Markets can bolster Indo-Pak ties

Pakistan's recent announcement enhancing the number of freely importable products from India to over 1,000 items has much politico-commercial significance.

Pakistan’s recent announcement enhancing the number of freely importable products from India to over 1,000 items has much politico-commercial significance. The inclusion of items like dyes and chemicals, industrial machinery and raw materials indicates growing internal pressure to liberalise trade with India.

These pressures are on four fronts. First, a large number of MNCs and other Chinese-controlled ventures that are operating in Pakistan are eyeing access to Indian markets. Second, there is a burgeoning constituency within the country (including the media) which favours normal trading relations with India. Third, a new generation of reform-savvy bureaucrats is now taking over the crucial commercial desks and redefining Pakistan’s external economic relations. Finally, the massive price gains and diverse product choices that have accrued to India’s other free trade partners in the region like Sri Lanka, Nepal and Bhutan have resulted in a growing realisation in Pakistan that maintaining artificial restrictions comes at a high cost.

A very recent study by the State Bank of Pakistan has estimated that the potential of Pakistan-India trade is in the range of $ 1 billion to $ 5.2 billion per annum, as against the officially reported flow of $ 500 million. The study further mentions that Pakistan will on an average have national saving in foreign exchange between $ 400 million to $ 900 million provided the Pakistan government expands its positive list of importable items from India.

There are also studies that show how Pakistan annually loses millions of dollars because of irrational policies. Almost $ 25-40 million is lost annually by not importing tea from India. This despite the fact that tea has long remained on top of its ‘positive list’ vis-a-vis India. Besides the creation of a parallel supra-economy, capitalisation of these informal trade routes by criminals, drug traffickers and terrorists are the other dimensions. The State Bank of Pakistan report, in fact, mentioned that normal trade relations will “benefit consumers, particularly in Pakistan, increase custom revenue and push out smugglers and trade mafias involved in what is being called circular trade through Dubai, Singapore and Afghanistan”.

Pakistan’s ‘Kashmir first’ attitude has had a plethora of far-reaching and negative consequences for its economy and people. Its decision to continue bilateral trade with India through a positive list approach even after the South Asian Free Trade Area (SAFTA) of July 2006 is the most recent example of how sound economic rationale can fall prey to political tunnel vision. It maintains that it “would not grant the most favoured nation (MFN) status to India until there was a tandem move in other bilateral issues, particularly Kashmir.” For three years, Pakistan participated in all the SAFTA negotiations without any reservations on its operational aspects. This unexpected action of Pakistan has undermined the already beleaguered SAARC process. Although India has now referred the case to the Council of Commerce Ministers, it could retaliate by using this same tool to exclude Pakistan from its other SAARC activities.

Pakistan should realise that SAFTA holds great potential for South Asian countries to look beyond the SAARC region. It enhances the possibility of cross-border infrastructural linkages, including the establishment of power grids, gas pipelines, bridges and railway lines that could connect to regions outside South Asia. It is a key to the success of regionalism in the sub-continent. Free access to a variety of regional products would, in turn, widen and sustain the SAFTA process. The idea is to set free market access and let consumers gain.

Pakistan should, therefore, increasingly engage India in areas that could help its own economy and help it sustain its recently achieved growth rate of over 8 per cent. If China can do this, why not Pakistan? It has other apprehensions as well. Despite steady liberalisation, India continues to nurture a host of barriers. There is a constant fear, too, that it is India which will gain the maximum out of any trade liberalisation effort. This is substantiated by the fact that during the period 1995-2000 India alone accounted for over 70 per cent of the exports made within the region. India has of course long given Pakistan the MFN status, yet its imports from Pakistan have been very meagre, and Pakistan reads this as a de facto ban on its exports.

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The fact is that while there is no restriction on Indian investors in Pakistan, and vice versa, there is an adverse macro-political environment. However, there are several examples where investors have made headway in politically adverse situations, and helped improve the political economy of bilateral relations. A conscious integration of trade and investment activities is the way forward. This can first begin at a local level, say between the two Punjabs.

The resumption of a cargo service between Indian and Pakistani Punjab and on the Sindh-Rajasthan sector, as well as the extension of banking contacts, are efforts in the right direction.

The writer is chairman, Centre for South, Central, South East Asia and South West