July 14, 2020
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Two's Always Company

There's a general feeling in Pakistan that trade with India would result in a flooding of their domestic market with Indian goods.

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Two's Always Company
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Illustration by Saurabh Singh Economic cooperation between India and Pakistan, South Asia's biggest economies, is the key to stability in the region. A mutually beneficial relation between the two regional giants is imperative for increasing the level of intra-regional trade flow as a whole in the subcontinent. But a stalemate in trade relations between the two has hampered growth in the region and stalled the implementation of the South Asian Free Trade Agreement (safta).

Statistics show that India's exports to Pakistan in 1999-2000 were a negligible 0.24 per cent of the total exports while imports from Pakistan stood at 0.2 per cent of the total imports. In the following fiscal, while the export figures to Pakistan showed a marginal increase at 0.4 per cent, the imports were stable at 0.2 per cent, clearly indicating that each country is an insignificant trade partner for the other. There are a number of stumbling blocks before trade relations between the two countries can improve. Absence of a strong political relationship has always been one of the major hurdles—the only promising phase was perhaps in the late 1970s, post-Bangladesh, which deteriorated soon. Add to this apprehensions among the business class from both the countries, which has only increased in the absence of any information regarding trade policies in either country. There is a general feeling in Pakistan that liberal trade with India would flood their domestic market with Indian goods. A conducive business environment facilitating mutually beneficial policies, availability of infrastructure and trade logistics are thus the imperatives before there can be a thaw in relations.

To begin with, on the trade policy front, a very important issue that must be resolved is the mfn (most favoured nation) status. It is time Pakistan granted this status to India and expanded the list of approved items of trade. This has become more important especially under the wto regime. Both the neighbours must remove all restrictions on business visas to build up a conducive environment for trade linkages. Introduction of a Mumbai-Karachi ferry service for coastal trade and cargo, removal of restrictions on movement of rail wagons between the two countries, increase in the frequency of passenger trains and buses and, also, flights to and from Lahore, Karachi and Islamabad, and opening branches of banks in each other's countries could be some of the many steps to facilitate bilateral trade.

But the biggest stumbling block is the apparent lack of confidence among Pakistan's business class. All their misconceptions about trade on this side of the border are only reinforced in the absence of any information about India's trade and economic policies. Bilateral meetings of economic ministries, an agreement on protection of trade and investment and a treaty to avoid double taxation could go a long way in dispelling the myths plaguing the minds of many potential investors in Pakistan.

For us in India, 'buying from Pakistan' should be seen as an important aspect of the future economic relationship between the two countries. Pakistan, on the other hand, must review its industrial and tariff policies and strive for a competitive industry. As facilitating measures, India may consider fixing certain annual quotas for purchase of select bulk items like fertiliser, natural gas, coal, raw cotton, cotton yarn, etc. A rupee trade arrangement for a period of 3-5 years would be a good idea. Pakistan, on the other hand, can encourage Indian investment to bring in capital flows.

A special policy for exports to India by Pakistani enterprises, which would motivate them to undertake market studies, open subsidiary companies, distribution centres and liaison offices in India could also be a major step forward. To facilitate broad-based industrialisation and widening the export basket, the government of Pakistan needs to make policy changes to encourage import of raw materials, intermediate goods, components and capital goods from India. This would make its industry cost-competitive, besides expanding their manufacturing base.

Another aspect of trade that could be explored is through mncs. India and Pakistan have mostly common mncs operating in their countries; they could source raw materials from each other. Technology transfer from India to Pakistan is yet another aspect that can be explored for mutual advantage. Pakistan may be specially interested in this for r&d in crop productivity, seed and food processing, preservation, canning, storage and cold chains, auto components etc. Similarly, both the countries could cooperate with each other for technical services and networking among the institutions for building indigenous capacities in the field of quality and productivity management, energy conservation, environment management, technical education and training and entrepreneurship development.

The scope for expanded economic relations between the two countries is unlimited. The time has come when these two historically-related nations come together in the interest of mutual prosperity and growth. It is time that concrete initiatives are taken and apprehensions pushed aside. With the Indo-Pak summit finally bringing the leaders together for a meaningful dialogue, the time couldn't have been more favourable. It is time both India and Pakistan entered the new millennium in a spirit of partnership and make South Asia a strong growth centre.

(The author is director general, Confederation of Indian Industry.)
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