Shibu Mondal drives mechanically through Petrapole (India), having crossed it so many times that he no longer looks up at the customs shed as he passes. He knows its rhythms better than the border officials who work there - which hour of the day the queue thins, which day of the week the gate stays shut, how many rupees buy back days lost to paperwork. Just Ninety kilometres away in Benapole (Bangladesh), Faruk Hossain waits for the same truck, reckoning the same in taka. Between them lies an international border that two nations have spent thirty years trying to control and modernise, and that both men have spent their lives outsmarting. Neither is a smuggler in the way the word really means. They are simply the human infrastructure that thrives through the gaps in the state’s design.
The border that separates Shibu and Faruk is barely ninety years old. But the trade it disrupts is centuries older. South Asia is rich in history and cultural diversity. Historically, the Indian subcontinent has been one of the richest regions in the world, and trade was prevalent in many commodities such as textiles, spices, and steel, before colonialism plundered its identities from the roots. As the colonial rule was uprooted and driven out of the Indian subcontinent, the states that remained were divided forever by stringent borders, contempt, and deep distrust of one another. India shares international borders through its North, East, and West with China and other South Asian economies like Nepal, Bhutan, Pakistan, Bangladesh, and Myanmar. Trade in this region, which has flourished over centuries, was suddenly brought to a halt by fenced borders that stood taller than the average man.
The Indian economy was closed to international trade for over forty years, until it opened its borders in 1991 for exports and imports from neighbouring countries. But unofficially, trade has almost always existed along the porous borders of North and North East India. This was (formally) called the Informal Cross-Border Trade (ICBT).
Informal trade, as opposed to formal trade, is not tied down by the long procedural delays of customs, the approvals of Border Security Force (BSF) officials, high prices due to tariff barriers, infrastructural complexities, and the like. The informal economy survives in the shadows of the formal economy and grows in its inefficiencies. The management of these international borders with countries like Bangladesh and Myanmar presents humongous opportunities for shared economic growth and poverty alleviation along the borders, but also brings with it concerns about security and stability.
Informal trade is often viewed through a very negative lens - and rightly so to an extent, given the smuggling and corruption involved. However, the border economy is no more rogue than any other informal economy, providing livelihoods to millions of people and evolving into vibrant cross-border microeconomies over the years. The inhabitants at the remote and isolated borders of the North East Region (NER) of India and West Bengal, and those of the bordering countries, can reap the benefits of Cross-border trade, especially in household and everyday commodities like food and agricultural products, cotton yarn and clothing, utensils, cheap footwear, iron and steel, and electrical appliances. Most people at the borders are deeply impoverished and lead a marginalised, subsistence lifestyle.
Formal cross-border trade is characterised by numerous procedures and documentation requirements that demand days of waiting and patience from traders at the border. Different types of barriers, both tariff and non-tariff, pose several obstacles to free trade. Tariff barriers in the form of customs duties for every export and import undertaken across borders, and non-tariff barriers like quotas implemented on the number of commodities that can be traded in one day or by one trader. These hold back the people in these borderlands from freely carrying out business activities and disallow the market from working its magic. Such barriers add to the transaction costs of formal trade, as do other factors like complex and extensive procedures required for customs clearance, infrastructural failures, and gaps at the Land Customs Stations (LCSs) and corrupt border officers looking to exploit the naive and uninformed traders through their rent-seeking practices. Lack of basic education and awareness among the traders - combined with the cumbersome procedures, extreme, chronic poverty, and absence of other forms of employment and alternate livelihoods - increases the incentives, among the dwellers of the border regions, to resort to informal trade. Consequently, many smugglers and informal traders engage in such practices not out of the inherent desire to do so, but rather due to the socio-economic circumstances that push them towards informal channels.
