New Delhi, March 11: India`s just-to-be presented budget will formally lift the duties on all goods exported by Bangladesh, Afghanistan, Nepal, Bhutan and Maldives to the $1.7-trillion Indian market. Liquor, wine and tobacco products, however, will not get this benefit.

Without much fanfare, India`s finance ministry had issued a notification (No. 99/2011) towards the end of the last calendar year to this effect. According to the notification, any good, which has at least 40 per cent of its value added in the less-developed neighbouring country where it is made, will be allowed in India.

Our smaller neighbours will no longer have to depend on quotas and duty sops extended from time to time. This is a sweeping decision to make all imports zero duty, except for a handful of items such as beer, wine, liquor, spirits and tobacco-related produce, said top finance ministry officials.

This could imply that a Japanese consumer goods maker might set up shop in Bangladesh and sell refrigerators in India, provided at least 40 per cent of the product`s value are added in the South Asian country.

The duty sop is part of a package to less developed states within Saarc (South Asian Association for Regional Cooperation).

The two more industrialised neighbours Pakistan and Sri Lanka are left out of this deal. Sri Lanka, however, enjoys almost all of these benefits under a free trade agreement.

The move is aimed at giving the poorer neighbours a chance to sell to and virtually be part of the giant growing economy.

Most of these countries do not have the industrial base to take advantage of this, except Bangladesh, said Nisha Taneja, foreign trade economist with the Indian Council for Research on International Economic Relations.

Bangladesh`s exports to India have increased by around 68 per cent over the previous year because of low-cost labour and duty sops on garments.

Most top Indian garment brands, including Van Huesen, Park Avenue and Turtle, have been sourcing from the eastern neighbour. A bigger jump in exports is expected this year on account of the garment trade.

Dabur has set up juice bottling plants in Nepal and Sri Lanka for exports to its home market, taking advantage of existing trade treaties.

Analysts say similar deals can be expected with Indian firms setting up factories in neighbouring nations for producing goods for consumption at home.

N.R. Bhanumurthy of the finance ministry think-tank, the National Institute of Public Finance and Policy, said, This deal could spur something like what the emergence of BPOs did labour intensive manufacturing such as garments or raw material intensive manufacturing such as food processing could shift base to more competitive neighbouring countries. For instance, Bhutan has a well developed food processing industry and could well be India`s jam factory of the future.

Besides manufactured goods, the deal will also allow duty-free entry of fish and farm produce from these less developed neighbours.

Sujay Nag, former country head of Tata International in Bangladesh, said, This will be great news for western Bangladesh large quantities of green vegetables, fish and flowers in Jessore are thrown away as there aren`t enough buyers tuberose sells for Rs 4 a dozen there while it sells for Rs 24 a dozen in Calcutta which is just 80-90 km from the flower growing centre of Jessore.