey under the project,in Kaptangunj, Nepal, by CUTS, of farmers using informally traded seedsand fertilisers

This document has been produced by CUTS International.The views expressed here are those of CUTS International.

ISBN 978-81-8257-257-7

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#1806, Suggested Contribution M350/US$35

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Contents

Acronyms 5

Contributors 7

Acknowledgements 9

Foreword 11

Preface 13

Executive Summary 15

Chapter 1 Introduction 191.1 Existing Scenario of Formal Trade 21

1.2 Background and Context 24

1.3 Objectives and Methodology 24

Chapter 2 Drivers of Informal Trade between India-Nepal and IndiaBangladesh: A Literature Survey 272.1 Drivers of Informal Trade 27

2.2 Drivers Related to Trade Facilitation 33

2.3 Domestic Policy Distortions 35

2.4 Socio-Economic Aspects 36

2.5 Political Aspects 36

Chapter 3 Nature, Extent and Drivers of Cross-border Informal Tradeand its Impact on Livelihood: Field Level Observations 373.1 Case of India-Nepal: Survey Findings 37

3.2 Case of India-Bangladesh: Survey Findings 44

Chapter 4 Conclusion and Recommendations 534.1 Conclusion 53

4.2 Recommendations 54

References 57

Annexure 1: Questionnaire for Household Survey on InformalTrade in Agricultural Input Commodities 60

Annexure 2: Questionnaire for Focussed Group Discussionsand Key Informant Interviews 65

Endnotes 66

4 Linkages and Impacts of Cross-border Informal Trade in Agricultural Inputs in Eastern South Asia

List of Tables and Figures

TablesTable 1.1 Bilateral Trade Flows between India and Nepal inAgricultural Inputs (2013-15) 22

Table 1.2: Bilateral Trade Flows between India and Bangladesh inAgricultural Inputs (2013-15) 24

Table 1.3: Description of Selected Agricultural Inputs 25

Table 2.1: Restrictiveness of Trade Policy of India and Nepal forSelected Informally Traded Agricultural Inputs 28

Table 2.2: Restrictiveness of Trade Policy of India and Bangladesh forSelected Informally Traded Agricultural Inputs 29

Table 2.3: Legal and Regulatory Framework for AgricultureInputs in India, Bangladesh and Nepal 33

Table 3.1: Categorisation of Possible Drivers of Informal Trade 38

Table 3.2: Drivers Influencing Informal Trade in Agricultural InputCommodities between India and Nepal 40

Table 3.3: Variation in Prices of Informally Traded Paddy VarietiesBased on Distance from the Nearest Market 46

Table 3.4: Drivers Influencing Informal Trade in Agricultural InputCommodities between India and Bangladesh 48

FiguresFigure 1.1 A: India’s Exports to Nepal 21

Figure 1.1 B: India’s Imports from Nepal 22

Figure 1.2 A: India’s Exports to Bangladesh 23

Figure 1.2 B: India’s Imports from Bangladesh 23

Figure 2.1: Import Tariff on Selected Agriculture Inputs in India,Bangladesh and Nepal 31

Figure 3.1: Informal Flow of Wheat Seeds from Nepal to India(Dhanusha to Madhubani) 41

Figure 3.2: Informal Flow of Wheat Seeds from Nepal to India(Sunsari to Arariya) 42

Figure 3.3: Informal Flow of Sona Mansuli Paddy Seeds fromIndia to Nepal (Giddha) 42

Figure 3.4: Informal Flow of Potato Seeds from India to Nepal (Kaptangunj) 42

Figure 3.5: Informal Flow of DAP from India to Nepal(Kaptangunj and Giddha) 43

Figure 3.6: Informal Flow of Swarna Rice Seeds from India to Bangladesh 49

Figure 3.7: Informal Flow of Rocky Tomato Seeds from India to Bangladesh 50

Figure 3.8: Informal Flow of Paddy Seeds – BR28/29 from Bangladeshto India 50

Figure 3.9: Informal Flow of Herbicide (Sathi) from Bangladesh to India 51


Acronyms

ADB Asian Development Bank

ASEAN Association of Southeast Asian Nations

ACIAR Australian Centre for International Agricultural Research

BARI Bangladesh Agricultural Research Institute

BIS Bureau of Indian Standards

BSTI Bangladesh Standards Testing Institute

CGE Computable General Equilibrium

CIMMYT International Maize and Wheat Improvement Centre

DFID Department for International Development

DAP Diammonium Phosphate

DAE Department of Agriculture Extension

DES Directorate of Economics and Statistics

DGFT Directorate General of Foreign Trade

EAT Enabling Agricultural Trade

FAO Food and Agriculture Organisation

FCO Fertiliser Control Order

FGD Focussed Group Discussion

HYV High Yielding Varieties

ICAR Indian Council of Agricultural Research

ICT Information and Communication Technology

ICEGATE Indian Customs Electronic Data Interchange Gateway

MoA Ministry of Agriculture

MRAs Mutual Recognition Agreements

NARC Nepal Agricultural Research Council

NATP National Agriculture Technology Programme

NBSP Nepal Bureau of Standards and Metrology

NOC No Objection Certificate

MRA Mutual Recognition Agreement

NTBs Non-Tariff Barriers

RCEP Regional Comprehensive Economic Partnership

SAFTA South Asian Free Trade Area

SAPTA SAARC Preferential Trading Arrangement

SAWTEE South Asia Watch on Trade, Economics and Environment

SCDP Second Crop Diversification Project

SPS Sanitary and Phyto-sanitary


SRFSI Sustainable and Resilient Farming Systems Intensification inthe Eastern Gangetic Plains

SSNP Social Safety Net Programme

SWS Single Window System

TBT Technical Barriers to Trade

UNESCAP United Nations Economic and Social Commission forAsia and the Pacific

USAID United States Agency for International Development

VERs Voluntary Export Restraints


Taramani Agarwal is workingat CUTS in the capacity of SeniorProgramme Officer. She hasbeen working closely on theissues related to internationaltrade and regional economiccooperation in South Asia andhas more than five years ofresearch experience. She holdsMaster’s degree in ActuarialScience from the AmityUniversity. In the past, she hasworked with Bureau of Researchon Industry and EconomicFundamentals and DeloitteConsultancy.

Rahul Arora is working in thecapacity of a Policy Analyst atCUTS. He has Doctorate inEconomics with specialisation inInternational Trade from IndianInstitute of Technology, Kanpur.His research interests lies inanalysing International Tradewith particular focus onComputable General Equilibrium(CGE) Modelling of Free TradeAgreements, Regional EconomicIntegration, Gravity Modelling,Trade Facilitation and TradePolicy. He has worked withARTNeT, United NationsEconomic and SocialCommission for Asia and thePacific (UNESCAP) to study thetrade facilitation measures inRCEP countries and publishedvarious research papers andchapters in journals and books ofnational and internationalrepute.

Sayandeep Chattopadhyayis working as a ResearchAssociate at CUTS. He holds a

Contributors

Bachelor’s in Economics from theUniversity of Calcutta andMaster’s in Economics fromSymbiosis InternationalUniversity. His areas of interestinclude international economics,regional cooperation, andpolitical economy of economicregulations. Previously, he hasworked at the Institute for Socialand Economic Change,Bengaluru.

Arnab Ganguly holds aMaster’s Degree in Economicsand Business Management.Presently, he is working withCUTS as Assistant Policy Analystand engaged in various projectson International Trade, RegionalEconomic Cooperation andCross-border Electricity Trade. Hehas also worked with WestBengal ConsultancyOrganisation and Confederationof Indian Industry in variouscapacities. He has more than tenyears of experience in actionresearch and policy advocacy.

Suvayan Neogi is a ResearchAssociate at CUTS. He obtainedhis Master’s degree inAgribusiness Economics fromGokhale Institute of Politics andEconomics (GIPE), Pune. He hascontributed in a number ofstudies as a researcher forvarious institutes including IITKanpur, Calcutta University,among others. His interest areasinclude regional economiccooperation, trade facilitation,among others.


Sudip Kumar Paul is aResearch Associate at CUTS. Hehas been awarded with M.Sc. inEconomics from the University ofCalcutta. He has more than threeyears of research experience andhas previously worked withIndian Statistical Institute andJadavpur University, Kolkata. Hisinterest lies in the regionaleconomic integration whichcomes under the area ofinternational trade.

Sarbjit Singh is working in thecapacity of a Policy Analyst atCUTS. He has Doctorate inEconomics with specialisation inInternational Trade from IITKanpur. His research interest liesin the Quantitative Analysis ofInternational Trade. In particular,he works on Gravity Modelling,Trade Facilitation, GTAP Models,Regional Economic Integrationand Trade Policy. He hascompleted a project with

ARTNeT, UNESCAP on tradefacilitation measures in RCEPcountries and published variousresearch papers and chapters injournals and books of nationaland international repute.

Surendar Singh is a Fellow atCUTS. He holds Ph.D ininternational trade from KumaonUniversity and has more than tenyears of experience in researchand teaching. His areas ofinterest include internationaltrade, global value chains,regional economic integration,and trade facilitation. He haspublished several researchstudies, articles and discussionpapers in national andinternational journals. He hasalso written two books oninternational trade and export-import management, which havebeen adopted by Sikkim ManipalUniversity as core books for itscourses on international tradeand economics.


Acknowledgments

This study is the result of a year-long project ‘Linkages andImpact of Informal Trade inAgricultural Input Commoditiesin Eastern South Asia’ supportedby the Australian Centre forInternational AgriculturalResearch (ACIAR) and the UnitedKingdom’s Department forInternational Development(DFID). In this study, an attempthas been made to identify driversinfluencing informal trade inagricultural input commodities inEastern South Asia and gaugingthe impact of informal trade onthe livelihood of the nearbyresidents.

The study is largely based onsurvey findings from Bangladesh,India and Nepal, and presentsthe views of differentiated groupof stakeholders, who areinvolved in informal trade andrelated activities in the borderareas of these countries. We dulyappreciate their cooperation.

We offer our sincere thanks toDr. Ejaz Qureshi, Dr. John Dixonand Dr. Kuhu Chatterjee ofACIAR and Dr. DuncanOverfield, Jaya Singh Verma andHarjeet Kaur of DFID, forproviding their extensive supportfor reviewing our work inprogress and providing timelyand valuable inputs. We alsoacknowledge the valuable inputsprovided by Dr. SisiraJayasuriya, Dr. P K Joshi, Dr.Rajesh Chadha, and Dr. NishaTaneja, among many others,during the implementation of theproject and finalisation of thisreport. We would like to express

our profound gratitude andindebtedness for their wisecounsel.

This study is also benefitted fromthe unreserved assistanceextended by our partnerorganisations, UnnayanShamannay from Bangladeshand South Asia Watch on Trade,Economics and Environment(SAWTEE) from Nepal. Theiruseful contributions includingconducting extensive field workin the remote areas, organisinglocal meetings and stakeholdersconsultation, in their respectivecountries, are acknowledged.

We thank them for sharing ourpassion for bringing about policyreforms in Bangladesh, India andNepal that would benefit thepeople at large. Special thanksare due to Robert Shuvo Gudaand Shaheen Ul Alam ofUnnayan Shamannay andDikshya Singh and DhrubeshRegmi of SAWTEE.

We are also grateful tocolleagues from Indian Councilof Agricultural Research (ICAR),Bihar; Uttar Banga KrishiVisvavidyalaya, West Bengal;Nepal Agricultural ResearchCouncil (NARC), Nepal; andBangladesh AgriculturalResearch Institute (BARI),Bangladesh, for their immensesupport in conducting fieldresearch in the remote locationsof the respective three countries.Without their assistance, theproject would not have beensuccessful. Along with thecontributors of the report, we are


also thankful to CUTS colleagues:Ujjwal Kumar, Prithviraj Nath,Prashant Sharma and MohiniGanguly for giving their valuableinputs and contributing in thestudy, under the overall guidanceof Bipul Chatterjee.

We also thank all the participantsof stakeholder consultationmeetings organised inBangladesh, India, and Nepal.We are extremely grateful fortheir enthusiastic support andknowledge, which they sharedwith us.

Garima Shrivastava carried outthe editing of this report andMadhuri Vasnani, Mukesh Tyagiand Rajkumar Trivedi contributed

in its proof-reading and lay-outing. G C Jain, L N Sharmaand Lokesh Sharma handled itsfinancial management. We thankall of them. Many other namesdeserve special mention butcould not be referred here forwant of anonymity. We thankthem all for their support.

Finally, any error that may haveremained is solely ourresponsibility. Our dedication tothis critical and sensitive subjectwill be sustained whilecontributing towards the currentand future discourse on theregional as well as individualcountry-wise developmentobjectives.

CUTS Centre for InterCUTS Centre for InterCUTS Centre for InterCUTS Centre for InterCUTS Centre for InternationalnationalnationalnationalnationalTTTTTrade, Economics &rade, Economics &rade, Economics &rade, Economics &rade, Economics &

EnvironmentEnvironmentEnvironmentEnvironmentEnvironment


Foreword

This pioneering study of informal agriculturalinput trade between Bangladesh, India andNepal, is both important and timely. It highlightsthe continuing, expanding informal trade inagricultural inputs in the South Asian region.Further, expanding trade in agricultural inputs is aglobal phenomenon, and the study raises anumber of issues that have wider relevancebeyond South Asia.

At first glance, this seems puzzling becauseformal barriers to trade between these countrieshave come down very substantially in recentyears due to both unilateral and regional tradeliberalisation initiatives. However, in realityagricultural input trade as in the case ofagricultural trade more generally, the reduction informal trade barriers – both tariff and non-tariffbarriers – has lagged well behind the pace ofoverall trade liberalisation in South Asia, andsignificant barriers to international trade inagriculture remain.

Further, as the study describes, the structure oftrade barriers also differs between thegeographically contiguous neighbours,Bangladesh, India and Nepal, reflectingdifferences in the policy stances of theirgovernments that implement significantly differentdomestic tax/subsidy policies in the agriculturesector.

In the case of agricultural input trade, incentivesfor informal trade are enhanced by the lack ofharmonisation in standards, seed certification

systems, and in Sanitary and Phyto-sanitaryregulations, and costly and cumbersome customclearance procedures.

The resulting cross-border price differentials andconsumer demands that are not met throughformal trade channels, generate large incentivesfor informal trade. The study shows how closeethnic, social, and sometimes even family links,between communities that straddle the porousborders makes it difficult and costly to enforcerestrictions on cross-border transactions. The highincentives for informal trade also reinforce andentrench corruption in the inefficient andcorruption-prone bureaucracy.

What are the welfare consequences of suchinformal trade? The study provides manyexamples of the positive effects of informal tradeon agricultural communities as farmers acrossborders share seeds, technologies and otherinputs, improving productivity and income.

This appears to be a powerful illustration of the‘welfare increasing smuggling’ thesis advanced byProfessors Jagdish Bhagwati and Bent Hansen in1973 where they showed that in somecircumstances informal (or illegal) trade can bepositively beneficial for communities or countries.

But the costs associated with informal trade andevading legal channels should also be recognised,and in the case of agricultural inputs, these maybe quite large.