The bilateral trade between India and Bangladesh is largely unidirectional, with Bangladesh importing a wide range of goods from India, with India having a comparative advantage. Such is the case for cross-border trade, too, between the two countries. The value of informal exports and that of formal exports from India to Bangladesh are almost equal. As a result, India runs a large trade surplus with Bangladesh, which currently stands at USD 7.86 billion (2024-25).
Formal cross-border trade through the Petrapole-Benapole Land Ports faces various challenges. Traders pointed out the need to submit 17 documents to clear a single consignment at Petrapole, so they can travel the international border to Benapole. They estimate the ideal average time for a consignment to be about 24 hours; in reality, however, it takes around 102 hours, which makes them lose more than 3 days each trip. Thousands of trucks queue up on both sides of the border to complete documentation requirements.
The extent of such delays has only seen an upward trend over the years, despite digitisation measures like the Electronic Data Interchange (EDI), which have been implemented to replace paper invoices, which is a clear institutional drawback. But customs and immigration authorities at Petrapole demonstrated significant institutional inertia in adopting these new digital systems into their day-to-day operations, preferring to continue using the old, paper-based methods.
The response of the customs offices and authorities to anomalies and revealed gaps in the system has been to mandate additional documentation or introduce new procedures in futile attempts to increase systemic efficiency. Such reactions, however, have proved to be both convoluted and impractical. The lack of adequate transport infrastructure further worsens the situation, as most border roads are not wide enough for multiple vehicles to pass through simultaneously, resulting in bottlenecks, delays and increased transit costs. Finally, ubiquitous corruption among BSF and customs officials and exploitation of traders by middlemen remain critical hurdles, with illicit rent-seeking and demand for bribes rising over the years despite efforts to curb such institutional inefficiencies.
Given the severe systemic frictions plaguing formal cross-border trade, traders on both sides tend to engage in smuggling and informal trade. A large volume of illicit goods also enters Bangladesh through formal channels by undervoicing, misclassification and bribery of customs officers to bypass regulatory checks. Such channels offer rapid realisation of payments, no hours of wait, no paperwork and procedural delays thereof, and lower transportation costs. Weighing their options evinced to traders that the risk of getting caught and seizure of products was worth the immediate operational advantages that came with it. Informal trade is funded by migrant remittances, informal moneylenders, and middlemen who offer credit at far more flexible terms than their formal counterparts.
Today, India trades in three types of goods informally with Bangladesh - household goods, cattle and medical care. Cattle smuggling is a major form of illegal exports from India to Bangladesh. This happens through highly porous regions where the international border is not clearly defined or fenced. There are other reasons for travel, too. Bangladeshis also enter India for medical care, mostly formally, since it is too expensive for ordinary people back home. Narcotic drugs like phesedyl, however, are also a part of the informal trade.
To abate such endeavours, border haats were introduced. They are weekly, institutionalised markets jointly introduced by the governments of the two countries, specifically to curtail informal trade, where marginalised communities from the border regions can trade in a variety of commodities. There were 7 such haats between India and Bangladesh. The benefits of these haats were reduced by the tariff and quantity barriers that were set on both the sellers and the consumers. Despite that, border haats were a meaningful investment to strengthen socio-cultural relationships and trade relations between people from both sides of the border, as such initiatives reinforce the border economy and increase its productivity and sales. Since 2024, however, due to security concerns and the political unrest in Bangladesh, the haats have been suspended.
Most of the trade took place through the second of the two gates at Moreh, as a traditional exchange. This was similar to trade inside the borders, without the need for any Importer-Exporter Certificate or Guarantee Repayment formalities, and traders crossing borders on foot with goods on their heads and backs. This allowed commerce to happen freely without the importers having to pay the 5% duty that was imposed on the barter and normal trade that happened through Gate 1 of ICP Moreh. The motive behind such a flexible system was to formalise trade, and stimulate the growth and transition of the marginalised exchange economy to a modern, monetised one, since the economy was identified as having potential for that. However, India introduced a major reform in 2015 that abolished the barter trade in favour of conventional, normal trade.
