Economics: The first chapter in improving Indo-Pak relations

Economics: The first chapter in improving Indo-Pak relations


Once upon a time, the region that is now modern day Pakistan was South Asia's prime trading hub. Be it during the time of the Indus Valley civilization, the Taxila Buddhist kingdoms, the Muslim fiefdoms or the Sikh empire, the region linked the markets of Iran and Central Asia in the West to those in India, China and Burma in the East. The land was a link and a source for the spread of commerce and culture in South Asia. After the creation of Pakistan, the nation has successfully strove to live up to the region's legacy creating important links with its age old trading partners. However, with its alienated sibling, India, Pakistan has been unable to stimulate the lucrative trade of the past.

Soon after their creation in 1947, India and Pakistan were healthy trading partners. India served as a market for half of Pakistan's exports of agricultural produce and minerals, and supplied a significant share of its imports consisting of manufactured goods. Pakistan was snubbed by India in 1949 when it couldn't match the devaluation of the Indian rupee which caused a damaging imbalance of trade. The wars of 1965 and 1971 and the uprising in Kashmir in the 1990s sidetracked bilateral trade with the monumental task of resolving land disputes. The situation was made worse by military dictatorships in Pakistan and a xenophobic sense of nationalism on both sides.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), Indo-Pak bilateral trade stood at $2.75 billion last year, but has the potential to rise up to $10 billion in the next four years. Trade primarily involves a trickle of trucks carrying perishable goods, sports goods, processed food products, machinery, and staple cotton amongst others across the Line of Control. It also includes expensive and time consuming transit trade via Middle Eastern capitals like Dubai and Tehran.

However, since last year, Pakistan seems to be on a changing curve, and India's advances to boost bilateral trade are being warmly welcomed by Pakistan Inc. After the fall of the Musharraf regime in 2008, the Pakistan People's Party headed by President Asif Ali Zardari took the reins of the Central government. By next year, it will be the first democratically elected government in the history of the nation to complete a full term. Sustained democracy seems to have had a sobering effect of the state of affairs in Pakistan, where the government has realized the responsibility of placating cross border tensions with India through a win-win scenario of boosting bilateral trade. This change has been openly welcomed by the Indian government and the Indian business community. Both nations seek to establish a relationship similar to Sino-Indian diplomacy, where border disputes are made second priority to the economic advantages of bilateral trade.

The reform agenda was actually initiated in January 2004 at the 12th SAARC summit in Islamabad when member states signed the South Asian Free Trade Agreement (SAFTA), where the non-LDC - Least Developed Countries - of Sri Lanka, Pakistan and India agreed to reduce their tariffs to 0-5 per cent by 2013. However, the commitments were put on hold up until last year. In September 2011, Pakistan's Commerce Minister, Makhdoom Amin Fahim met his Indian counterpart, Anand Sharma to kick start the talks to normalize trade. Fahim became Pakistan's first Commerce Minister to visit India in 35 years. The Trade Ministries of India and Pakistan made a joint statement to lay out a timeline in November for removing all non-tariff barriers and implement their SAFTA obligations. In November, Pakistan took a historic step granting 'Most Favoured Nation' status to India. Pakistan announced its plans to cut its Negative goods trade list to open up its domestic markets to Indian businesses. Complementing the move, Prime Minister Manmohan Singh immediately announced his intention to move towards a Preferential Trade Agreement with Pakistan under SAFTA that will lead to zero customs duty on all traded goods by 2016. In December, India and Pakistan's Trade ministries ended 6 rounds of talks, charting a plan to implement the Preferential Trading Agreement. The talks included negotiations to prune Pakistan's long 'Negative list' for imported goods, opening trading points along the Indo-Pak border, allowing cross border baking services, and implementing a liberal visa regime. However, in February 2012, the Pakistan government deferred its decision to prune its Negative List after prominent politicians raised concerns of Indian goods flooding Pakistan's markets and hampering its domestic industries. Nonetheless, India took a patient stance. The FICCI President RV Kanoria stated that India needed to 'accommodate' Pakistan to achieve lucrative trade relations. The same month, Anand Sharma became India's first Commerce Minister to visit Pakistan in 64 years. Sharma achieved a commitment from Pakistan's Trade Ministry to boost trade to $6 billion in the next three years, and started talks on opening border trading points at the Attari-Wagah border and Mona Bao in Rajasthan. Towards the end of the talks, Pakistan's Trade Ministry made a statement announcing to put in place a small Negative List by the end of the month, and made a commitment to phase out the Negative List by the end of 2012. In March, Pakistan's Petroleum and Natural Resources Secretary, Muhammad Ejaz Chaudhry held talks with his Indian counterpart GC Chaturvedi, during the 7th Asian Gas Partnership Summit in New Delhi. Both agreed to focus to speed up the completion of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project and facilitate a quid pro quo trade of Indian oil and Pakistani cement and chemicals.

Moving beyond diplomatic dialogue, Trade ministers Makhdoom Amin Fahim and Anand Sharma inaugurated the "Pakistan Lifestyle" show at Pragati Maidan on Thursday. The expo will run till the 15th of April and will showcase the work of over 100 world famous brands and designers from Pakistan in a diversity of fields including fashion textiles, marble ornaments, handicrafts, food products, leather goods and designer furniture. The event is jointly organised by the Indian Trade Promotion Organisation and the Trade Development Authority of Pakistan. On Friday, an Integrated Check Post was inaugurated at the Attari-Wagah border to boost the volume of cross border trade. The ICP will allow 10 times the current 200 trucks which cross the border checkpoint daily. Moreover, on the same day, Anand Sharma announced that the Indian government had taken an 'in-principle' decision to allow Foreign Direct Investment from Pakistan. The nation is the only country on the negative list under the Foreign Exchange Management Act, which bars it from investing in India. The Indian government removed Sri Lanka from the list in 2006 and Bangladesh in 2007. The department of industrial policy and promotion has proposed that investments from Pakistan be examined on a case by case basis to verify the source and the end use of funds.

From negotiations, informal meets, photo-ops to trade fairs, the year has been full of consistently good signs for India-Pakistan trade relations, barring apprehensions from Islamabad and a 'policy statement' - policy implementation imbalance. Democracy, as we know and Pakistan may have realised, makes ground breaking decisions rather tediously. Nonetheless, it's an important means to address the concerns of all stakeholders and achieve lucrative relations for both countries.

It will be a momentous day in history when a house in India is built with Pakistani cement and a harvester in Pakistan is run by Indian petrol. Economic cooperation can set the foundation for the active cross-border movement of intangible industries like education, theater, music, film and art. The progression of such cooperation can nurture economic, social and cultural solidarity between India and Pakistan. It can establish strong ties, the promise of a lasting peace, and bring two extremely similar yet estranged societies closer together for the prosperity and welfare of future generations.