Sisira JayasuriyaDirector, Centre for Development Economicsand Sustainability and Professor of EconomicsMonash UniversityMelbourne, Australia


There are legitimate concerns about the potentiallycatastrophic consequences of evading bio-securityrestrictions on movement of seeds and other inputs.This is in addition to the non-trivial economic andsocial costs of encouraging people to engage inactivities that break or bend laws and regulationsand strengthen corruption and waste resources.

There are also other aspects of input trade to beconsidered. In particular, trade in inputs cansignificantly impact outputs of agricultural products,and consequently on prices and cross-border trade.

The study recognises these issues, and theconclusions and policy recommendations arebalanced. It presents a strong case for acceleratingthe broader process of agricultural tradeliberalisation in South Asia to exploit the economiccomplementarities among neighbouring countriesand regions, while emphasising the need forappropriate measures to harmonise standards andcoordinate bio-security measures.

However, the study also points to the formidablepolicy challenges that stand in the way of

eliminating such trade because the tradebarriers that exist are essential if the countriesare to maintain different domestic of tax subsidypolicies that have powerful political economyroots. For example, in the case of subsidisedinputs that can be traded across countryborders, such as fertilisers, informal traderesults in a transfer of the subsidy to theconsumers in neighbouring importing countries.

If India wishes to maintain high fertilisersubsidies, then restrictions on cross-bordertrade are almost mandatory. It will not be easyto craft a set of transitional policies that canfacilitate greater formal trade in agriculturalinputs while minimising bio-security risks, andnavigating the minefield of politicallyentrenched tax/subsidy policies.

The authors of this report must be congratulatedfor a most valuable contribution to this regionalpolicy challenge and ongoing policy debate onagricultural trade liberalisation. I hope that thisstudy will stimulate other studies, broader inscope, depth and geographical coverage.


Preface

Bipul ChatterjeeExecutive DirectorCUTS International

The deep-rooted shared historical, cultural, ethnicand geographical contiguity are pillars ofeconomic and trade relations among Bangladesh,India and Nepal. Notwithstanding the politicalboundaries, the flow of both resources and peoplehas continued to thrive across the borders of thesecountries. While the nature of porosity of India’sborders with these countries is different, it hasnever meant that they cease to exist. In some cases,however, with political boundaries posing ashurdles, the process has become more difficult andalso become more of informal exchange.

Since early 1990s, Bangladesh, India and Nepalhave taken various bilateral and regional initiativesto expand their economic and trade ties. Theseinclude treaty of transit, duty-free quota-freemarket access, the Agreement on South Asia FreeTrade Area (SAFTA). The overarching goal of theseinitiatives was to enhance economic and tradecooperation. Trade Agreements like SAFTA hasbeen able to make some progress in liberalisingtrade in the region, but import tariffs are still highon some agriculture products, includingagricultural inputs.

In addition, some member countries have put alarge number of products under the sensitive list ofSAFTA. In particular, restriction on trade inagriculture products has enabled large-scaleinformal exchange of such goods. Other than this,non-tariff barriers (NTBs), particularly traderestricting regulations increased the cost of doing

cross-border trade, which encouraged tradersand local people to get into informal trading.

Bangladesh and Nepal share long borders withIndia and large volume of informal trade takesplace through these borders. Cross-borderinformal trade in agricultural inputs issignificant because of diverse range of issues,which include quality concerns and productivity.Other than this, ineffective trade facilitation,domestic policy distortions and other relatedimpediments also result in huge informal tradein agricultural inputs across these countries.

Divergent rules and regulations including SPSand TBT regulations for specific products, oftencreate obstacles to formal cross-border trade. Inthis study, it is noted that frequent quarantinechecks and administrative hassles in cross-border trade compel local traders, agents andalso local people to use informal channels. Thelengthy process of laboratory testing withmultiple authorities, pre-shipment certificatesand other documents to prove compliance withthe given norms, customs clearance documents,and transhipment at the border point result inunnecessary delay and cost escalation, which inturn, hamper efficient movement of goodsacross borders. Consequently, traders prefer toadopt informal channels for export and importof goods as it is relatively less cumbersome andcost-effective.


Absence of policy coherence between border sharingcountries is another reason for informal trade. Socialand welfare-oriented schemes in which governmentsuse subsidies or administered price mechanism fordistributing products to the domestic consumers alsoplay a catalytic role behind informal trade. This issueis primarily noted in case of subsidised agriculturalinputs, such as fertilisers and machineries. Besidesthis, inadequate employment opportunities as well associal, ethnic relationship between the communitiesacross borders are two additional factors behind theincreasing trend of informal trade in the borderareas of this region, which is exacerbated byinadequate attention of governments to the welfare ofborder communities and lack of political willingnessfor the betterment of their livelihood.

Thus, this study has captured some of key factorswhich are responsible for informal trade betweenIndia-Bangladesh and India-Nepal. Some of the keyfactors found in this study are differences in quality,prices and productivity, due to which both farmersand traders are involved in informal trade.

It underscores the current state of such trade alongthe these border areas and has come up with a set ofpolicy recommendations, such as reduction in tariffson the part of Bangladesh and Nepal, harmonisationof standards and technical regulations, improvementin soft and hard infrastructure, addressing domesticpolicy distortion, development of border haats, and

capacity building and knowledge sharing ofborder agencies to convert informal trade intoformal channels.

CUTS believes that if the set of policyrecommendations provided in this study arerecognised and implemented, a significantvolume of informal trade can be shifted intoformal channels which will have far-reachingsocio-economic implications, and will contributetowards better livelihood of those who aremarginalised in the current developmentdiscourse.

Therefore, I hope that this report will bedisseminated among the relevant policymakersand will generate interest amongst them, whichwill result in a more comprehensive economiccooperation between Bangladesh, India andNepal.

I thank my colleagues at CUTS and our partnersin Bangladesh and Nepal – UnnayanShamannay and South Asia Watch on Trade,Economics and Environment – for their diligentwork. Let me also thank the Australian Centre forInternational Agricultural Research and theUnited Kingdom’s Department for InternationalDevelopment, for their support. Last but not theleast, thanks are due to the project advisers fortheir guidance. Any errors remain those of ours.


Executive Summary

BackgroundEconomic and trade relationshipsamong India, Bangladesh andNepal (the Eastern South Asianregion) are shaped bygeographical, historical, ethnicaland cultural linkages. They havebeen strong facilitators of cross-border trade between India-Bangladesh and India-Nepal.These trade relations are furtheraugmented by a number offactors, which includepreferential, unilateral, bilateraland regional trade agreements.

Various agreements have beenplaying catalytic roles inexpanding economic and tradeties among the three countries.Despite the growth of bilateraltrade flows, a significant portionof informal trade is also takingplace. The term informal traderefers to unofficial trade thattakes place due to high NTBs,ineffective trade facilitation,domestic policy distortions andother related impediments.

Among others, tariff barriershave been recognised as themajor issue for unprecedentedgrowth of informal trade in theEastern South Asian region.Despite the consistent efforts toreduce the tariffs under theSAPTA, followed by SAFTA, theimport tariffs are still very highon the trade of agricultural inputsin the region. High tariff provides‘incentives’ to local inhabitantsand traders to circumvent formalchannels and move towardsinformal ones.

This is also recognised in case ofthese three countries. Indiaimpose high import tariffs on theimports of paddy seed, wheatseed, maize seed and potatoseed. Exports of Urea and DAPare also restricted, to fulfil thedomestic requirements.

In addition to the tariff barriers,bilateral trade flows ofagricultural products betweenIndia-Bangladesh and India-Nepal are subject to a largenumber of NTBs. Bangladesh,India and Nepal have theirspecific SPS measures, qualityrelated norms and standardrelated regulations for exportand import of agricultural inputand output products. The lengthyprocess of laboratory testing withmultiple authorities, pre-shipmentcertificates, customs clearancedocuments, transhipment at theborder points, result inunnecessary delay and costescalation, consequently,affecting the formal tradenegatively.

The existing studies have foundvarious factors responsible forthe large amount of informaltrade between India-Bangladeshand India-Nepal. Some of themajor reasons are inadequateattention by the state machinerytowards informal trade, lack ofpolicy coherence between bordersharing countries and improperuse of country specific domesticsocial and welfare policies.


Inadequate employment opportunities as well associal, ethnic relationship between thecommunities across borders are two additionalfactors behind the increasing trend of informaltrade in this border region which is dulysupported by existing corrupt bureaucraticsystems, political protection and lack of politicalwill.

Evidence from the Field SurveyIn order to understand the dynamics of informaltrade in agricultural inputs at the borders, primaryevidences were collected from Indo-Nepal border,i.e. Madhubani and Arariya districts in Bihar-India and Dhanusha and Sunsari districts inNepal; and Indo-Bangladesh border, i.e. Maldaand Coochbehar districts in West Bengal-India,Rajshahi and Rangpur districts from Bangladesh.The study analysed the impact of informal tradeon the livelihoods of the people living in theborder areas (farmers and local traders bothformal and informal), who are engaged ininformal trade.

Case of Indo-Nepal borderMost of the farmers along this border are smalland marginal farmers. Women participation ininformal trade is not direct but quite significant.The farmers earn their livelihood throughagricultural income by supplying the surplusoutput, after self-consumption, into the localmarkets, which help them meeting the demand oflocal consumers. Poverty and lack of jobopportunities in the border areas are the mainreasons resulting in their involvement in informaltrade.

Other key drivers influencing informal trade ofagricultural input commodities are highproductivity, proximate markets across borders,easy accessibility and availability of products,cultural, social and ethnic relations, lowertransportation cost, longevity and post-harvestmanagement.

Case of Indo-Bangladesh borderFarmers along this border are also small andmarginal and both men and women are engagedin farming practices. Most of the women alongthis border are engaged in secondary farming

practices, while a huge number of them areinvolved in other informal activities, such assmuggling. Informal trade activities are the easyways of earning their livelihood and meeting thesustained lifestyle for both men and women.

The key reason influencing farmers to getindulged in informal trade is easy availability ofagricultural inputs at lower prices on the otherside of border.

Other reasons are high productivity of informallytraded seeds incomparison to the formallyavailable seeds, lack in the supply of suitablealternatives, longevity and post-harvestmanagement, and cultural, social and ethnicrelationships that are shared between the twocountries.

Policy RecommendationsThe study has identified few but relevant policyrecommendations for addressing informal tradebetween India-Bangladesh, India-Nepal inparticular and overall for the sub-region. It isrecommended that necessary actions should betaken by the governments and private sector tochannelise informal trade into formal trade.

Trade Policy ReformsTrade policies in Eastern South Asian countriesare restrictive which in turn, affect cross-bordertrade. As a result, local traders and agents tend toget into informal trading which is relatively easy,less cumbersome and less time consuming.

Tariff BarriersTariffs on most of the informally tradedagricultural inputs are relatively high whichmagnify the cost of formal export and import.Considering this, it is important for the EasternSouth Asian countries to emphasis on greaterdegree of tariff liberalisation in these products tofacilitate cross-border trade. The reduction intariffs and elimination of sensitive lists under theSAFTA could play an important role in thisregard. Additionally, the possibilities can also beexplored at bilateral basis to eliminate sensitivelists.


Non-Tariff BarriersTrade in agricultural inputs, such as seeds,fertilisers, pesticides, chemicals, is more prone toSPS and TBT issues. Cross-border trade in theseproducts face more barriers given their health,safety and quality concerns. Harmonisation oftrade, technical and regulatory standards throughMutual Recognition Agreements (MRAs) andconformity assessment procedures could be anoption to reduce the potential incidence of NTBs,which will further help the people and traders tomove to formal channels of cross-border trade.

Research institutions, such as Indian Council ofAgricultural Research (ICAR) in India, NationalAgricultural Research Council (NARC) in Nepaland Bangladesh Agricultural Research Council(BARC) in Bangladesh, should work ondeveloping quality seeds and fertilisers togetherunder the ambit of regional bodies, such as SouthAsian Regional Standards Organisation (SARSO).They should collectively come up with a plan todevelop, produce and distribute these inputs in thelocal markets of the respective countries, in themarkets of the border areas and thus to meet theregional demand.

High trade transaction costs due to inefficientcustoms clearance procedures, cumbersomeexport and import formalities, absence of singlewindow system (SWS) and Information andCommunications Technology (ICT), encouragetraders and local people to get involved intoinformal trading, which is efficient, less timeconsuming and involves no transaction costs.Therefore, it becomes imperative for governmentsof the three countries to create betterinfrastructure facilities, streamlined customsclearance procedures and SWS to reduce theoperational costs.

Development of Formal RoutesGovernments of these three countries shouldemphasis on identifying and developing more offormal border points while considering their costbenefit analysis. Moreover, it is important toupgrade the existing formal border points, knownas, land customs stations, in terms of better roadinfrastructure, better internet facilities, and singlewindow documentation system, risk managementsystem for both exporter and importers.

Regional Policy CoherenceDomestic policies, such as subsidies toagricultural inputs, lead to price distortions acrossthe markets of other country, thus providingincentives to local traders, agents and people toinvolve in informal trade practice. Thegovernment of these three countries shouldemphasise on promoting greater policy coherencein institutional and regulatory framework, so thatthe prevailing policy induced distortions can beaddressed.

Setting up Regional FactoriesInformal trade of fertilisers in the Eastern SouthAsian region can be addressed and channelisedby setting up regional factories of fertiliserssimilar to those in South-East Asia. India, Nepaland Bangladesh can jointly pool financialresources for the establishment of regionalfactories which will significantly lower informaltrade in fertilisers.

Development of Border HaatsIt is being recognised that border haats havebeen instrumental in promoting trade betweenIndia and Bangladesh, and they have helped thepeople living in border areas in gettingproductive employment and positively impactedtheir socio-economic transformation. It has beennoticed that border haats have played anessential role in arresting and reducing informaltrade in that area. Currently, there are only fourborder haats across the lengthy Indo-Bangladeshborder, along the borders of Meghalaya andTripura states of India. Considering theirimportance and impact, replication of borderhaats in the new locations will greatly helptowards better local economic development,people-to-people connectivity and apprehendinginformal trade.

Trade Capacity Building ProgrammesCountries should create more awarenessgeneration programmes at local and regionallevel about trading through the formal routine oron the benefits that can accrue from regularisinginformal trade. Also, they need to be informedabout the quality of the product that they areproducing. They need to be educated regardingthe bio-safety issues and environmental issues.


Mandatory Education Schemes and JobCreationAs people residing along the borders are mostlyuneducated and lack job opportunities,governments of the respective countries shouldallocate some funds from the Border AreaDevelopment Programme towards mandatingcompulsory education. Education will help themavailing job opportunities which will lead to betterlivelihood, thus alleviating poverty. In Addition,governments should consider and focus uponcreating jobs in the border areas resulting inemployment opportunities for better livelihood.


Countries of Eastern South Asia –Bangladesh, India, and Nepal –share deep-rooted historic &cultural linkages that play animportant role in shaping theireconomic and trade relationships(Rahman et al, 2012). Despitethe political boundaries, the flowof both resources and people hascontinued to thrive across theborders of all the three countries.

The long open porous bordersbetween India, Bangladesh andNepal have never ceased theflows of water and movement ofcattle in these areas. However, insome cases, these politicalboundaries have posednumerous challenges, which leadto hidden transactions across theborders, termed as informaltrade.