In 2021, when the military of Myanmar (Tatmadaw) overthrew the fragile quasi-democratic system that had prevailed for about a decade, it was met with rampant discontent from Burmese citizens and neighbouring countries. This new government - along with the international border closings due to COVID-19 and the successive Manipur ethnic conflict of 2023 rendered the marginalised residents on either side of the border jobless and desperately seeking alternate sources of income to sustain themselves. Patrolling and other security measures at the international borders had thus become more stringent, and the ethnic conflict in Manipur led to widespread unrest and tension. Moreh traders reported that they were paying for disasters that were beyond their control with their livelihoods. The struggle for sustenance of life on both sides of the border pushed these people to engage in the smuggling of high-value goods like narcotics, timber, gold, and betel nuts, while the ordinary informal trade of clothing, food, and household items dropped remarkably. The coup left thousands of people in Myanmar jobless and hungry. Such desperation makes them vulnerable to criminal syndicates that recruit them to be drug mules across the border, shifting the whole risk of getting caught and the seizure of drugs onto them. The internal conflicts in Manipur led to the closing of the Integrated Check Post (ICP) of Moreh, shifting illegal trade routes to Zokhawthar (Mizoram). All these tensions led the Indian Government to abolish the Free Movement Regime (FMR) between the two countries in 2024 and allocate billions to completely fence the India-Myanmar border.
The India-Bangladesh border must be reopened for trade, and trade terms liberalised to mimic internal trade, rather than conventional international trade rules, serving as a pathway to combat smuggling. Traders with limited formal education and regulatory awareness find formal trade, with its complex and cumbersome procedures, to be deeply alienating and difficult to navigate. To resolve this, policymakers should reinstate the earlier, successful model of ‘Border Haats’, but with fewer restrictions on quantities to better align with real market demand and supply. They should also be extended to West Bengal, from where the bulk of the informal trade to Bangladesh happens. Active digitisation and accountability mechanisms are crucial to battling entrenched corruption and institutional inertia. Infrastructural developments - in terms of transport, communication, finance, simplification of procedures, and number of trade points - are imperative, particularly along the Myanmar border, besides reopening ICP Moreh for better regulation of trade. Programmes aimed at spreading awareness and knowledge among traders regarding the procedures of cross-border trade can enable traders to recognise the efforts of the authorities and abide by them. Restoration of (a simulation of) barter trade, without total and abrupt formalisation, can stimulate the move towards a fully formalised border economy at the India-Myanmar border. Investments in alternative livelihood options such as the regularisation of cattle trade, medical tourism, and the like could be explored so that the burden on informal and illicit channels as border communities’ only viable income source is lost.
Ultimately, both borders convey the same message: infrastructure and political trust work in collaboration, not in isolation. Haats and border systems worked because they suited the intricate, complicated structure of the border economy and its peoples. Reviving them will do more for border communities than greater formalisation that fails to comprehend why informal trade exists in the first place.
Informal trade is often viewed through a very negative lens - and rightly so to an extent, given the smuggling and corruption involved. However, the border economy is no more rogue than any other informal economy, providing livelihoods to millions of people and evolving into vibrant cross-border microeconomies over the years. The inhabitants at the remote and isolated borders of the North East Region (NER) of India and West Bengal, and those of the bordering countries, can reap the benefits of Cross-border trade, especially in household and everyday commodities like food and agricultural products, cotton yarn and clothing, utensils, cheap footwear, iron and steel, and electrical appliances. Most people at the borders are deeply impoverished and lead a marginalised, subsistence lifestyle.
