A strong economy requires markets that function well and a state that complements and facilitates them. In Afghanistan, the only market that works is the illegal market for drugs. And economic actors especially farmers, for better or for worse, respond rationally to it. Most other markets are non-functional — the presence of law and order as Adam Smith pointed out some two hundred years ago, is a necessary condition for functioning markets. The government in Afghanistan has failed to secure the country — even in Kabul the situation seems dire. It is no surprise then that there is very little by the way of either private domestic investment or private foreign investment in the country. Afghanistan’s anaemic economy survives on remittances, aid and some small entrepreneurs, mostly retailers and traders.

Ironically enough, in an era dominated by globalisation and free markets, the near future of the Afghan economy depends completely on the state — not the Afghan state, which is in a state of near paralysis, but foreign states. They remain the only actors capable of making a difference to the economy and lives of ordinary Afghans. It is the only way to retain, and enhance, the legitimacy of the flailing Hamid Karzai regime, which is fast losing territory and the support of the people to the regressive Taliban.

India has a big role to play in the economic development of Afghanistan and it must not be cowed by this attack on its mission. India is the fifth largest donor to Afghanistan — around $750 million is earmarked for this purpose. The Indian government in partnership with private contractors is building roads, power transmission lines, schools and hospitals for ordinary Afghans. This must continue unabated as these works form the bedrock of a future Afghan economy. India could also assist in the development of productive agricultural technologies, the only way to wean farmers off poppy.

... contd.