Different studies have interpretedthe term informal in differentcontexts. The term informal refersto illegal economic activities;parallel markets (not regulatedby the government).Undoubtedly, there exists anillegal component to informaltrade if one takes into accounttrafficking in drugs, narcotics orarms. In addition, informal tradeis a form of smuggling of goodsacross frontiers due to policyrelated barriers (tariff and NTBs).It is possible that a substantialvolume of informal trade is in thenature of ‘extra-legal trading,tolerated in practice even ifillegal in the letter of the law’.This happens due to the fact that

the governance of statemachinery does not extend to allcorners of the society in poorcountries (Taneja, 2000).

In the past, studies have tried toestimate the quantum of informaltrade along India’s border withBangladesh and Nepal, andmost of them have estimated veryhigh figures for such trade. Thiscomprises of both bootleg andtechnical smuggling.1 Estimatesbased on a survey inBangladesh, undertaken in theyear 2002-03, put the figure at awhopping US$500mn for theyear 2002-03, which is about 42per cent of Bangladesh’srecorded imports from India and30 per cent of its total (formalplus informal) imports during thesame year (World Bank, 2006).

One of the most strikingobservations of the World Bank(WB) study is that a large volumeof the cross-border informaltrade is in agricultural products,which constitute 14 per cent ofthe total informal trade. This iswell aligned with the findings ofTaneja (2005) which claimed thatfood/agricultural productsconstitute a major proportion ofIndia’s trade with Bangladeshand Nepal through both formaland informal channels.

A recent study by United StatesAgency for InternationalDevelopment (USAID) andEnabling Agricultural Trade (EAT)observed that both Bangladesh

Chapter 1 Introduction


and Nepal are heavily dependent on India for theirseed and fertiliser requirements. It indicates thatIndian seeds going to Nepal via informal channelcan account for as high as 30 per cent to 45 percent of the total vegetable seeds consumed in Nepal(Ministry of Agriculture and Cooperatives,Government of Nepal, 2011).2 The main reasonbehind this is the prevalence of policy, procedural,political and regulatory barriers that hinder smoothflow of agricultural inputs across borders throughofficial route. This indirectly encourages trade ofsuch inputs through informal channels.

However, such informal trade in agricultural inputsoften translates into high prices and low quality ofproducts for farmers. The resilience, climatesuitability and high returns of these seed varietiesand non-availability of other agricultural inputs atthe local-level are the principal reasons that farmersare informally adopting/sourcing them from acrosspolitical borders. Moreover, people living in borderareas of these three countries share commonpractices in agriculture.

This is well documented in the earlier work of CUTS,in the border areas of Bangladesh, where it wasfound that migration from Bangladesh to the Easternstates of India has contributed to the rise inagricultural productivity in the region, through theintroduction of better techniques, crop diversity, andmultiple cropping.

This phenomena started during the colonial eraand still prevails. In the present times, asubstantial part of intensive agriculture in theEastern part of India is done by such migrantcultivators. This has generated more demand foragricultural technology, seeds, equipment,among others across the border fromBangladesh.

Another remarkable feature of trade in selectedlocations in agricultural products in the region isthe gender dimensions; agriculture is a femalelabour-intensive3 activity in Bangladesh, Indiaand Nepal (FAO et al, 2010). An increase inwomen’s participation in agricultural activitieshas been witnessed owing to increasingmigration of the rural male population to otherurban centres within the respective countriesand also to other countries in search of workand higher wages. This has led to thedelegation of a lot of responsibilities ofagricultural work on women. A study by FoodAgriculture Organisation revealed that around3 per cent of households headed by womenused mechanical equipment, compared with 8per cent of those headed by men (FAO 2010-11). In short, agriculture farming managed bywomen generally characterised by low level ofmechanisation and technological inputs.

Easy and cheap availability of agriculturalinputs, arguably has a huge potential toincrease incomes for marginalised and womenfarmers in the region, which can result in higherconsumption.

Existing scenariobrings forward thatinformal trade inagriculture items ismainly focussed onHigh Yielding Varieties(HYV) of rice, wheatand maize seedsamongst India,Bangladesh and Nepal

Literature highlightsthat cross-borderinformal trade in seedsand fertilisers acrossthe border hasenhanced the resourceuse efficiency infarming activities


1.1 Existing Scenario of Formal Trade1.1.1 Trade between India and NepalIndia and Nepal are important trading partners inthe Eastern region. Nepal, as a landlocked country,is highly dependent on India for its foreign trade.Figures 1.1.A and 1.1.B show the export and importflows of all products including agricultural productsand non-agricultural products, between India andNepal for the last three years (2013-2015).

In the entire trade between India and Nepal,agricultural trade plays an important role. Although,the share of India’s exports to Nepal is less than theshare of India’s imports from Nepal, the volume ofexports is higher than imports. Major exports fromIndia to Nepal are milled rice, maize, rice in husk,paddy, potatoes and wheat (excluding seed forsowing).

The agricultural products coming from Nepal toIndia through formal channels majorly comprisenon-alcoholic beverages, cardamoms, nuts and tea.There is negligible trade in agricultural seeds likewheat, rice, vegetable seeds from Nepal to Indiabecause of the restrictive policy of India on seedstrade.

Given the fact that the focus of work is on tradein agricultural inputs, particularly in seeds,fertilisers and agriculture machinery, Table 1.1shows bilateral trade flows between India andNepal in these products, in the last three years.

The data demonstrates that India’s exports inseeds to Nepal were US$36,026 in 2013 andincreased to US$47,339 in 2015 while importsfrom Nepal were insignificant in the sameperiod. Exports of fertilisers from India wereUS$15,286 in 2013 and decreased toUS$11,083 in 2015. The declining export offertilisers might be caused by restrictive exportpolicy.

Moreover, India had no import of fertilisers fromNepal over these three years. Exports ofmachinery products from India to Nepal havealso declined from US$35,516 in 2013 toUS$25,600 in 2015 and imports have alsodeclined from US$1,633 in 2013 to US$1472in 2015. The current bilateral trade flows inselected agricultural inputs reflects ups anddowns.

Figure 1.1 A: India’s Exports to Nepal(Values in US$ Thousand)

Source: ITC Trade map, as on May 2017


1.1.2 Trade between India andBangladeshDespite varying political relations, economic andtrade relationships between India and Bangladeshhave improved over the years. In the recent years,India and Bangladesh have registered stronggrowth in their bilateral trade flows. This hascontributed to significant social and economicdevelopment in both the countries (CUTS, 2014).

Figures 1.2.A and 1.2.B show the values ofexport and import between India andBangladesh, both in agricultural products andall products. It is important to note that bilateraltrade between India and Bangladesh isdominated by agriculture products. This reflectstraditional comparative cost advantage andtrade complementarity in the agriculture sectorof both the countries.

Bilateral Trade Flows between India and Nepal in Agricultural Inputs (2013-15)4

(Values in US$ thousand)

Product Label India’s Export to Nepal India’s Import from Nepal

2013 2014 2015 2013 2014 2015

Seeds 36,026 46,513 47,339 53 98 62

Fertilisers 15,286 10,743 11,083 0 0 0

Machinery 35,516 42,281 25,600 1,633 187 1,472

Source: ITC Trade Map database, as calculated on September 2016


Figure 1.1 B: India’s Imports from Nepal(Values in US$ Thousand)

Table 1.1


Table 1.2 shows the trade flows specific to seeds,fertiliser, and machinery between India andBangladesh in 2013-15. Values of imports given inTable 1.2 reveals that India’s imports in seeds andmachinery are very less relative to Bangladesh’simports from India in the same products.

In case of imports of fertilisers, the value of importsin the year 2015 reveals that India’s imports of

fertilisers are approximately double of its exportsto Bangladesh. This trade flow between Indiaand Bangladesh is below the trade potential.There is huge scope of gains from trade to boththe producers and the consumers due togeographical proximity and ethnic ties amongother reasons.


Figure 1.2 A: India’s Exports to Bangladesh(Values in US$ Thousand)

Figure 1.2 B: India’s Imports from Bangladesh(Values in US$ Thousand)



The main reason behind low trade flow is therestrictive trade policy in terms of high non-tariffbarriers (NTBs), para tariff measures and lack oftrade facilitation measures. Particularly in case oftrade in agricultural inputs (seeds, fertiliser, andagriculture machinery), restrictive trade policy hasbeen followed by both of the countries. It mainlyincludes stringent SPS and TBT measures relatedto trade of seeds and fertiliser, particularly byIndia.

1.2 Background and ContextIt is a well-established fact that tariff and NTBsescalate the cost of export and import of goodsand hence affects the growth of trade. This inturn, creates potential opportunities of informaltrade particularly in those countries, which havegeographical proximity and long open borders.

The issue of informal trade is well noted acrossmany regions of Africa, South Asia andAssociation of Southeast Asian Nations (ASEAN).The informal trade is recognised as a major issuein the South Asian and Eastern South Asiancountries.

A large body of literature proves that tariff andnon-tariff barriers are the most important factorsbehind thriving informal trade. In a notable studyby Taneja (2011) it was revealed that the volumeof informal trade constituted 72 per cent of formaltrade in the South Asian region (Taneja, 2005).

She further added that informal trade in theregion is due to inadequate trade liberalisation inagricultural products.

The existing literature only provide adequateinsights on existing drivers and estimates abouttotal volume of informal trade but it does not dealwith product specific drivers of informal trade andthere linkages with livelihood of local people. Thiscreates the need for a deeper analysis tounderstand the product-wise drivers of informaltrade.

This study is an attempt to understand the keydrivers of informal trade in agricultural inputs(seeds, fertilisers and machinery) between Indiaand Nepal and India and Bangladesh throughprimary-level survey. It also attempts to analysethe impact of informal trade in agricultural inputson the livelihood of rural households in the borderareas.

1.3 Objectives and MethodologyThe overall goal of the study is to frame policyproposals for addressing high volume of informaltrade in agricultural input products along theborders of India-Nepal and India-Bangladesh, ina way that it does not adversly impact thelivelihood of the local economy negatively. Thespecific objectives of the study are:

Bilateral Trade Flows between India and Bangladesh in Agricultural Inputs (2013-15)(Values in US$ Thousand)5

Product Label India’s Export to Bangladesh India’s Import from Bangladesh

2013 2014 2015 2013 2014 2015

Seeds 24,237 24,629 23,442 27 47 —

Fertilisers 912 2,144 3,129 00 00 6,001

Machinery 15,114 15,398 17,448 117 143 183

Source: ITC Trade Map database, as calculated on September 2016

Table 1.2


• Understanding the drivers of informal trade inagriculture inputs across specific locations alongthe India-Bangladesh and the India-Nepalborder,

• Understanding the impact of informal trade inagricultural inputs on the livelihoods of localpeople who are engaged in the same, and

• Suggesting policy recommendations foraddressing informal trade in agricultural inputproducts

To pursue these objective, CUTS along with itspartners, have conducted field research in eightlocations. The locations are Malda-Rajshahi andCoochbehar-Rangpur (near Indo-Bangla border);and Madhubani-Gidhha and Arariya-Sunsari (nearIndo-Nepal border).

The selection of these locations was done inconsultation with the International Maize and WheatImprovement Centre (CIMMYT), which isimplementing a project study ‘Sustainable and

Resilient Farming Intensification in the EasternGangetic Plains (SRFSI)’ in the region,supported by the Australian Centre forInternational Agricultural Research (ACIAR).

At each location, three rounds of survey weredone, comprising of one scoping visit and tworounds of field survey as per the Delphitechnique. Scoping visits were made to contactproject partners, establishing SRFSI contactpoints and identify grassroot stakeholders to beinterviewed in the following two rounds ofsurvey. Lists of 60 stakeholders, including bothmen and women, were prepared for each ofthe eight locations, comprising farmers, localagents, retailers and traders.

Some of these stakeholders were contacted inthis round to identify key agriculture inputproduct(s) at each location to be studied further,and to validate the draft questionnaire.Questionnaires are given in Annexure -1 & 2.

Description of Selected Agricultural Inputs

Category India to Nepal Nepal to India

Dhanusha Sunsari Madhubani Arariya

Seed Rice Seed Vegetable Seed Wheat Seed Wheat Seed(Sona Mansuli) (Gautam) (NL297)

Fertiliser DAP* DAP – –

Machinery Spray Machine Spray Machine – –

India to Bangladesh Bangladesh to India

Rajshahi Rangpur Malda Coochbehar

Seed Tomato Seed (Rocky) Rice (Guti Swarna) Paddy (BR11/BB11) Paddy (BIRI 28/29/Heera)

Fertiliser DAP Thaiodin Sathi (Herbicide) —

Machinery Tractor Parts and CD Pump —Nut Bolts

Note: *Di-Ammonium PhosphateSource: Primary Survey

Table 1.3


Three broad categories of agricultural inputproducts were considered under the study – seed,fertiliser and machinery. Selection was made onthe basis of the products which are broughtillegally in that particular location from the otherside of the border. Specific products identified ateach of the selected location are given in theTable 1.3. Scoping visits were followed byfinalising of the questionnaires and two otherrounds of survey were conducted on an intervalof two-three months, at each of the eight locationsby using Delphi Technique.6 Same set ofrespondents were interviewed in both the roundsof survey. The responses were validated andthose respondents were eliminated whoseresponses did not match in both the rounds ofsurvey.

Those respondents whose responses deviated bymore than 20 per cent were deleted. Also, in somecases, there were some outliers, which too goteliminated. Thus, after elimination, analysis hasbeen carried out on data collected from 240respondents, 30 each from each of the eightlocations. Some of the respondents were alsodeleted for some locations to maintain symmetryacross all locations.

The questionnaire (see Annexure-1) was designedto accommodate almost all possible drivers thatcan influence informal trade in the selectedlocations. The collected data on all such drivers hasbeen analysed to develop strong narrative. Otherthan this, the study has also used the qualitativeinformation collected from the relevantstakeholders through interview method, groupdiscussion, using a separate questionnaire, asgiven in Annexure-2.


There is no formal estimation ofinformal trade between India andNepal in the existing literature.Taneja (1999) in her study statedthat informal trade between thesetwo countries is eight to ten timeshigher than that of officialrecorded trade. It has also beenhighlighted in her study that theinformal trade flow is mostly one-sided from India to Nepal. Inrecent times, it has been observedthat farmers from Terai areas inNepal use unregistered Indianvarieties, such as maize that havebeen smuggled from India.

Similarly, the smuggling ofagricultural inputs from India toNepal also takes place in riceseeds (USAID and EAT, 2014) andfertilisers (Joshi et al, 2012). Aseminal study by Tanjea and Pohit(2001) identified the role of policyrelated factors in thriving informaltrade in South Asian region. Thesefactors are tariffs, non-tariffbarriers and ineffective tradefacilitation.