Formal cross-border trade is characterised by numerous procedures and documentation requirements that demand days of waiting and patience from traders at the border. Different types of barriers, both tariff and non-tariff, pose several obstacles to free trade. Tariff barriers in the form of customs duties for every export and import undertaken across borders, and non-tariff barriers like quotas implemented on the number of commodities that can be traded in one day or by one trader. These hold back the people in these borderlands from freely carrying out business activities and disallow the market from working its magic. Such barriers add to the transaction costs of formal trade, as do other factors like complex and extensive procedures required for customs clearance, infrastructural failures, and gaps at the Land Customs Stations (LCSs) and corrupt border officers looking to exploit the naive and uninformed traders through their rent-seeking practices. Lack of basic education and awareness among the traders - combined with the cumbersome procedures, extreme, chronic poverty, and absence of other forms of employment and alternate livelihoods - increases the incentives, among the dwellers of the border regions, to resort to informal trade. Consequently, many smugglers and informal traders engage in such practices not out of the inherent desire to do so, but rather due to the socio-economic circumstances that push them towards informal channels.
Bangladesh: Trade in the Shadows
India shares its longest land border with Bangladesh, spanning a total of 4096 km, spread across the Indian states of West Bengal, Tripura, Meghalaya, Mizoram, and Assam. Cross-border trade between the two countries mainly takes place through the Petrapole (India) - Benapole (Bangladesh) route. Petrapole is located about 80 km away from Kolkata. The fenced borders are located about 150 yards behind the actual Zero-Line Border of India and Bangladesh, which strips the people residing beyond the physical fences of any national security. Such people are highly susceptible to harassment by corrupt officials and thus feel neglected and abandoned by their governments. Their only sources of income and livelihood are cross-border trade of household goods and necessities. |
| Credits: The Dollar Business Bureau |
Formal cross-border trade through the Petrapole-Benapole Land Ports faces various challenges. Traders pointed out the need to submit 17 documents to clear a single consignment at Petrapole, so they can travel the international border to Benapole. They estimate the ideal average time for a consignment to be about 24 hours; in reality, however, it takes around 102 hours, which makes them lose more than 3 days each trip. Thousands of trucks queue up on both sides of the border to complete documentation requirements.
The extent of such delays has only seen an upward trend over the years, despite digitisation measures like the Electronic Data Interchange (EDI), which have been implemented to replace paper invoices, which is a clear institutional drawback. But customs and immigration authorities at Petrapole demonstrated significant institutional inertia in adopting these new digital systems into their day-to-day operations, preferring to continue using the old, paper-based methods.
The response of the customs offices and authorities to anomalies and revealed gaps in the system has been to mandate additional documentation or introduce new procedures in futile attempts to increase systemic efficiency. Such reactions, however, have proved to be both convoluted and impractical. The lack of adequate transport infrastructure further worsens the situation, as most border roads are not wide enough for multiple vehicles to pass through simultaneously, resulting in bottlenecks, delays and increased transit costs. Finally, ubiquitous corruption among BSF and customs officials and exploitation of traders by middlemen remain critical hurdles, with illicit rent-seeking and demand for bribes rising over the years despite efforts to curb such institutional inefficiencies.
Given the severe systemic frictions plaguing formal cross-border trade, traders on both sides tend to engage in smuggling and informal trade. A large volume of illicit goods also enters Bangladesh through formal channels by undervoicing, misclassification and bribery of customs officers to bypass regulatory checks. Such channels offer rapid realisation of payments, no hours of wait, no paperwork and procedural delays thereof, and lower transportation costs. Weighing their options evinced to traders that the risk of getting caught and seizure of products was worth the immediate operational advantages that came with it. Informal trade is funded by migrant remittances, informal moneylenders, and middlemen who offer credit at far more flexible terms than their formal counterparts.
Today, India trades in three types of goods informally with Bangladesh - household goods, cattle and medical care. Cattle smuggling is a major form of illegal exports from India to Bangladesh. This happens through highly porous regions where the international border is not clearly defined or fenced. There are other reasons for travel, too. Bangladeshis also enter India for medical care, mostly formally, since it is too expensive for ordinary people back home. Narcotic drugs like phesedyl, however, are also a part of the informal trade.
