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In this paper, basic and augmented gravity model has been applied to estimate India's trade potential with Central Asian States. Panel data for the period 2000-2012 is employed in the analysis. The coefficients obtained from the gravity equations are then used to predict trade potentials between the regions. Results reveal that India's trade potential is tremendous with this region, and currently there are few geo-political issues that hinder the pathways of trade between the two regions. Specifically, the political tensions in neighbouring countries, particularly Pakistan and Afghanistan, are the major hindrances. In this context, therefore, both regions should look at ways and means to further improve their trade relations. Revival of historical and cultural links between India and Central Asian republics may prove positive in boosting bilateral trade.
INTRODUCTION
Historically, India has strong relations with Central Asian States (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). In ancient times, both were powerful centers with great deal of economic and cultural relations. The ancient "Silk Route" connects India and the Central Asian region due to which both have experienced exchanges in cultural, political and economic spheres. However, during the Soviet period economic relations between India and Central Asia were under control of Moscow. Subsequently, after the collapse of Soviet Union, each newly independent state maintains direct economic relations with other economies of the world.
In the current global economic scenario this age-old relationship has attained greater significance, despite the fact that the present relationship between India and Central Asia is increasing but below the expected potential. Trade is confined to traditional commodities. India mostly exports pharmaceuticals, tea, ready-made garments, cotton yarn, jute manufactures, etc., to Central Asia and imports iron, steel, and fruits etc. from this region. The sustained economic growth in Central Asia, increasing foreign trade and foreign exchange reserves in addition with foreign investment inflow could provide opportunities for India to enhance economic relations with Central Asia.
This paper aims to estimate India's trade potential with Central Asian Republics (CARs). To estimate the trade potential of India, gravity model equations are employed. The policy implications will therefore highlighted how India will enhance its trade relations with the Central Asia.
The paper is organized as follows; section 1 of this paper discusses the current trade level...