Chaudhari (1995) quantified theinformal trade between India andBangladesh for the year 1992-93.He estimated the volume of tradeby using Delphi technique in thethree states: Assam, Tripura andWest Bengal. Results showed thatin value terms, India’s total exportsto Bangladesh were INR1165crore in 1992-93. This figure washigher than 1992-93 formalexports (INR1050 crore) toBangladesh. Among major traded

Chapter 2 Drivers of Informal Trade betweenIndia-Nepal and India Bangladesh:A Literature Survey

commodity groups, food itemsand animal products account themajor share of such exports(58.7per cent). Among the fooditems, sugar, rice (coarse), pulses(mainly lentil), common salt, food,and vegetables are beingsmuggled (Chaudhari, 1995).

According to a survey, riceinbred varieties have covered 12per cent of farming areas ofBangladesh in all seasons. Inaddition to this, informal tradealso facilitates the movement ofBangladeshi seeds into India.Farmers in India plant smuggledvarieties such as BR 11 (releasedin 1980 by Bangladesh RiceResearch Institute), BR 28 and BR29 (released in 1994).

2.1 Drivers of InformalTradeThe situation where trading ofproduct formally becomes difficultbecause of various factors,creates the situation of informaltrade. Formal trade procedure isa cumbersome process, andrequires passing through variousstages. Therefore, traders,informal agents, or people livingin the border areas, often tend toadopt the easy way, and starttrading informally. Major reasonsor drivers that are found bynumber of studies, whichinfluence informal trade overformal, which are discussed inthis section.


2.1.1 Trade Policy DriversBecause of high dependence of people on agriculture in the borderregions of India, Bangladesh and Nepal, it is argued that informaltrade of agricultural inputs is highly influenced by trade policy regimeat country level. Therefore, it is important to understand the role oftrade policy in facilitating cross-border informal trade in agriculturalinputs.

Trade Policy of India and Nepal for Selected Agriculture InputsTable 2.1 analyses the restrictiveness of trade policy of India andNepal in selected agricultural inputs. The import policy of India isrestrictive for the trade of paddy seed, wheat seed, and potato seed.On one hand, the import policy for other agricultural inputs, such asDiammonium Phosphate (DAP) and spray pumps are liberal andpermit their imports. On the other hand, the export policy of Indiaput restrictions on export of DAP and Urea while paddy, wheat andpotato seeds are allowed for export.

The key reasons behind the extensive usage of restrictive trade policyis either to protect domestic market or to address domestic supplyshortage. In addition, restrictions are also used to reduce the

Restrictiveness of Trade Policy of India and Nepal for Selected Informally Traded Agricultural Inputs

Import Policy

HS Code Agriculture Inputs India Nepal

10061010 Paddy Seed Restricted* Free

10019100 Wheat Seed Restricted* Free

07011000 Potato Seed Restricted* Free

31021000 Urea State Corporation State Corporation

31053000 DAP Free State Corporation

84242000 Spray Machine Free Free

Export Policy

10061010 Paddy Seed Free Free

10019100 Wheat Seed Free Free

07011000 Potato Seed Free Free

31021000 Urea Restricted* Free

31053000 DAP Restricted* Free

84242000 Spray Machine Free Free

Note: * Diammonium Phosphate

Source: Trade policy of India and Nepal

Note: Restricted* - export and import is allowed with special permission from competent trade authority inrespective country. For example, Directorate General of Foreign Trade (DGFT) regulates the export andimport of products.

Table 2.1


potential risk of variety specific disease, which couldcome through trade.

The import and export policies of Nepal is liberaland allows trade of agricultural inputs. The import ofUrea and DAP is managed by State TradingCorporation in Nepal.

Trade policy of India and Bangladesh forselected agriculture inputsTable 2.2 shows the restrictiveness of trade policy ofIndia and Bangladesh for selected agriculturalinputs. The import policy of India for paddy seed

Restrictiveness of Trade Policy for India and BangladeshSelected Informally Traded Agricultural Inputs

Import Policy

HS Code Agriculture Inputs India Bangladesh

12099160 Tomato Seed Free Free

10061010 Paddy Seed Restricted** Restricted

10051000 Maize Seed Restricted Restricted

38089390 Herbicides Free Free

31053000 DAP* Free Free

84321020 Tractor parts and others Free Free

84133030 CD Pump Free Free

Export Policy

12099160 Tomato Seed Free Free

10061010 Paddy Seed Free Restricted

10051000 Maize Seed Free Restricted

38089390 Herbicides Free Free

31053000 DAP Restricted Free

84321020 Tractor parts and others Free Free

84133030 CD Pump (Water Pump) Free Free

Source: Trade Policy of India and Bangladesh

Please Note:

*DAP is Diammonium phosphate,

**Restricted export and import is allowed with special permission from competent trade authority inrespective country. For example, Directorate General of Foreign Trade (DGFT) regulates the exportand import of products.

and maize seed is restrictive and imports ofsuch seeds are not allowed. However, there isno restriction on the imports of otheragricultural inputs. The export policy of India isliberal, which permits the exports of most of theselected agricultural inputs except DAP.

Furthermore, the import and export policies ofBangladesh are open for all agricultural inputsexcept for paddy seed and maize seed. Therestrictions are used to protect its domesticagriculture sector and domestic shortage.

Table 2.2


Tariff barriersThe role of high tariff barriers is intrinsically linkedwith cross-border informal trade (Taneja, 1999). Aplethora of studies show that tariffs play a majorrole in thriving informal trade among threecountries of Eastern South Asia. High tariffprovides ‘incentives’ to traders to circumvent formalchannel and move towards informal channel. Thisin turn, allows them to save substantial amount ofcosts and makes the final product more profitable.

Tariffs are still high in India, Bangladesh andNepal despite their consistent efforts towards tradeliberalisation through various initiatives, such asSAPTA and SAFTA (Chatterjee and George, 2012).

Countries use different type of policy instruments toaddress their demand and supply shocks ofagricultural commodities in Eastern South Asiancountries. The most common policy instrumentsused include export restriction, quantitativerestrictions and ban of export (Dorosh 2009; Dawe2010).

However, one of the major limitations of thesestudies is that they failed to establish the linkbetween high tariff barriers and growth in informaltrade. Though, there are some passing remarks toexplain the relationship between the two but theylack substance and depth.

The prevailing tariff structure of selectedagricultural inputs that are informally tradedbetween India-Bangladesh and India-Nepal aregiven in Figure 2.1. It reflects that tariffs applied by

Overall, the bilateraltrade policies of Indiaand Bangladesh arenot restrictive andallow exports andimports of majority ofagriculture inputs

India are very high in comparison to tariffsapplied by Bangladesh on the same set ofproducts. The import tariffs are very high onpaddy and maize seeds by India as compared toBangladesh. Similarly, in case of India-Nepal,tariffs applied on the imports of selectedagriculture inputs are high in India as comparedto Nepal.

India maintains high import tariffs on paddyseed, wheat seed and potato seed. The currenttariff structure of agriculture inputs in India,Bangladesh and Nepal clearly demonstrates thathigh tariff provides significant scope to tradersand local people to indulge into informal trade.

The informal channel is always attractive bothfor traders and consumers because of tworeasons. First, traders circumvent duties andtaxes while trading through informal channel,allowing them to generate higher economicgains. Second, consumers are able to buyinformal traded products at affordable prices.The vested interest of both traders andconsumers acts as natural driver of flourishinginformal trade. Therefore, high tariffs could beconsidered as a potent factor behind growinginformal trade in agricultural inputs betweenIndia-Bangladesh and India-Nepal.

Informal trade plays an important role in priceconvergence and co-movement of certainagriculture products. In this context, a notablestudy by Akhter (2017) analysed ‘the spatialmarket integration between an adjacent ricesurplus market (India) and deficit markets(Bangladesh and Nepal) in the wake of globalfinancial crisis of 2007-08’. The studysummarised that domestic prices of rice areclosely integrated both in short run and long runperiod among the three countries. The keyreason for ‘smooth price transmission andmarket co-integration’ in India, Bangladesh andNepal are associated with a significant volumeof informal trade. The study clearly outlined theimportance of promoting convergence in foodpolicies between these countries.


2.1.2 Non-Tariff BarriersNTBs include a variety of trade impediments and regulations, suchas: TBT and SPS; administrative and custom procedures; arbitraryexport ban; licensing; trade through state agencies; mandatorylabelling and packaging; infrastructural barriers; export and price-based measures – quotas and Voluntary Export Restraints (VERs),state level taxes, antidumping and countervailing duties; amongothers. Intra-regional trade within South Asia is subject to widerange of NTBs (CUTS 2013).

Source: Extracted from Customs manuals of India, Bangladesh andNepal 2016-17

Figure 2.1: Import Tariff on Selected Agriculture Inputs in India,Bangladesh and Nepal

Prevalence of NTBs is one of themost important factors behind thesub-optimal growth of cross-border trade between India-Bangladesh and India-Nepal.Bilateral trade between India-Bangladesh and India-Nepal ishindered by different types ofNTBs. A study by AsianDevelopment Bank (ADB andUNCTAD, 2008) found that thereexist a large number of NTBs,mainly related to TBT and SPSmeasures. The former is relatedwith labelling requirement whilethe latter is related with safetyrelated regulations, to ensurefood security and preventspreading of diseases. Both SPSand TBT measures made up 86per cent of all NTBs in SouthAsia. Among South Asiancountries, India, Bangladesh andNepal have high number ofincidence of TBT and SPS relatedmeasures.

In India, there exist bio-securityand SPS related regulations. Allagricultural imports includinglivestock and food productsrequire some kind of SPScertificate and import permit. Theprocedure of getting suchcertificates is often cumbersomeand time consuming (Raihan etal, 2013).

In a similar manner, Bangladeshand Nepal have their specificfood safety and SPS relatedregulations that largely aim tocheck the quality of importedagricultural products. Thepurpose of these regulations is toensure the quality of imports butthere are many occasions whenSPS and TBT related regulationshave been used in a disguisedmanner to prevent exports. Otherthan SPS and TBT measures,


India, Bangladesh and Nepal tend to use export restrictions todeal with seasonal shortages of agricultural commodities, such asrice, onion, potato and fish.

Incidence of NTBs is high due to low level of standards, especiallyin Nepal and Bangladesh. There exist huge inequality with regardto the development of standards and testing procedures andcooperation. The Indian standards and testing procedures arerelatively developed as compared to Nepal and Bangladesh andthey find it difficult to comply with the Indian standards. On theother hand, it is to be noted that legal and regulatory frameworksin India, Bangladesh and Nepal are not fully harmonised.Regulatory framework dealing with agricultural inputs is divergentand creates disguised trade barriers.

For example, a SPS certificate issued by the Indian testing agencyis not accepted by Bangladesh testing agency despite theagreement for cooperation between Bureau of Indian Standards(BIS) and Bangladesh Standards and Testing Institution (BSTI). Thisis happening due to divergent testing procedures for particularingredients of the product at laboratory level in each country.

The aforementioned literature fails to establish a clear linkbetween NTBs and cross-border informal trade due to limitedempirical evidence by which the direct relationship between thetwo could be clearly contextualised. One of the key reasonsbehind this is that a gamut of exogenous factors that come in thestate of play and influence the cross-border informal trade cannotbe envisioned. Therefore, it is very challenging to establish adirect relationship between the prevalent NTBs and their impacton cross-border informal trade in the region.

However, it is well established fact that complexities arising due todivergent rules and regulations in Eastern South Asian regionmake cross-border trade a formidable task for traders. Frequentquarantine checks and administrative hassles in cross-bordertrade between India-Bangladesh and India-Nepal compelstraders, agents and local people to engage in informal trade asthey are able to evade administrative checks, phyto-sanitaryinspection and other related regulatory requirements. Therelationship between increasing prevalence of NTBs andincreasing cross-border informal trade among Eastern SouthAsian countries is palpable.

The cost associated with NTBs and uncertainties due to non-transparent regulations affect the profitability of traders. This inturn, encourages them to indulge in informal trading. This is,particularly true in case of cross-border informal trade in seedsbetween India-Nepal and India-Bangladesh. Divergent SPSmeasures for seeds trade in India, Nepal and Bangladesh is

Bilateral trade flowsbetween India-Bangladesh and India-Nepal are concentratedin agriculturalproducts andencounter a largenumber of NTBs. Themost common NTBs inagriculture productsare SPS and TBTrelated requirements,which usually arisedue to lack ofharmonisation oftrade, regulatorystandards, testing andcertificationprocedures


pushing the significant volume of formal trade intoinformal trade where there is no SPS monitoring.This demonstrates that NTBs could be anotherimportant factor, which compels traders to findalternative ways, resulting in increased informaltrade between India-Bangladesh and India-Nepal.

2.2 Drivers Related to TradeFacilitationOne of the major obstacles in enhancing regionaltrade in South Asia is associated with the quality oftrade and transport infrastructure. Poor quality ofsoft and hard infrastructure in South Asia

Legal and Regulatory Framework for Agriculture Inputs in India, Bangladesh and Nepal

Source: Governments of India, Nepal and Bangladesh

AgriculturalInputs

Seeds

Fertiliser

Machinery

India

1966 Seeds Act andamendments;Seeds Rules andamendments;Seeds (control) order;New Policy on SeedsDevelopment,1988;Destructive Insects and PestsAct, 1914;Plants, Fruits and Seeds(regulation of import intoIndia) Order, 1989;Plant Variety Protection actand regulations.

The Fertiliser Control Order,(FCO) 1957;Essential Commodity Act,1955;1973 Fertiliser (MovementControl) Order.

Indian Bureau Standards(BIS)

Bangladesh

Seed Ordinance, 1977;Bangladesh Seed Policy,1993;Biosafety Guidelines, gazettedin 2008;National Biosafety Framework,gazetted in 2008;Bangladesh’s Plant QuarantineAct 2011 (GOB 2011);Destructive Insects & PestsRules, 1966 (PlantQuarantine) (GOB 1989).

Fertiliser (Control) order,1999;Fertiliser Management Act,1995, and Subsequentamendments.

Bangladesh Standard TestingInstitute (BSTI)

Nepal

Seeds Act 2045(1988) as revisedthrough 2010;The Plant ProtectionAct 2059;Plant Variety andFarmers’ RightsProtection Bill.

Chemical Fertiliser(Control) Order, 1998;Chemical FertiliserDirectives, 2000;The National FertilizerPolicy 2002, andRevisited 2009.

Nepal Bureau ofStandards &Metrology (NBSM)

magnifies the cost of cross-border trade, therebyaffecting the growth of regional trade in theregion (De, 2014). South Asian countries face twomajor impediments in terms of trade and transportfacilitation.

The first problem is related to procedural,administrative, regulatory issues as well asabsence of transit agreements and weak ICT. Thesecond problem relates with the state of road,railway and trade infrastructure (testing agencies,banking facilities, and border managementagencies).

Table 2.3


Currently, trade and transport facilitation betweenIndia and Bangladesh faces severe soft and hardinfrastructure related impediments. One of themajor hurdles is the absence of effective transitagreement and the movement of vehicles acrossborder. Frequent loading and unloading of cargoat border points significantly increase the cost oftransportation and make cross-border tradeunviable (De, 2014).

Furthermore, these problems are compounded byexcessive paperwork, undue formalities andadministrative burden that act as majorhindrances to cross-border trade flows (Taneja,2015). For instance, the Hilli land port betweenIndia and Bangladesh accounts for a significantamount of bilateral trade but it faces several softand hard infrastructural related constraints. Theseinclude a narrow approach road, inefficientcustom clearance, absence of testing agencies andheavy congestion. In addition, the poor internetconnectivity also affects the efficiency of customclearance and other agencies that are operatingat the border points.