To abate such endeavours, border haats were introduced. They are weekly, institutionalised markets jointly introduced by the governments of the two countries, specifically to curtail informal trade, where marginalised communities from the border regions can trade in a variety of commodities. There were 7 such haats between India and Bangladesh. The benefits of these haats were reduced by the tariff and quantity barriers that were set on both the sellers and the consumers. Despite that, border haats were a meaningful investment to strengthen socio-cultural relationships and trade relations between people from both sides of the border, as such initiatives reinforce the border economy and increase its productivity and sales. Since 2024, however, due to security concerns and the political unrest in Bangladesh, the haats have been suspended.
Myanmar: When Barter Broke Down
Myanmar borders four of India’s North Eastern states: Arunachal Pradesh, Mizoram, Manipur and Nagaland. Formal trade between the two nations commenced after they signed the Indo-Myanmar Trade Agreement in 1994, which facilitated trade through the Moreh (India) - Tamu (Myanmar) corridor from Manipur, and the Champhai (India) - Rhi (Myanmar) corridor from Mizoram. Trade was allowed through a rudimentary barter system across the border, which was largely due to the absence of formal financial institutions in these regions. While only 22 items were permitted when trade was first initiated, the number increased to 62 by 2012.Most of the trade took place through the second of the two gates at Moreh, as a traditional exchange. This was similar to trade inside the borders, without the need for any Importer-Exporter Certificate or Guarantee Repayment formalities, and traders crossing borders on foot with goods on their heads and backs. This allowed commerce to happen freely without the importers having to pay the 5% duty that was imposed on the barter and normal trade that happened through Gate 1 of ICP Moreh. The motive behind such a flexible system was to formalise trade, and stimulate the growth and transition of the marginalised exchange economy to a modern, monetised one, since the economy was identified as having potential for that. However, India introduced a major reform in 2015 that abolished the barter trade in favour of conventional, normal trade.
 |
| Credits: The Statesman |
Informal cross-border trade between India and Myanmar had always existed, even before trade was formalised and barter was dismantled. Infrastructural bottlenecks, grave security concerns and socio-political issues like ethnic conflicts, inflow of illegal migrants, and territorial disputes between the nations contributed to the highly erratic nature of this border. Trade through traditional exchange could only be carried out by indigenous people living within 40 km of either side of the border, and faced rigid restrictions like a cap of USD 1000. Barter trade through Gate 1 of Moreh was capped at USD 20,000 per transaction. This was the main channel for the actual commercial volume, covering locally produced agricultural and minor forest products such as mustard, pulses, fresh vegetables, garlic, onions, chillies, spices, bamboo, betel nut, tobacco, ginger, and the like. Such heavy restrictions on trade have encouraged the emergence of illegal and informal channels that operate through the loopholes of formal commerce. Main items of seizure include narcotic drugs, precious stones, batteries, inverters, blankets, soaps, detergents, readymade clothes and footwear. Informal trade was practised at a scale so large that its seizure revealed that its volume could be bigger than that of official trade across the borders. Informal trade between India and Myanmar was essentially two-way. India exported domestically produced goods, and Myanmar exported both domestic and foreign-produced goods, implying an involvement of third countries in such informal practices. Following the 2015 reform, the incentives for informal cross-border trade surged dramatically, leading to an unintended countereffect. The 5% customs duty that had earlier ruled barter trade had disappeared, and was replaced with higher tariffs. This made imports from Myanmar more expensive. Such a reform was viewed by the border dwellers as insensitive and unwarranted. Consequently, the volume of informal trade ultimately rose, contrary to what the policymakers had predicted.
