Indo-Pak Trade : The way ahead

Bilateral relations of India and Pakistan have always been a fragile one.  The delicate nature of the relationship between the two countries was clearly visible at Kathmandu, during the inaugural session of the 18th SAARC   summit. Relations further soured after the high level talks due with Pakistan were called off by India.  The tensions that flared between the two nations dates back to decades old conflicts and border issues.


Despite all the diplomatic tensions, the government must take cognizance of the unexplored potential of trade that can be conducted between the two. Currently, India and Pakistan do not lie in each other’s top ten list of traders, despite their proximity. The trade between the two countries is facilitated by Federation of Indian Chambers of Commerce and Industry (FICCI) and Federation of Pakistan Chambers of Commerce and Industry (FPCCI). As per the FICCI ‘s status report on India Pakistan,  India’s formal trade was valued at $2.7 billion. This figure surely reflects major progress in bilateral trade considering it was only $144 million in 2001 .  However, Centre must realize that if exploited positively, the massive trade potential that exists between the neighbors is capable of creating a win-win situation on both sides  and can possibly  pave a smooth way for diplomatic talks.

Bilateral trade between the inimical neighbors is negligible.   Pakistan’s share in India’s total exports is valued at a mere 0.99%. Informal trade, (the trade which goes unrecorded in customs at the border) also amounts to $10 billion which causes heavy lack of revenue for exchequers of both the countries. It mainly consists of circular country trade with the third country participation mainly coming from free ports of Dubai or that of the Central Asian Republics.   This kind of trade had accelerated   because of Pakistan’s policy of following the positive approach towards commodities that allowed only 1938 commodities to be imported from India.  Though   this number is much higher than the 40 commodities which were allowed in 1975, Pakistan’s shift to negative list approach, a more liberal form of trade is a step in the positive direction towards controlling of informal trade.

Mutual confidence was boosted with trade across Line Out of Control (LOC) in 2008 and further after the Attari-Wagah 24/7 trade facilitation. The governments can look for more land routes across such borders or explore new possibilities.  It’s a well known fact that the closeness allows costs to significantly fall due to avoidance of freight charges. If jointly, attention is laid on creation of new road links/train links along the borders  then cheaper and efficient  trade will be endorsed and  will generate  a profitable situation for the traders as well the consumers on both sides of the border. The governments must also remember that the state of road connectivity across borders is dismal and development of requisite infrastructure is essential for trade to happen without obstacles.

Till date there has been no investment made by an Indian company on Pakistani soil or vice versa . Potential sectors for co-operation are available in abundance, but due to the strict trade regime, these ties have failed to take shape. Thus, the government should create an enabling environment to kick-start joint ventures between the countries. The sentiments of business should be taken care of and an enabling environment for corporates to interact must be allowed to nurture. If business lobbies are allowed to function, then the Diplomatic level talks that have taken a hiatus may also resume.

The sectors that offer broad scope of engagement between the two countries are agriculture and pharmaceuticals. The two countries, being agrarian economies, faces fluctuation in terms of seasonal supply and can serve as rescuers to each other if trade in agriculture is simplified. India’s skilled Information and Technology sector can also offer assistance and guidance to IT companies in Pakistan.

The paranoia that persists between India and Pakistan should be overlooked, so that the existing opportunities can be taken advantage of.  Pakistan, which imports raw materials from Brazil and Australia can save a great amount of their foreign reserve and even contain trade deficit if progress is made with India.

Liberalizing the Visa norms so as two amplify two way trade between the neighbors is   an optimistic move. Policies centering upon creation of suitable environment for business investments to take place should be worked upon as well. The Indian government must also consider reduction of the present non trade barriers which has been cited as one of the reasons behind Pakistan’s hesitation in granting Most Favored Nation status to India.  Also, making SAARC a relevant organization, ties between member states must be bolstered so that there are active multi-lateral agreements between India and Pakistan.

For normalization of trade, Pakistan should also grant the Most Favored Nation (MFN) status or Non-Discriminatory Market Access so that the array of options available can be used. Both the countries are conscious about the scope which exists, however the much evident mistrust that emanates from both sides and issues that lie unsettled such as militancy and the Kashmir dispute act as a hindrance in the process of trade liberalization. The recent unfolding of events reflects the plunging of talks between the parties, which if not resumed can interrupt India and Pakistan’s movement towards an open trade system.  Trade could also act as a pacifier of apprehensions which prevail.

India’s future trade with Pakistan will largely be determined by the NDA government’s approach towards the same. Judging by occurrences off-late, NDA government doesn’t seem very concerned about revival of talks with Pakistan or furthering the process of trade integration.  Sadanand   Dhumi, a fellow at American Enterprise Institute, a Washington based think-tank said ‘Modi’s foreign policy can be described as an eye for eye treatment whereas as UPA was more of a ‘turn the other cheek’ policy. Bilateral trade is equally advantageous for the two states. However,   it must be understood that trade will remain in a depressed state until the mistrust and hostile attitude towards one another is discarded. There is a need for organizing bilateral talks that conclude with concrete solutions to the prevailing problems,  so that amiability arises between them and India- Pakistan can become  crucial trade partners.

– Mansa Saxena


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