Moreover, the absence of testing agencies at landports creates massive challenges for traders. Theyhave to travel to major cities to get ‘no objectioncertificate (NOC)’ (CUTS, 2014). The wholeprocedure of getting certificate is verycumbersome and time consuming. Other than this,most of the land customs stations between India-Bangladesh have limited warehousing capacityand lack of banking facilities. These constraintsmagnify the overall trade transaction costs andhinder cross-border trade flows between India-Bangladesh (CUTS, 2014).

The existing capacity of land ports is inadequateand it is difficult to manage large volume of tradeflows and movement of trucks. This problem isfurther exacerbated by cumbersome administrativeprocedures, inefficient custom clearance, andabsence of quality inspection agencies.

One of the key issues at land ports is that Indiaand Nepal use ICEGATE, an E-commerce portal ofthe Indian Customs and Automated System forCustoms Data (ASYCUDA++) respectively forsubmission of online documents and other relatedformalities. Lack of compatibility between twosystems creates veritable challenge to the efficientclearance of goods (De, 2014). Further, tradeprocedures between India and Nepal are not fullyharmonised and streamlined and they use theirown set of rules and regulations for customsclearance. A number of steps have to be followedfor completing customs clearance formalities thatvary significantly in both countries.

One of the major implications of ineffective tradeand transport facilitation is that it augments tradetransaction costs and makes formal trade unviablefor small traders. It also increases the price ofimported goods. As a result, traders and localpeople tend to move into informal trade whichhelp them to save on process, procedural relatedtransportation costs, which constitutes a significantproportion of the total costs in the Eastern SouthAsian region. However, other factors, such asquick realisation of payments, no paper work, noprocedural delays, lower transportation costsserve as incentives for traders and local people inborder areas of India-Bangladesh and India-Nepal (Taneja and Pohit, 2000).

Bilateral tradebetween India-Nepalfaces severeconstraints due toweak trade andtransportinfrastructure

Lack of IT enabledintegration amongoperating agencies atland ports significantlyincrease the total costof doing trade (CUTS,2014)


2.3 Domestic Policy DistortionsOne of the most important factors behind thrivingcross-border informal trade is ‘domestic policydistortions’.7 These distortions are quite prevalentacross regions, such as South Asia, Africa, andASEAN. The principal reason behind suchdistortions is associated with lack of policycoherence between border sharing countries.

Policy induced distortions provide incentive totraders and agents to indulge in cross-borderinformal trade. Such distortions are evident,especially in social and welfare-oriented schemes inwhich governments use subsidies or administeredprice mechanism for distributing products,domestically. For instance, rice and wheat are soldunder the public distribution system in India andboth are highly subsidised items in India. Prices ofwheat and rice in India is lower than the marketprice in neighbouring countries which createsopportunities for traders and local people to ‘siphonoff subsidised items’ through informal channel toNepal and Bangladesh (Pohit and Taneja, 2000).

Policy induced distortions are prevalent in all theSouth Asian countries especially in India,Bangladesh and Nepal. Governments of thesecountries have designed many policies that haveaimed to distribute certain essential commodities tomarginalised sections of the society in theirrespective countries. These policies often lead toprice difference across borders and make cross-border informal trade profitable. The most criticalaspect is that such distortions are not addressed atmultilateral and regional levels (Sareen and Bakshi,2004).

Inadequate regional policy framework in the SouthAsian region has contributed to the consistent rise ofsuch distortions in the region. Further, domesticpolicy distortions have pernicious effects as theycause significant loss of revenue for thegovernments and welfare loss for consumers.

Trade in agricultural inputs, such as seeds,fertilisers, and machinery between India-Bangladesh and India-Nepal are subject to domesticpolicy distortions. Such distortions lead to cross-border informal trade in agricultural inputs. Suchinputs are highly subsidised in India, Nepal andBangladesh that create opportunities for traders and

local people to engage in informal trade. Thequantum of subsidies given on these agricultureinputs varies across three countries andprovides significant scope for inputs to be‘siphoned off’ through informal channels. Forinstance, agriculture inputs, such as Urea andDAP are highly subsidised in India, and createenormous opportunities for cross-borderinformal trade in products with Nepal andBangladesh.

Recent data from Bihar gives us some idea offertilisers getting diverted to neighbouringcountries. In 2013, fertilisers’ consumption inBihar was about 200 kg per hectare and it washigher than the all-India average of 131 kgper hectare.8

On the other hand, the production of wheatand rice in Bihar is not matching with the levelsof fertiliser consumption. The Directorate ofEconomics and Statistics (DES) data reflect thatwheat cultivation in the state required fertilisers125 kg per hectare while paddy consumed 97kg per hectare. The large difference in thesefigures shows that a significant amount of

Issues related todomestic policydistortions were alsoargued in theEconomy Survey ofIndia, 2016 whichstated that threeeastern states of India– West Bengal, Assamand Tripura borderingBangladesh are facinga severe shortage offertilisers due toinformal trading


fertilisers gets diverted to Nepal through informalchannels.

A majority of the farmers in border regions of thesestates have to buy Urea and DAP from the blackmarket as subsidised urea is smuggled toneighbouring states. This is happening due tosignificant differences in prices of Urea and DAPbetween India-Bangladesh and India-Nepal. Otheragricultural inputs, such as seeds and agriculturalmachinery are also subsidised in India, Bangladeshand Nepal and are also traded through informalchannel. In a nutshell, policy induced distortions inIndia, Bangladesh and Nepal are facilitatinginformal trade, particularly subsidised agriculturalinputs, such as fertilisers and machinery.

2.4 Socio-Economic AspectsSocio-Economic aspects include the assessment ofthe impact of economic activity on education,health, employment and level of income of thehouseholds under study. Role of such factors is wellrecognised in thriving cross-border informal tradebetween India-Bangladesh and India-Nepal. Thereare two important factors that work as stimulatingforce behind cross-border informal trade: lack ofemployment opportunities in border areas; and thesocial relationships between communities acrossborders. Informal trade creates employmentopportunities for marginalised households and animportant source of income for local people livingin border areas. Moreover, the bonds of social andcultural relations between the people of two sides ofborders become a natural facilitator of cross-borderinformal trade. Over the years, social, cultural andfamily links have been the persuading factorsbehind flourishing informal trade in the EasternSouth Asia region (Taneja, 2002).

2.5 Political AspectsIt is important to note that cross-border informaltrade flourishes due to disturbed politicalrelations between two border sharing countries.Restrictions on trade of essential items throughformal channels compel local people and tradersto purchase them through informal channels.

It is a well-known fact that governments of India,Bangladesh and Nepal have made inadequateprogress in terms of promoting development inborder areas and generating meaningfulemployment opportunities. The failure of thegovernments of India, Bangladesh and Nepal tobuild up efficient institutions and regulatoryframework is noted as a major concern inpromoting cross-border formal trade.

There are, however, many other political factorsthat affect the volume of informal trade in borderareas. These factors include inefficiencies inbureaucratic system, political protection toinformal traders and lack of political will foreconomic reforms in border areas. Among those,inefficiencies in the government systems play amajor role in thriving informal trade in theseareas. This is well summarised by Colin Scott whostated that traders indulge in informal tradingdue to inefficiencies in the government system.This happens when there is a lack of goodgovernance and existence of perceivedcorruption. It has diluted the strength of stateinstitutions in the eyes of the people and createda crisis of confidence for those who are victims ofdistorted policies.


Chapter 3 Nature, Extent and Drivers ofCross-border Informal Trade andits Impact on Livelihood:Field Level Observations

To assess the nature, extentand drivers of informal tradeof agricultural inputs betweenIndia-Nepal and India-Bangladesh, a field levelsurvey had been conductedusing the structuredquestionnaires (Annexure - 1& 2). The questionnaires weredesigned in such a mannerthat almost all possible driversthat are influencing informaltrade in the border regions canbe captured. All such driversare categorised into the fivebroad categories, as shown inTable 3.1.

The data collected on all thedrivers has been analysedbased on the observations andperspectives collected from thefield, which have beenhighlighted in the subsequentsections of this chapter. Thestudy has used qualitativeinformation collected from therelevant stakeholders throughkey informant interviews andfocussed group discussions(FGDs).

Further, to look into the impactof informal trade on livelihood,the questionnaire also includesquestions about improvementin respondents’ housing andsanitation facilities. The impactof informal trade on womenhas also been studied bytaking appropriate

representation of femalerespondents in the sample. Thefollowing two sections explainthe results obtained fromprimary data collected from thefields located in Bangladesh,India and Nepal.

3.1 Case of India-Nepal: Survey FindingsTo understand informal tradealong the Indo-Nepal border, afield level survey was conductedin four locations – Madhubaniand Arariya districts in Biharstate of India; and Sunsari andDhanusha districts in Nepal. Atotal of 120 individual farmerswere surveyed from these fourdistricts, of which the male-female ratio was 3:2 in Bihar,India, while the same was 3:1 inNepal.

Some of the interviewed farmerswere also small traders, whowere involved in trade, bothformal and informal, at smallscales. It was observed that bothmale and female farmers areinvolved in practicing farmingwith the use of informally tradedagricultural inputs.

The number of respondents whohave university degrees was justthree in Bihar, India and four inNepal out of 60 respondentsfrom each side. The number ofuneducated farmers, who never


attended schools is higher in Nepal as comparedto Bihar. Most of the interviewed farmers were leasteducated or uneducated, and thus have minimaljob opportunities. This causes them to largelydepend on informal trade practices. For them, thisis an easy way of making money for theirlivelihood. The average annual income of anIndian farmer in the border areas of Bihar isINR68,913 and the same is INR89,115 for thefarmer in the selected border area of Nepal.

The selected farmers used informally traded wheatseeds in Bihar and potato and paddy seeds inNepal. Farmers from Bihar state, bordering Nepal,mostly import Gautam and NL297 varieties of

wheat seeds informally from Nepal. However, onthe otherside of the border, Nepalese farmers’import Sona Mansuli paddy seed and vegetableseeds (particularly potato seeds) informally fromIndia. Informal trade of DAP fertiliser and spraymachines is also notable from India to Nepal. It isto be noted that livelihood of the majority ofpeople staying in the border areas depend on theinformal trade happening between India andNepal.

3.1.1 Regional ProfileFarmers in the border areas of Bihar and Nepalare small or marginalised, with small landholdings. Majority of the farmers in these areas

Categorisation of Possible Drivers of Informal Trade

Ease to Accessibility

• Low Transportation Costs (as compared with the formal transportation cost)

• High Transaction Costs (banking, operational cost of doing formal trade)

• Easy Access and Availability

• Proximity of the local market

Socio-Cultural Linkages

• Cultural, social and ethnic relations

Policy Factors

• Customs, procedural, and administrative hassles (refer to clearance at customs, paperwork andcorruption)

• Prevalence of standards and testing related barriers

• High tariffs and duties

• Quick realisation of payments in informal trade

• Absence of formal border point

Economic Factors

• Lower Price

• Longevity of specific variety (related to seeds)

• Productivity (related to seeds and fertilisers)

• Low cost of post-harvest management (related to seeds)

Knowledge

• Lack of knowledge about availability of agriculture inputs

Table 3.1


do farming to meet their own needs. They earnagricultural income from supplying the surplusoutput, after self-consumption, into the localmarket. Average land holding size in borders ofBihar and Nepal is about three acres. Thesefarmers are not concerned about the quality of theproduce in terms of health and environmentalissues. They are only anxious about the quantity ofthe produce, which fetches them food and money. Itis natural that illegal or informally tradedagriculture inputs have lower price (major factor),and sometimes these products also have qualityadvantage in comparison to the products availablelocally.

In Nepal, farmers’ dependency on Indian market ismuch higher for chemical fertilisers. According tofarmers in Kaptangunj, in Sunsari district, theypurchase 70 per cent to 90 per cent of the requiredfertilisers from India, which includes Urea, DAP,potash, etc. They can easily procure these fertilisersfrom the Indian markets at a cheaper price and inabundance. Similarly, they quoted that smallmachinery items, such as spray machines are alsopurchased from the Indian market, where they areavailable at cheaper prices and are of betterquality.

In the Dhanusha district of Nepal, almost on 75per cent of the farmers grow informally tradedSona Mansuli paddy seeds. These seeds arebanned in Nepal due to its susceptibility toailments, but farmers prefer it because of its highyield. As per their perception, on an average, 30kg of paddy seed are required to cultivate an acreof land and paddy is available at INR50 per kgfrom India, informally. The availability and thedifferences in prices of the seeds, in Nepali andIndian markets, are the biggest drivers influencinginformal trade of the agricultural inputs in theseareas.

In case of Sunsari district, farmers use largequantity of potato seeds for sowing. On anaverage, 2600 kg potato seeds are required tocultivate an acre of land in Kaptangunj andfarmers in the district procure potato seeds atINR3.50 per kg informally from India, while thesame is available formally at INR5.14 per kg inNepal. Nepalese farmers use large quantities offertilisers to grow crops and most of those fertilisers

are purchased from India. From India, DAP canbe procured at INR22.5 per kg, while in Nepal itis available at INR28.75.

On the Indian side, in Bihar, farmers mentionedthe use of informally traded seeds from Nepal formore than ten years. Although the trade andtransport treaty between India and Nepal allowsfree access to Indian market for Nepalese goodsand free movement of people across countries –there are some restrictions and stringentregulations in formal trade, as discussed inchapter 2, which makes it difficult for the tradersto do business easily. On an average, farmers inthe border areas of Bihar use around 70 kg ofwheat seed to cultivate an acre of land. Perkilogram of Gautam seed is available atINR37.25 in Nepalese market.

3.1.2 Drivers of Informal Trade between India(Bihar) and NepalBased on the information gathered from field thissection points out the specific drivers whichinfluence informal trade between Bihar andNepal. Table 3.2, gives detailed informationabout the drivers influencing informal tradebetween India and Nepal.

Cultural, social and ethnic relationsAs the referred countries share strong historic,cultural, social and ethnic ties, this acts as oneamong the many factors to drive cross-borderinformal trade. People in border areas of Biharstill have land holdings on the other side of theborder, which enable them to have access to themarkets of both India and Nepal.

The ethnic relations and common agriculturalpractises influence them to inadvertently practiseinformal trade across the borders. Almost 75 percent respondents reported that they are involvedin informal trade of agricultural input productsbecause of social and ethnic linkages with Nepal.

Easy access, availability of products andproximate markets across borderIndia and Nepal share a long border with norazor-fence, thus allowing the local inhabitants tocross borders easily. Free movement of peopleacross the border, facilitates them to get access tolocal markets in the border areas of Bihar and


Nepal, allowing them easy access to products.Easy access and availability of products isanother main influencing factors driving informaltrade. In addition, the geographical proximity ofthe markets is also one of the important reasonsfor informal trade.