In 2021, when the military of Myanmar (Tatmadaw) overthrew the fragile quasi-democratic system that had prevailed for about a decade, it was met with rampant discontent from Burmese citizens and neighbouring countries. This new government - along with the international border closings due to COVID-19 and the successive Manipur ethnic conflict of 2023 rendered the marginalised residents on either side of the border jobless and desperately seeking alternate sources of income to sustain themselves. Patrolling and other security measures at the international borders had thus become more stringent, and the ethnic conflict in Manipur led to widespread unrest and tension. Moreh traders reported that they were paying for disasters that were beyond their control with their livelihoods. The struggle for sustenance of life on both sides of the border pushed these people to engage in the smuggling of high-value goods like narcotics, timber, gold, and betel nuts, while the ordinary informal trade of clothing, food, and household items dropped remarkably. The coup left thousands of people in Myanmar jobless and hungry. Such desperation makes them vulnerable to criminal syndicates that recruit them to be drug mules across the border, shifting the whole risk of getting caught and the seizure of drugs onto them. The internal conflicts in Manipur led to the closing of the Integrated Check Post (ICP) of Moreh, shifting illegal trade routes to Zokhawthar (Mizoram). All these tensions led the Indian Government to abolish the Free Movement Regime (FMR) between the two countries in 2024 and allocate billions to completely fence the India-Myanmar border.
Between Fences and Futures
The cases of Bangladesh and Myanmar provide starkly different scenarios worth considering. India and her neighbours have a long way to go in terms of infrastructural development at the borders. Across India’s Northeastern and Eastern frontiers, the formal trade system has shown more failures than successes in absorbing the economic realities of border communities. Cumbersome documentation and more stringent procedures have not eliminated rent-seeking practices of officials and reduced informal trade in Petrapole-Benapole, but have only driven it more underground. The same happened at Moreh-Tamu due to the 2015 reform. Impersonal formalisation, without a nuanced understanding of the lives of the people at the border, fails to address why they resort to illicit trade and illegal border crossings. Such an approach will not craft robust policies that penetrate these deep-rooted problems. We must first recognise that such problems are more structural and political than they were ever economic. Border economies are hostage to political instability, with the effects of insecurities and ethnic conflicts often transcending borders, and leaking into communities in neighbouring countries. Border haats and barter systems were effective remedies to the struggles of the border communities, indigenous to the specific system and region, yet both are now abandoned, with only hopes of restarting them sometime in the future.The India-Bangladesh border must be reopened for trade, and trade terms liberalised to mimic internal trade, rather than conventional international trade rules, serving as a pathway to combat smuggling. Traders with limited formal education and regulatory awareness find formal trade, with its complex and cumbersome procedures, to be deeply alienating and difficult to navigate. To resolve this, policymakers should reinstate the earlier, successful model of ‘Border Haats’, but with fewer restrictions on quantities to better align with real market demand and supply. They should also be extended to West Bengal, from where the bulk of the informal trade to Bangladesh happens. Active digitisation and accountability mechanisms are crucial to battling entrenched corruption and institutional inertia. Infrastructural developments - in terms of transport, communication, finance, simplification of procedures, and number of trade points - are imperative, particularly along the Myanmar border, besides reopening ICP Moreh for better regulation of trade. Programmes aimed at spreading awareness and knowledge among traders regarding the procedures of cross-border trade can enable traders to recognise the efforts of the authorities and abide by them. Restoration of (a simulation of) barter trade, without total and abrupt formalisation, can stimulate the move towards a fully formalised border economy at the India-Myanmar border. Investments in alternative livelihood options such as the regularisation of cattle trade, medical tourism, and the like could be explored so that the burden on informal and illicit channels as border communities’ only viable income source is lost.
Ultimately, both borders convey the same message: infrastructure and political trust work in collaboration, not in isolation. Haats and border systems worked because they suited the intricate, complicated structure of the border economy and its peoples. Reviving them will do more for border communities than greater formalisation that fails to comprehend why informal trade exists in the first place.
About the Author: Bhadra Vineed
Bhadra Vineed is a recent graduate in Economics from Miranda House, University of Delhi. Her work focuses on informal economies, labour markets, and the political economy of trade in South Asia.