Opinion Most favourite nation?
Why India should see the MFN breakthrough not just in economic terms
The two most widely read newspapers in Pakistan,Nawa-i-waqt and Jang both Urdu,mainstream and largely conservative had almost identical headlines on Thursday. Nawa-i-waqt,Lahore- and Punjab-based and the more conservative of the two,stated: Kabina ney Bharat ko pasandeeda tareen mulk qarar dainay ki manzoori dey-di. If one did not know what the discussion which lead to this headline was about,it would translate as follows: the cabinet decides to give India the status of most favourite nation. The difference between favoured and favourite is lost somewhere in translation.
Despite the fact that the leading English newspaper,Dawn,claimed that MFN status had actually not been granted so clearly and unambiguously,that it was only agreed to in principle and that there was confusion over MFN status to India,there was agreement among businessmen,government representatives,politicians and bureaucrats that India has been granted Most Favoured Nation status by Pakistan as part of the process of normalisation of trade ties between the two countries. Subsequent discussions in the media heralded a great moment of change and praised government representatives for taking such a bold decision. Even retired military generals argued that this decision was in the best interests of everyone,even of Pakistans military.
There are numerous aspects to this decision which will have a profound impact on relations between India and Pakistan. In the most obvious of outcomes,it is expected that Pakistan will now treat India like the other 100 countries with which Pakistan trades,when it comes to trade and economic relations. This small move might look a little mundane and matter-of-fact,but given the history of India-Pakistan relations,this is a huge departure from the recent past. Trade between India and Pakistan,of around $2.5 billion at the moment,is expected to double over the next three years on account of this change. While not such a big deal for India,this will mean a huge change for Pakistan.
At the moment,and this is bound to be the case for some time to come,India exports far more to Pakistan than it imports from Pakistan. Pakistani importers are dependent on cheap raw materials from India,especially plastics and chemicals,and many find their way into Pakistani products. More trade will allow Pakistani producers even more inputs at lower prices,allowing them to produce cheaper goods. Some trade switching from other countries from which Pakistan imports is bound to take place in favour of India. Once trade relations are even partially normalised,trade between
India and Pakistan will grow a great deal. Research has shown that if trade between the two countries grows,since Pakistans is the much smaller economy,the gains which accrue to Pakistan will be far greater.
One can expect that the Pakistani consumer (on account of lower prices and more choices),Pakistani government (import taxes and the fall in smuggling) and Pakistani producers (lower input costs) will all benefit on account of increased trade. Perhaps Pakistani businessmen will also make a dent in the lucrative Indian market with middle-class consumers twice the size of Pakistans total population.
Pakistan and India,for reasons that are too well known,have not had proper relations of trade or of any other kind for almost half-a-century,since 1965. For this reason,the MFN announcement by Pakistan needs to be seen in a different light by India,and not simply related to trade or economic opportunities,which,by all accounts,are quite insignificant for the large Indian economy. The fact that such normalisation of relationships can lead to a peace dividend is probably the most significant externality of the announcement. For anyone who knows Pakistan,they would be very familiar with the equation of power in Pakistan and of the political economy of the country.
There is little ambiguity,in Pakistan or abroad,that Pakistans military determines key decisions related to a host of issues,especially India and Kashmir. Ministers and retired generals have all been emphasising the fact that Pakistans military is on board and the minister of information in a press conference stated that all stakeholders,including the military and defence institutions,had been taken into confidence about the MFN decision. If this is indeed the case,which it is likely to be,it is not just consumers and traders who will benefit from the MFN status,but both civilian governments and the many hundreds of millions who live in South Asia.
The possibilities and opportunities to move forward in South Asia are immense and with extraordinary possibilities,but so are the constraints and hurdles,and the many burdens of history. Visa restrictions and non-tariff barriers are mere bureaucratic hurdles which both countries will have to get around,but the fear and apprehension,as too the mistrust on Indias side,are also justified. India-Pakistan trade and normalisation was at its peak in 2008,but then the Mumbai attacks were orchestrated by Pakistani groups with institutional backing. The prospects for trade and for peace in South Asia rest critically on how Pakistans democratic civilian government can seize the moment away from the praetorian state in Pakistan. For trade and peace to prosper in South Asia,the Indian government needs to recognise this,and distinguish between the two and continue to dialogue with the former.
The writer is a political economist based in Karachi. He is also a visiting professor at Columbia University,New York
express@expressindia.com
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