It was reported that for farmers in Sunsari districtit is easier to access the Indian market thanNepalese market. The cost incurred to reach the

Drivers Influencing Informal Trade in AgriculturalInput Commodities between India and Nepal

Category Drivers Bihar Nepal Nepal (Fertilisers(Seeds) and Machinery)

Easy • Lower transportation costs (distance ofAccessibility formal is high and increasing transportation

costs)

• High transaction costs (banking, operationalcost of doing trade)

• Easy access and availability or producedlocally across border


Socio-cultural • Cultural, social and ethnic relationsLinkages

Policy Factors • Custom procedural and administrative hassles(refer to clearance at customs, paperwork andcorruption)

• Prevalence of standards and testing relatedbarriers


• Quick realisation of payments in informal trade


Economic • Lower PriceFactors • Longevity of specific variety

• Productivity

• Minimal cost for post-harvest management

Knowledge • Lack of knowledge about availability ofagriculture inputs locally

Source: Primary Survey conducted by CUTS International in 2016-17

Nepalese market is higher than the cost incurredto reach the Indian market.

Longevity, productivity and post-harvestmanagementThe quality and reliability of seed are also some ofthe common factors influencing the volume ofinformal trade. It was observed that farmers werenot happy with the local varieties of seeds, both inthe borders of Bihar as well as in Nepal. Farmers

Table 3.2


said the quality of locally available seeds is inadequate andtheir productivity is low, while the ones brought from the otherside of the border have high productivity and longevity. Post-harvest ease is also one of the factors that drive informal trade.

Other than these common drivers that influence informal trade,the following are some product specific drivers that have alsobeen captured:

Sona MansuliThis variety of paddy seed is banned in Nepal as it is suspectedto result in various ailments in Nepal. However, it is highlypreferred by the Nepalese farmers as the output of the seed ishigher as compared to other varieties, which are locallyavailable. As they cannot buy Sona Mansuli paddy seeds intheir local markets they have to depend on Indian markets, fromwhere they bring the seeds into Nepal informally.

In case of fertilisers, they are imported informally from India toNepal at cheaper rates. This is mainly because Indian fertilisersare available at subsidised price. Also, the Nepalese farmersmentioned that through informal channel, they can makepayments for procuring the fertilisers easily. Paperwork is notrequired at all in informal trade, which makes the procedurevery easy.

3.1.3 Flow of Informally Traded Agricultural InputsInformal trade across India-Nepal border is conducted with thesupport of border officials in certain cases.9 The main motive ofinformal trade is to gain more profits by avoiding high tariffs/duties, regulation of rules of origin, and procure the subsidisedlow price goods from other country and sale it at higher marketprice or use it for agricultural activity. The respondents involvedin informal trade activities have also admitted that although thecost of risk associated with informal trade is too high, they stillfind it profitable.

Farmers of Bihar godirectly to Nepal andbring bulk amounts ofseeds in India to meettheir demands and tosell the surplus toother farmers. Theypurchase these seedsinformally fromdealers, local brokers,traders andgovernmentcorporations locatedin the markets of theborder areas of Nepal

Figure 3.1: Informal Flow of Wheat Seeds from Nepal to India(Dhanusha to Madhubani)

Source: Primary Survey held in the year, 2016-17


Figures 3.1 and 3.2 show the supply chain ofinformally traded agricultural inputs, Gautam wheatseed and NL297 wheat seed, from Nepal to India.Figure 3.3 and 3.4 show the supply chain ofinformally traded Sona Mansuli paddy seed andpotato seed from India to Nepal. Figure 3.5 showsthe supply chain of DAP from India to Nepal.

Figure 3.2: Informal Flow of Wheat Seeds from Nepal to India(Sunsari to Arariya)


Indian and Nepalese farmers not only interactand have friendly relations amongst themselves,but also exchange agricultural seeds for betterproductivity and output. Mostly, formal tradersand agents in the Nepalese side sell seeds andother agricultural input commodities to theIndian farmers. It is important to note that whilebringing the seeds on the Indian side,

Figure 3.3: Informal Flow of Sona Mansuli Paddy Seeds (India to Nepal – Giddha)


Figure 3.4: Informal Flow of Potato Seeds from India to Nepal (Kaptangunj)

Source: Primary survey held in the year 2016-17


sometimes, the farmers unpack those seeds andcarry them in ordinary plastic bags or ordinarysacks, so that border forces allow them to carrythese products to the other side of the border.Indian farmers purchase the Nepalese seedsinformally at lower prices as compared to theoriginal price of the seeds.

In the case of NL297 wheat seed, Indian farmersbuy seed from informal traders or dealers fromNepal side. This is because NL297 seeds are noteasily available in the market. Those farmers, whoare cultivating NL297 on the Nepal side, also sellthe seed directly to the Indian farmers or viainformal traders.

Most of the farmers buy paddy seed directly fromthe Indian traders who are not authorised to sell

these inputs to the farmers of the other country.The main reason of informal trade in paddy isthe ban imposed by the government of Nepal onimport of Sona Mansuli variety.

While in the case of potato seeds, only 20 percent of seed came informally as shown in Figure3.4. This is because the surveyed year was not aprofitable year for sowing potato as one yearprior the prices of potatoes were very low. Thus,farmers had purchased fewer amounts of seedfor potato plantation.

3.1.4 Informal Trade and its LivelihoodImpact on Indian and Nepalese FarmersInformal imports of agriculture inputs from Indiais a lifeline for Nepalese farmers. The farmersnot only get access to agriculture inputs on time

Figure 3.5: Informal Flow of DAP from India to Nepal (Kaptangunj and Giddha)

Source: Primary survey held in the year (2016-17)


but also at cheaper rates. With informal supply ofIndian fertilisers, the farmers do not have to relyon the unpredictable domestic supply. Some of thefarmers even say that without cross-border accessthey would have not been survived.

As Indian inputs are available at cheaper pricebecause of the government subsidies applied onthem for domestic farmer’s support, the amount ofmoney saved from informally trading them isimmense. They feel that the money saved throughsuch informal transactions is worth the hassle andabuse that is faced by them on the way whiletransporting the fertilisers or the machinesinformally. To understand the impact of informaltrade on the livelihood of the people living in theborder areas, following assessments have beenreported:

Income assessmentThe data collected from the survey reveals thatinformal trade practices significantly contribute tothe income of the respondents. It has beenestimated that around 20-30 per cent of their totalincome comes from informal trade practices.Since, the collected information does not take intoaccount the real change in income but if weassume same level of prices then one can easilyinterpret that informal trade activities havecontributed directly in the level of income of therespondents and indirectly into their economicwell-being. Moreover, there are no proceduralhassles in informal trade.

Socio-Economic assessmentRespondents have also mentioned that with anincrease in the income of the respondents, thereare improvements in terms of housing, sanitation,healthcare facilities, education, among others. Theliving standard of the respondents in the ruralareas has improved over the period of time. Manyof them have shifted to brick house (Pucca Ghar)and some of them have added to their inheritedland holding.

Respondents mentioned that their children go toschool and some of them are even attaininghigher education in the urban cities. At present,most of the houses have got electricityconnections. The households possess tube-lights,

bulbs, fans, televisions, refrigerators, mobilephones, and other basic gadgets. Some of therespondents also have their own motor cycles.

It is challenging to state that all the positivechange experienced by the people living theborder areas is only due to trade of informaltrade, as there are many welfare schemes, run bygovernment. For instance, in India for thedevelopment of houses for the rural households,Pradhan Mantri Awaas Yojana-Gramin has beeninitiated. For hygiene and better sanitationfacilities, the government has introduced ‘CleanIndia Mission’, where the Indian government istrying to make toilets for every household. Theschemes, such as Sarva Shiksha Abhiyan andMid-day Meal are introduced to provideeducation to all.

Similarly, in Nepal there are variousdevelopmental schemes that are operational forthe development of the rural households. Inaddition, there is positive change in the livelihoodbecause a substantial number of youth from thecountry have found jobs in other developedcountries from where a good amount ofremittance money comes into Nepal.

3.2 Case of India-Bangladesh:Survey FindingsTo understand the extent of informal trade inagricultural input products along the India-Bangladesh border, a total of 120 farmers, tradersand dealers were interviewed in two districts ofBangladesh, Rangpur and Rajshahi, and threedistricts of West Bengal in India, namely, CoochBehar, Malda and South Dinajpur, who areinvolved in informal agricultural trade activities.Out of total respondents, male-female ratio was9:1 in Bangladesh, while it was 1:1 in WestBengal.

It was observed that women’s role in farming orinformal trade activities is secondary. They workas helpers to assist the male members of thefamily. Through group discussions in West Bengal,it was found that women are dominated by men,even if she is the main earning member of thefamily.


India-Bangladesh border is marked by a highdegree of porosity and consequently estimating theextent of informal trade, and illegal cross-borderactivities was a major challenge. In West Bengal,when attempts were made to record the responsesof traders and seed/fertiliser dealers involved ininformal trade, the same could not be done owingto two major reasons – some of them denied theirinvolvement in informal trade and others whoagreed requested not to record their responsesofficially. It is important to mention that thosetraders who denied their involvement in informaltrade channels provided the information related tothe supply chain, which was later verified fromother sources before they are being admitted asauthentic survey findings.

The selected agro-products, which are informallypurchased in Bangladesh from West Bengal areSwarna paddy seeds and Rocky tomato seeds. ForWest Bengal, they are BIRI28/29 paddy seeds,BB11/BR11 paddy seeds, Hira-2 paddy seeds,Sathi herbicide, and Chinese pump sets. Dataanalysis and discussions are presented in thefollowing four sub-sections.

Most of the stakeholders in this belt have primaryeducation. Less opportunities for jobs in the regionbuild a situation of higher dependence on informaltrade activities. People in the border areas of

Box 1: Fencing at Bangladesh-India Border

It is important to understand the fencing pattern between India and Bangladesh, and how it impactsthe livelihood of farmers. In general, zero point marks the exact border point that separates twocountries, fencing is generally done at a distance of 150 metre away from the zero point. While insome cases the distance between the fencing and the zero point is less than 150 meter, in someplaces, the distance is nearly 600 metre. The fencing has not only divided the two countries but insome cases, it has separated a farmer from his agricultural land. There are many instances where afarmer’s residence and his agricultural land lay on other sides of the border. Such farmers play themost crucial role in facilitating informal trade in agricultural inputs between India and Bangladesh.

There are entry and exit points through which these farmers are allowed to cross the fence to cultivatetheir agricultural lands. These entry and exit points are closely guarded by the army personnels andthey check the bags and the materials that these farmers carry while entering the other side of thefence. Beyond the fence, both Indian and Bangladeshi farmers not only interact with each other butalso exchange agricultural inputs. Farmers take these inputs either for self-use or to sell the product inthe local market or to other fellow farmers. To carry these products (usually seeds) back to their homecountry, farmers unpack the packets and carry them in ordinary plastic bags.

Bangladesh believe that cross-border informaltrade is a way to maintain a sustainable livelihoodbecause it provides livelihood to the unemployed.

The numbers of respondents who have universitydegree are three in Bangladesh while zero inWest Bengal, which represents the pooreducational scenario of rural West Bengal. Theaverage yearly income of a farmer (respondent) inBangladesh is INR81,845 (97,396 BDTaka), whilethe same is INR71,475 in West Bengal.

3.2.1 Regional Profile of India andBangladeshIt was learned during the survey that almost all thefarmers in Bangladesh are small or marginalised,with land holding of less than 5 acres. Theycultivate their land with informally procured seedsdepending on the variety of seed that they sow. InBangladesh, farmers use 14.61 kg per acre ofpaddy seed to cultivate an acre of land.

In the border rural areas of Bangladesh, most ofthe agricultural inputs are of Indian origin. Theyuse tomato seeds – VL642 and Rocky varieties;maize seeds – Super-45, V-30, and Pioneer-92varieties; mustard seeds; paddy seeds – Swarnavariety. It was mentioned that use of informalproducts is higher in Bangladesh because it isdifficult to buy locally produced seeds in the


border areas where as getting access to Indianseeds is easy, and the quality of locally producedseeds is not good – use of which does not satisfyfarmers’ requirements. This study has focussed onSwarna paddy seed in Rangpur and Rocky tomatoseed at Rajshahi districts of Bangladesh.

In West Bengal, visits across the villages ofKishamatdash-gram (Krishamat-karala I),Bamonhat, Jaigopalgunj, South Kalmati,Sakadaha, Razia Bibi, etc. under Dinhata-II blockin the Cooch Behar district revealed that during the‘boro’ season, farmers predominantly use paddyvarieties viz. BIRI 28, 29 and Hira, which aregenerally coming in from Bangladesh. At Maldaand South Dinajpur, dominance of Bangladeshiseeds and herbicides as agricultural inputs, wasrevealed to a large extent.

The farmers across the villages of Manikchak,Bidyanandapur, Nehalur, Malatipur and Galimpurat Malda articulated that during the khariff season,they use paddy varieties viz. Bangabandhu-11(BB-11), which is arguably originated fromBangladesh, although packaged and marketed byIndian companies.

Another popular Bangladeshi paddy seed varietyfound in South Dinajpur is Jeera Shaal. Moreover,farmers at Malda and South Dinajpur are usingvarious herbicides (Sathi, MIXT, Sirius, amongothers), varieties from Bangladesh that enter theIndian markets informally through the unfencedborder areas in and across Hili (South Dinajpur).

Chinese CD pumps also enter Indian marketthrough this route, from Bangladesh. In WestBengal region, the price of informally procured

Variation in Prices of Informally Traded Paddy Varieties Based on Distance from the Nearest Market

Distance Name of Paddy Variety Price per Kg (in INR)

1 Km-5 Km BIRI-28/29 60/

Hira-2 250/

5 Km-more than 10 Km BIRI-28/29 90/

Hira-2 300/

Source: Field Survey, CUTS 2017

Table 3.3

paddy seeds increase with increase in distanceas the number of people engaged increases. Thisincreases the price of informally traded seeds.Table 3.3 demonstrates the price differences.

In Dinhata-II Block, there are a total of 12 grampanchayats (GPs), the village councils, and outof these 12 GPs, 7 GPs are adjacent to theBangladesh border where some of the Indianresidents also live on the other side of thefencing. Bamanhat II is one of those GPs wheremore than 10 per cent of the Indian residents liveon the other side of the fence.

The GP has approximately 4,000 families andeach of the families own 10 bigha of agriculturalland, on an average, while some of them ownmore than 20 bigha of land as well. Out of these4,000 families, approximately 80 per cent of thefamilies cultivate Bangladesh Paddy varieties(BIRI-28/29) on 5 bigha of land during boroseason. Majority of the farmers have reportedthat they use 2 kg of BIRI-28/29 variety paddyseed for every on per acre land.

3.2.2 Drivers of Informal Trade betweenIndia (West Bengal) and BangladeshInformal trade between India and Bangladesh isdecades old. Various factors that trigger suchinformal trade between the countries could belong standing cultural and ethnic ties, thegeographical proximity (for some villages inIndia, markets in Bangladesh is nearer ascompared to Indian markets), price and currencydifferential that encourage arbitrages, differencein quality of a product, among others.


In this regard, one of the key objectives of the studywas to identify the factors that lead to informaltrade in agricultural input between India andBangladesh. This section discusses in details majordrivers of informal trade between the two countries.Table 3.4, portrays the list of drivers responsible forinfluencing informal trade in agricultural inputcommodities between India and Bangladesh.

