Beyond Official Channels: Informal Economic Structures and Cross-Border Exchange Patterns in India-China Border Regions

Abstract

This study critically examines the informal economy in India–China cross-border trade through the Nathula Pass in Sikkim, using ethnographic and econometric methods. Grounded theory and mixed-method research—including 73 interviews, participant observation, and archival analysis—reveal how ancestral trader dominance, bureaucratic bottlenecks, and weak infrastructure obstruct the economic potential of the Nathula Trade Agreement (2006). Despite revisions in trade caps and commodity lists, restrictive policies, geo-climatic challenges, and militarization continue to limit trade.

The research deconstructs security-centric narratives by foregrounding Sikkimese micro-entrepreneurs whose informal trade constitutes over 40% of daily revenue. Drawing from dependency theory, James C. Scott’s “moral economy,” and Foucault’s “biopolitics,” the study situates informal trade as both survivalist and entrepreneurial. Brokers from West Bengal and Bihar create additional rent-seeking layers, reflecting a complex broker-state structure.

Recent Commerce Ministry data shows a steep post-2017 decline in formal trade, with informal markets expanding into electronics, garments, and traditional medicines. Yet poor infrastructure reduces throughput by 35%. The study urges policy shifts toward fiscal decentralization, participatory customs governance, and localized Trade Facilitation Councils. By treating informal trade as a vernacular economy, not deviance, India can turn its peripheries into geo-economic assets, balancing security with developmental peace and people-centered diplomacy.