Easy accessibility, Low Transportation Cost andProximity of Markets across bordersAs India and Bangladesh used to be one country,main markets have been established in such a waythat for Indian farmers it is easier and cheaper toaccess the market in Bangladesh and for someBangladeshi farmers it is easier to access the Indianmarket. It was noted that the local seed shops in thevicinity of the farmers do not cater to theirrequirements, which results in informal tradethrough markets available on the other side of theborder.

For Indian farmers in South Kalmati and KishamatKarala in West Bengal, procuring Bangladeshivariety of seeds becomes even easier as the fellowIndian farmers who reside in remote areas act asmiddlemen who provide door-to-door deliveryservice of these seeds. Although, the price chargedfor these seeds is slightly more than the marketprice, farmers prefer procuring seeds this way,avoiding unnecessary hassles that they might face.

Productivity, longevity and post-harvestmanagementIt has been noted that productivity and longevity ofseeds acts as major factors towards influencing

informal trade between West Bengal andBangladesh. It is also reported that post-harvestmanagement of the informally procured seeds iseasier than that of the locally available seeds. Itis perceived that these seeds have higherresistance to extreme temperature and pestattacks as compared to the locally availablevarieties.

Bangladeshi varieties of herbicides are alsopreferred more in India as the farmers have aperception that these herbicides are moreeffective (productive) and are used in lessquantity when compared with the locallyavailable fertilisers.

Cultural, social and ethnic relationsCommon cultural and traditional linkages whichare ages old, act as one of the reasons amongothers for informal trade between India andBangladesh. Similar agricultural practices andclimatic conditions, and even friends and family

Box 2: Dependence on Tomato Seeds from India

The major reasons influencing Bangladeshi farmers to rely on informally traded VL-642, a variety oftomato seed, from India are:

• These seeds have better yield as compared to those available through formal channel in Bangladesh• These seeds are highly productive and are available at competitive price – making it cost effective

for use• Availability of these seeds is higher than the local seed varieties in local markets of Bangladesh• These tomato seeds are said to yield tomatoes that have relatively harder outer shell. As a result,

this reduces post-harvest losses (i.e. makes post-harvest management easier). It has been reportedthat these tomato seeds (VL-642) are less prone to crop diseases and pest attacks

Reasons for Preferring IndianRice Seeds in Bangladesh

• Productivity of informally traded seeds isfound to be better as compared to theirformally available counterparts

• Lack of supply of suitable alternatives• When the same seed is procured formally,

the price of the seed is much higher thanthe one procured informally

• Reduced need for use of pesticides oninformally traded seeds


living across the border unintentionally influencethem to practise informal trade. At times, when theyvisit a relative’s family on the other side of theborder, they get seeds and other agriculturalcommodities from that country as gifts.

Furthermore, similar consumption habits andfarming disciplines created a reasonable belief inexchanging and mutually sharing agriculturalinputs and knowledge since decades, which alsoresults in informal trade of herbicides and otheragricultural input commodities.

Table 3.4

Drivers Influencing Informal Trade in Agricultural Input Commodities between India and Bangladesh

Category Drivers Bangladesh West Bengal West Bengal(Seeds) (Seeds) (Fertilisers and

Machinery)

Easy • Lower transportation costs (meansAccessibility distance of formal is high and

increasing transportation costs)

• High transaction costs (banking,operational cost of doing trade)

• Easy access and availability orproduced locally across border


Socio-cultural • Cultural, social and ethnicLinkages relations

Policy Factors • Custom procedural andadministrative hassles (refer toclearance at customs, paperworkand corruption)

• Prevalence of standards andtesting related barriers


• Quick realisation of payments ininformal trade


Economic • Lower PriceFactors • Longevity of specific variety

• Productivity

• Minimal cost for post-harvestmanagement

Knowledge • Lack of knowledge aboutavailability of agriculture inputslocally

Source: Primary Survey conducted by CUTS International in 2016-17


Lack of KnowledgeLack of knowledge, plays a significant role inpromoting informal trade. It was observed thatmost of the respondents are not aware about thelocal varieties and brands. This is mostly becausethese local brands do not market and advertisetheir product, thus, people are not aware of theiravailability and utility.

Besides, on account of some previous badexperiences, their perception about using the localvarieties has changed completely, and they relymore on the seeds that are procured from the otherside of the border.

It was reported that some of the farmers purchaseagricultural inputs, seeds and fertilisers from otherside of the border or through local dealers, mainlybecause they have heard that those products are ofgood quality and more productive than thoseavailable locally.

Lower priceFarmers on both the sides have noticed that theprices of agricultural input commodities on theother side of the border are lower than the pricesof those commodities which are available locally.

Therefore, in order to save money, most of therespondents prefer purchasing products from theother side of the border. For instance, Indianfertiliser is available at INR3.80 per gram, whilethe same fertiliser in Bangladesh is available atINR1.60 per gram. Both varieties are used insame quantity in an acre of land. Therefore,Indian farmers prefer Bangladeshi variety offertilisers instead of the Indian variety. Samefactor also works for the informal supply ofChinese water pump sets from Bangladesh toWest Bengal, India.

Lack of formal border pointsDue to lack of formal entry and exit points, localinhabitants informally cross the border to getnecessary supplies. People who have houses onboth sides of the border act as informal traders.They get goods from both the markets of therespective countries and sell it informally to thefarmers of other country. In addition, thebusinessmen who bring informally traded agro-inputs from India or Bangladesh usually sell thoseto local shopkeepers, who then sell these to theend consumers.


Figure 3.6: Informal Flow of Swarna Rice Seeds from India to Bangladesh


3.2.3 Flow of Informally TradedAgricultural InputsFrom India to Bangladesh, Swarna rice seeds areinformally traded between Coochbehar, WestBengal in India and Rangpur in Bangladesh as thefarmers in Bangladesh feel that the Indian varietyof rice seeds are available at lower price, involveslow transportation cost, easy accessiblity, withbetter productivity and easier post-harvest

management. Flow of seeds from Coochbehar toRangpur is given in Figure 3.6.

On the Indian side, Indian farmers procure theSwarna rice seed at BDT35 per kg and the sameare sold at BDT40 per kg to Bangladeshi farmersliving in the border areas. These seeds are thensold to Bangladeshi seed dealers at BDT50 per kg,which are then sold to the general farmers at

Figure 3.7: Informal Flow of Rocky Tomato Seeds from from India to Bangladesh


Figure 3.8: Informal Flow of Paddy Seeds – BR28/29 from Bangladesh to India



BDT65 per kg. The prices differ in the case ofsecond generation seeds.

Similarly, Rocky tomato seeds are tradedinformally from Malda in West Bengal (India) toRajshahi in Bangladesh. On the Indian front,Rocky seeds are available at INR400 per 10gram packets, which is almost BDT480. Supplychain of Rocky tomato seeds is depicted in figure3.7, with the cost break-up.

The product is sold to Bangladeshi farmers onthe border at BDT550 per 10 gram packet. Theythen sell it to local dealer or agent at BDT600and then further to Bangladeshi farmers atBDT630 to BDT650 per 10 gram.

The supply chain along with cost breakup forBR 28 and BR 29 variety of paddy seeds, whichare brought from Bangladesh to India has beengraphically depicted in Figure 3.8. Price of theproduct increases along with the distance fromthe market where it will be sold.

Additionally, it was observed that there aresome other channels too, which operate for thesupply of seeds from Bangladesh to India, likethrowing sacks across borders, using daangis(seesaw system) to send commodities from oneside of the border to the other. However, these

are done at a more organised level and respondentsdeclined to comment on such operations.

Similarly, there are some fertilisers (herbicides), likeSathi, which are bought in the Indian market fromBangladesh through Hilli. Figure 3.9 explains thesupply chain of such herbicides from Bangladesh toIndia.

3.2.4 Informal Trade and its LivelihoodImpact on Indian and Bangladeshi FarmersInformal trade in agricultural inputs between Indiaand Bangladesh play crucial part in the lives andlivelihood of the people living in close proximity tothe international border. The study has revealed thatthe impact of informal trade is visible among alltowns and districts that are almost 100 km awayfrom the border.

Irrespective of the distance, informal trade have asignificant impact on the lives and livelihood of thefarmers, local traders, dealers and others who eitherpractise cultivation, trade or are involved in thesupply chain of the informally traded agriculturalinputs. Farmers choose informally tradedagricultural input products because these add totheir income. It is majorly because of the enhancedproductivity, longevity of the produce, lowerpurchase price of the product, and easier andcheaper post-harvest management. These factors

Figure 3.9: Informal Flow of Herbicide (Sathi) from Bangladesh to India



result in increased income, thus enabling thefarmers to invest in improving the quality of life andalso to spend more on healthcare and education.Respondents informed that their involvement ininformal trade had been ongoing for more than tenyears.

To understand the livelihood impact of informaltrade on the local economy, the analysis has beendone on the basis of the following two assessments:

Income AssessmentIt has been already mentioned that localhouseholds feel that they gain by participating ininformal trade, whether it is through procuringgoods at cheaper price or by better and improvedoutputs of their produce. Percentage increase in theincome of the respondents varies with the intensityof their involvement in informal trade. Most of therespondents have mentioned that their livelihoodhas improved while practising informal trade,although it is difficult to estimate the exact increasein income due to informally traded agro-inputproducts. For instance, in India various schemes,such Sarva Shiksha Abhiyan, Swachh Bharat,National Rural Health Mission, etc. are beingimplemented, which are to bring positive impact onthe livelihood of rural India.

Similarly in Bangladesh some of the ongoinginterventions are Social Safety Net Programmes(SSNPs) implemented by the Ministry of Agriculture(MoA) (for example, Agricultural Rehabilitation

As women are alsoinvolved in informaltrade activities andobtaining gains from it,it is important to notethat their extra incomehas no significantimpact on bettermentof their position in thefamily

Programme, under which, farmers are providedwith seeds, fertilisers and subsidies in differentagricultural inputs). Second Crop DiversificationProject (SCDP) implemented by the Departmentof Agricultural Extension (DAE) aims to promotehigh value crop production. Second Phase of theNational Agriculture Technology Programme(NATP-II) implemented with a view to increasethe agricultural productivity of small farmholders, and improving their access to markets,among others.

Socio-Economic AssessmentThe increased income has also helped inexpanding the businesses, land holdings,housing facilities of the local households. Someof the respondents reported that with moreincome they were able to purchase machinerythat can be used for agricultural activities.

It was observed that with increased income, localfarmers are able to meet basic needs of hygieneand livelihood like better housing facility,improvement in sanitation facilities, amongothers. These observations show that thelivelihoods of people living in these areas,particularly those who are engaged in informaltrade practices, have been improving but havenot improved substantially.

The farmers have admitted that their lives haveimproved remarkably in the last decade, andthey have been able to spend more money oneducation and healthcare facilities for the familymembers. Moreover, their overall lifestyle hasimproved as many of them have shifted toconcrete brick and mortar house, and haveadded to their inherited land holdings.


4.1 ConclusionCross-border trade in EasternSouth Asian countries is stronglyinfluenced by a range of factorsthat include geographical,similar value systems, social,culture and ethnic linkages. Thelong open porous border hasenabled easy exchange ofgoods, movement of people andfree flow of water across bordersdespite the political boundaries.The existing bonding between thepeople on both sides of theborders acts as a catalyst togrowth of cross-border tradeamong the South Easterncountries.

The formal cross-border trade inthis region is very low ascompared to the potential totalformal trade of the region. Asignificant portion of formaltrade is diverted to informalchannels thereby underminingthe potential opportunities offormal trade. Considering this,the present study has made anattempt to understand thedynamics of informal trade in theEastern part of South Asia. Itfocussed on two key issues thatinclude drivers of informal tradeand their linkages with livelihoodof local people.

Cross-border informal trade inthe Eastern South Asian regionbecomes a natural activity due todeep rooted social and culturallinkages. It is an uphill battle togather data on exact volume of

Chapter 4 Conclusion and Recommendations

cross-border informal trade inthe region. However, a numberof studies argued that cross-border informal trade in EasternSouth Asian is higher than thecurrent state of formal trade.

One of the most striking featuresof cross-border informal trade inEastern South Asian region isthat it is concentrated mainly inagriculture products that includerice, wheat, food and fertilisers.This is due to high dependenceof local economy (farmers,traders and agents) living inborder regions on agriculture,and it has abiding impacts onsocio-economic transformations.

There are number of policy andnon-policy related factors thatcome into play and areconsidered to be importantfactors in thriving cross-borderinformal trade in the region.Trade policies of Eastern SouthAsian countries are restrictive.

Many agriculture products arenot open for trade and requireprior approval from theGovernment. Restrictive tradepolicies encourage the people tobuy agricultural products throughinformal channels. In addition,tariffs on agriculture inputs arevery high; therefore,undermining the potential oftrade through formal channels.As a result, significant amount oftrade in the Eastern South Asianregion gets diverted into informaltrading.


The prevalence of NTBs is also considered as animportant factor that influences cross-borderinformal trade in the region. Barriers arising due todivergent SPS and TBT regulations propel tradersand agents to buy products through informalchannels. This allows them to avoid regulatory andadministrative checks.

In addition, ineffective trade and transportfacilitation augments trade transaction costs andmakes formal trade unviable for small traders.Therefore, a large volume of trade, therefore, takesplace through informal channels.

Complex and cumbersome trade procedures,inefficient customs operation, inaccessible testinglaboratories and financial institutions at borderpoints lead to large transaction cost in formaltrade. Moreover, other factors, such as quickrealisation of payments, no paperwork, noprocedural delays and lower transportation costare strong drivers behind cross-border informaltrade between India-Bangladesh and India-Nepal.

Policy induced distortions are common in EasternSouth Asian countries. The Governments of thesecountries have formulated many policies that haveaimed to distribute certain essential commodities tomarginalised sections of the society. These policiesoften lead to price difference across borders andmake cross-border informal trade profitable. Themost critical aspect is that such distortions are notaddressed at multilateral and regional-level.Inadequate regional policy framework in theEastern South Asian countries has contributed tothe consistent rise in such distortions in the region.

Both farmers as well as non-farmers haveresponded that the drivers of informal trade are ofthree types: product level, operational level andcultural level. The product level drivers include thehigher productivity and lower price of theinformally traded goods. The operational leveldrivers are those drivers which provide ease in theinformal trade at operational/ground level. Theseinclude easy accessibility and proximity of themarkets across the borders. The cultural leveldrivers include the prevalence of common cultures,common religious rituals and common ethnicityacross the borders. All these factors – product level,operational level and cultural level – are acting as

the facilitators of informal trade across the Indo-Nepal and Indo-Bangladesh borders.

The rise in informal trade practises has alsohelped the people living in areas adjacent to theIndo-Nepal and Indo-Bangladesh borders.Although there are many schemes by thegovernment to uplift the lifestyles of poor peoplebut the surveyed respondents have endorsed thattheir engagement in the informal trade hasimproved their livelihood and sanitationconditions in the form of availability of moreincome to spend on their children’s education,healthcare facilities, modern home appliancesand construction of new houses with propersanitation facilities. Therefore, it can be statedthat the informal trade has improved the overalllifestyle of the involved person as many of themhave shifted to concrete brick and mortar houseand also made additions to their existing landholding sizes.

Though, regional and bilateral agreements areaiming to increase the legal/formal trade amongpartner nations, still regional efforts are notsufficient to attract the involved people to tradethrough the formal channels. The driving factorsof informal trade are the prevalence ofrestrictions in the form of SPS and TBT measures,and no trade permissions (negative list) for someformally traded commodities. These all incentivisethe involved people to skip the formal platformand go through the informal platform.

4.2 RecommendationsBased on comprehensive secondary and primarydata analysis, the following recommendations aresuggested, which include common inextricablylinked areas of reform where Eastern South Asiancountries should make concerted efforts to shiftcross-border informal trade into formal trade, sothat the gains through such trade are inclusiveacross all sections of the society.

Policy RecommendationsThe study has identified few but relevant policyrecommendations for addressing informal tradebetween India-Bangladesh, India-Nepal inparticular and overall for the sub-region. It is


recommended that necessary actions should betaken by the governments and private sector tochannelise informal trade into formal trade.

Trade Policy ReformsTrade policies in Eastern South Asian countries arerestrictive which in turn, affect cross-border trade.As a result, local traders and agents tend to get intoinformal trading which is relatively easy, lesscumbersome and less time consuming.

Tariff BarriersTariffs on most of the informally traded agriculturalinputs are relatively high which magnify the cost offormal export and import. Considering this, it isimportant for the Eastern South Asian countries toemphasis on greater degree of tariff liberalisation inthese products to facilitate cross-border trade. Thereduction in tariffs and elimination of sensitive listsunder the SAFTA could play an important role in thisregard. Additionally, the possibilities can also beexplored at bilateral basis to eliminate sensitive lists.

Non-Tariff BarriersTrade in agricultural inputs, such as seeds, fertilisers,pesticides, chemicals, is more prone to SPS and TBTissues. Cross-border trade in these products facemore barriers given their health, safety and qualityconcerns. Harmonisation of trade, technical andregulatory standards through Mutual RecognitionAgreements (MRAs) and conformity assessmentprocedures could be an option to reduce thepotential incidence of NTBs, which will further helpthe people and traders to move to formal channelsof cross-border trade.

Research institutions, such as Indian Council ofAgricultural Research (ICAR) in India, NationalAgricultural Research Council (NARC) in Nepal andBangladesh Agricultural Research Council (BARC) inBangladesh, should work on developing qualityseeds and fertilisers together under the ambit ofregional bodies, such as South Asian RegionalStandards Organisation (SARSO). They shouldcollectively come up with a plan to develop, produceand distribute these inputs in the local markets of therespective countries, in the markets of the borderareas and thus to meet the regional demand.

High trade transaction costs due to inefficientcustoms clearance procedures, cumbersome export

and import formalities, absence of single windowsystem (SWS) and Information andCommunications Technology (ICT), encouragetraders and local people to get involved intoinformal trading, which is efficient, less timeconsuming and involves no transaction costs.Therefore, it becomes imperative for governmentsof the three countries to create betterinfrastructure facilities, streamlined customsclearance procedures and SWS to reduce theoperational costs.

Development of Formal RoutesGovernments of these three countries shouldemphasis on identifying and developing more offormal border points while considering their costbenefit analysis. Moreover, it is important toupgrade the existing formal border points, knownas, land customs stations, in terms of better roadinfrastructure, better internet facilities, and singlewindow documentation system, risk managementsystem for both exporter and importers.

Regional Policy CoherenceDomestic policies, such as subsidies to agriculturalinputs, lead to price distortions across the marketsof other country, thus providing incentives to localtraders, agents and people to involve in informaltrade practice. The government of these threecountries should emphasise on promoting greaterpolicy coherence in institutional and regulatoryframework, so that the prevailing policy induceddistortions can be addressed.

Setting up Regional FactoriesInformal trade of fertilisers in the Eastern SouthAsian region can be addressed and channelisedby setting up regional factories of fertiliserssimilar to those in South-East Asia. India, Nepaland Bangladesh can jointly pool financialresources for the establishment of regionalfactories which will significantly lower informaltrade in fertilisers.

Development of Border HaatsIt is being recognised that border haats have beeninstrumental in promoting trade between Indiaand Bangladesh, and they have helped thepeople living in border areas in gettingproductive employment and positively impacted


their socio-economic transformation. It has beennoticed that border haats have played an essentialrole in arresting and reducing informal trade in thatarea. Currently, there are only four border haatsacross the lengthy Indo-Bangladesh border, alongthe borders of Meghalaya and Tripura states ofIndia. Considering their importance and impact,replication of border haats in the new locations willgreatly help towards better local economicdevelopment, people-to-people connectivity andapprehending informal trade.

Trade Capacity Building ProgrammesCountries should create more awarenessgeneration programmes at local and regional levelabout trading through the formal routine or on thebenefits that can accrue from regularising informaltrade. Also, they need to be informed about thequality of the product that they are producing. Theyneed to be educated regarding the bio-safety issuesand environmental issues.

Mandatory Education Schemes and JobCreationAs people residing along the borders are mostlyuneducated and lack job opportunities,governments of the respective countries shouldallocate some funds from the Border AreaDevelopment Programme10 towards mandatingcompulsory education. Education will help themavailing job opportunities which will lead tobetter livelihood, thus alleviating poverty. InAddition, governments should consider and focusupon creating jobs in the border areas resultingin employment opportunities for better livelihood.


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Annexure 1 Questionnaire for Household Surveyon Informal Trade in AgriculturalInput Commodities

Objective: This questionnaire is meant for a research project on cross border informal trade inagriculture inputs between India-Bangladesh and Nepal. The project aims to focus on understandingdrivers, quantum of informal trade and the impact of cross border informal trade on impacts onlivelihoods of farmers at those locations. The overall objective of the survey work is to understand thedynamics of informal trade between the three countries (India, Nepal and Bangladesh) to get thestory right. It is promised that names of people involved in the survey work will be kept strictlyconfidential.

Checklist• Please remember the name of selected agriculture inputs for the location while asking the

questions to farmers/traders/agents/retailers.

• It will be a scheduled interview and discussion will be held with farmers/traders/agents/retailersto ask their response on these questions rather than giving this questionnaire to them

PART I

1. Gender: a. Male b .Female

2. Nature of Occupation: a. Farmer b. Dealer/Agent/ Formal Traderc. Informal Trader d. Other please specify

3. Level of Education: a. No Schooling b. Primary Certificatec. Junior certificate d. Secondary school certificatee. University Degree

4. What is your annual agriculture income?

Rabi Season Kharif Season Summer Season TotalIncome

PART II(Drivers of Informal Trade)

5. Please circle your choice from the following factors which influence you to engage in cross-borderinformal trade in Seeds Fertilisers/Chemical and Machinery(1=No Influence, 2= Low Influene 3= Moderately Influencing, 4= Influencing, 5=Highly Influencing,6= Not Applicable)

S= SEED, F= Fertilisers, M= Machinery

S.No. Drivers Your Choice1 Lower Price S

FM


2 Lower transportation costs (means distance of Sformal is high and increasing transportation Fcosts) M

3 High transaction costs (banking, operational Scost of doing trade) F

M

4 Easy access and availability or produced Slocally across border. F

M

5 Proximity of the local market SFM

6 Lack of knowledge about availability of Sagriculture inputs F

M

7 Cultural, social and ethnic Relations SFM

8 Custom procedural and administrative hassles S(refer to clearance at customs, paperwork Fand corruption) M

9 Prevalence of standards and testing related Sbarriers F

M

10 Longevity of specific variety S(Only related seeds) F

M

11 Productivity (Only related seeds and fertilisers) SFM

12 Minimal cost for post-harvest management S(Only related seeds) F

M

13 High tariffs and duties SFM


14 Quick realisation of payments in informal trade SFM

15 Absence of formal border point SFM

PART III(Quantum and Prices related Factors of Informal Trade)

6. Please mention your land holding, seed and fertiliser/chemical consumption for the current yearand month of purchasing seeds, fertilisers and chemical.

S. N. Cultivated Land Seed Consumption Fertilisers/ Buying seasons/Holding in per on (Informally Chemicals Monthacre traded variety) (Informally trade)

1. Seed Fertilisers/Chemicals

7 Please mentioned the prices of seeds, fertilisers and machinery traded through informal channels.

2 Seed Prices Quantity Fertiliser Prices Quantity Machinery Unit

InformalChannel

FormalChannel

PART IV(Informal Trade and its Impact on Livelihood)

8. Do you feel that buying agriculture inputs through informal trade helps in improving the livelihood?a. Yes b. No c. Do not know

9. Do you feel that buying agriculture inputs through informal channel is easier than formalchannel?

a. Yes b. No c. Do not know

10. Do you think, earning through informal trade helps you in providing better education tochildren?


11. Do you think, your spending on agriculture inputs have decreased due to availability ofBangladeshi/Nepal agriculture inputs?


12 Do you think informal trade agriculture inputs are cheaper than purchased through formalchannels?



13. From whom you are buying agriculture inputs?a. Dealer b. Local Broker c. Trader d) Any other person

14. Do you think informally traded agriculture inputs help in enhancing the productivity of crops?a. Yes b. No c. Do not know

15. Would you prefer to buy informal traded agriculture inputs if they have available through formalchannels


16. What percentage of your total income is earned through informal trading? Please specify...............………………………………………………………………………………………………

17. How long have you been practising informal trading? Please specify………….(years)

18. Have your income increased after you have started informal trading?a. Yes b. No c. Do not know

19. Please mention by what percentage your income has increased? Please specify.……………………………………………………………………………………………………….

20. What have you been doing with the increased income?………………………………………………………………………………………………………

21. Please indicate whether your spending on the following items have increased/decreased/remained the same

a) Childs education [1. Increased 2. Decreased 3. Remained the same]Please elaborate………………………………………………………………………………………

b) Access to better healthcare facilities [1. Increased 2. Decreased 3. Remained the same] Please elaborate…………………………………………………………………………………………

c) Housing 1. Moved from rented premises to own premises 2. Made pucca house from kuchcha house 3. Purchased property]

Please elaborate………………………………………………………………………………………

d) Sanitation [1. Constructed own toilet 2. Not applicable] Please elaborate……………………………………………………………………………………..

e) Investment in existing practices/ trade/business[1. Increased 2. Decreased 3. Remained the same]Please elaborate……………………………………………………………………………………

(This question to meant to understand whether this had led to purchasing new agri implements, betterpractices, more products, etc. which in turn is helping farmers to make further profits)


f) Use of kerosene for lighting/cooking purpose[1. Increased 2. Decreased 3. Remained the same]Please elaborate………………………………………………………………………………………

g) Home appliances[1. Increased 2. Decreased 3. Remained the same]Please elaborate……………………………………………………………………………………


Q1. What factors persuade you to engage in cross border informal trade in selected agricultureinputs? List down specific factors and ask specific underlying reasons for informal trading theseproducts.

Q2. Can you give us a rough estimate about quantum of informal trade taking place through thisparticular location? Please be specific to selected agriculture inputs of the particular location.

Q3. Do you think, policy related factors (tariff, non-tariff barriers, customs procedures, lack offormal trading points, and restrictions on trading) force you to indulge in informal trading inselected agriculture inputs? Please be specific while asking to your selected agriculture inputs ateach location.

Q4 Do you think, cross border informal trade help in improving livelihood of the local people?(Better access to education, healthcare facilities, nutritious foods, etc.)

Q5 Do you feel earning through cross border informal trade help women traders/farmers improvetheir position in decision making in the family?

Q6. What are different channels of informal trade in agriculture inputs? How do you get theseagriculture inputs? (Ask whether agriculture inputs are supplied by dealers and agents or farmersdirectly from their relatives or any other persons)

Q7. Have you ever faced quality related issues in agriculture inputs (mainly seeds and fertilisers)which come through cross-border informal channels? (Ask for specific examples quality relatedconcerns such adulteration)

Q8 Do you think, your reliance on informal traded agriculture inputs has increased over the periodof time? If yes, ask why?

Q9 Do you face supply related constraints of informal traded agriculture inputs? If yes, what arethose constraints?

Q10. Do you face difficulties in selling final outputs of your agriculture inputs mainly seeds? (this isimportant as many informal traded products are restricted category for formal trade and how theselling of final output is permitted)

Annexure 2 Questionnaire for Focussed GroupDiscussions and Key InformantInterviews


1 Informal trade, concentrated along the borderregion, involves large number of local people,who individually transport small quantities ofgoods as head loads by cycles or rickshaws,also known as bootleg smuggling. Whiletechnical smuggling happens when trade ofgoods takes place through formal channel buttheir weight and quantities are underdeclared. Such smuggling involves variousillegal practices like under invoicing, briberyof customs and other officials involved, etc.,and occurs mainly at land borders.

2 Government of Nepal (2011), A Report onValue Chain Analysis of Vegetable seeds inNepal, Ministry of Agriculture andCooperatives.

3 Female Intensity of agriculture is calculated asthe share of female agricultural employmentin total agricultural employment. A sharehigher than 50 percent would suggest that thesector is female intensive sector. (FAO)

4 Note:- 1) For Agricultural Machinery, HSCodes added to estimate the figure are 8432,8433, 8434, 8436, 8441, 8449, 8453,8474, 8478. The addition is done at 6-digitlevel.2) For Seeds, HS Codes added to estimate thefigure are 100111, 100210, 100310,100410, 100510, 100610, 100710,100810, 100821, 120110, 120923,120925, 120910, 120921, 120922,120930, 120929, 120999, and 120991.3) For Fertiliser HS code 31 was considered.

5 IBID

Endnotes

6 This technique is used to find the convergencebetween the responses gathered from thesuccessive rounds of interviews of the samesample of respondents.

7 The domestic policy distortion happens whenthe government intervenes in market by usingdifferent kinds of instruments such as priceceilings, tax subsidies and price floors.

8 Ashok Gulati, ‘From Plate to Plough: Twenty-five years of tinkering’ 4th July, 2016http://indianexpress.com/article/opinion/columns/india-economic-reforms-indian-farmers-fertiliser-subsidy-union-budget-modi-govt-organic-farming-2892089/

9 Here by border officials are informed, wemean that the officials know that products aretaken informally, but only in small quantities,for personal use. Therefore, they allow peopleto carry those products across the border. Wecannot call it, or relate it with, technicalsmuggling.

10 The main objective of the BADP is to meet thespecial developmental needs and well-being ofthe people living in remote and inaccessibleareas situated near the international borderand to saturate the border areas with the entireessential infrastructure through convergence ofCentral/State/BADP/Local schemes andparticipatory approach. Department of BorderManagement, Ministry of Home Affairs,Government of India, is implementing thisprogramme. The Programme covers all thevillages which are located within the 0-10 Kmof the International Border, coming under 17states of India, including Bihar and WestBengal.

Documents

CUTS International 67 · #1806, Suggested Contribution M350/US$35 & CUTS International 3 Contents Acronyms 5 Contributors 7 Acknowledgements 9 Foreword 11 Preface 13 Executive Summary