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' ...A South Asian Union'

Inaugural Address by External Affairs Minister at the Third Meeting of India-Pakistan Chambers of Commerce and Industry, New Delhi , July 7th, 2003

' ...A South Asian Union'
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Dr. A.C. Muthiah, President, FICCI , Jenab Ilyas Ahmed Bilour, President, India-Pakistan Chamber of Commerce and Industry Jenab Iftekar Malik, Immediate former President, Federation of Pakistan Chambers of Commerce and Industry Jenab Aziz Ahmad Khan, High Commissioner-designate of Pakistan Dr. Amit Mitra, Secretary General of FICCI Ladies and Gentlemen.

A very warm welcome to our friends from Pakistan.

I am happy to have this opportunity to participate in this third meeting of the India-Pakistan Chambers of Commerce and Industry. It is a reminder of the historic initiative that was taken through the Lahore Bus journey of Prime Minister Vajpayee in 1999. The hope for the future that had been rekindled by the Lahore process was quickly seized by your two Chambers to create this common platform for pursuing mutually benefiting endeavours.

The fact that this meeting is taking place today and the overwhelming participation here from both sides are clearly a reflection of the hitherto unfulfilled yearnings of the people of our two countries to find ways to contribute to enhanced trade and economic exchanges, and the resulting employment and income generation benefits for our respective peoples.

Ladies and Gentlemen,

Figures show clearly, and they have been mentioned here by speaker after speaker, that we have not fully exploited our common potential. Our bilateral trade recorded officially has hovered, over the past several years, in the range of US$ 200-250 million. Our exports to each other constitute a very small proportion of the overall exports of each of our countries, namely, a mere 1%. It is also much lower than India’s trade figures with other countries in the SAARC region. With Bangladesh our total trade is almost US$ 1 billion, with Sri Lanka it was close to US$ 1 billion in 2002, with Nepal it is around US$ 600 million. The level of trade with Pakistan is clearly not natural, since Pakistan’s economy, as has been mentioned, is much bigger, much larger. Let us not forget that at the time of independence more than 50% of Pakistan’s exports and 30% of its imports were accounted for by India.

A comparison would be relevant in this regard. The US has strong trade relations with its neighbours Canada and Mexico. In both these cases, although US is the stronger economy, trade balances are in favour of Canada and Mexico. Apprehensions, therefore, that the larger economy will inevitably swamp the smaller neighbouring economies are not borne out by reality. Balance of trade is a reflection of complementarities in the economies. The challenge is to exploit the potential that exists to mutual benefit. With Nepal, for example, India generally imports more than it exports.

I would like to compliment FICCI for its excellent "Status Paper on India-Pakistan economic relations". It has shown that with a normal trade relationship, our trade will easily reach the level of US$ 3-4 billion, and Dr. Muthiah just mentioned that it could even reach $6-8 billion. You can visualise the impact that this will have on employment and incomes in both our countries. There would also be the resulting need for further investments in communications and infrastructure to support this, a point which has been made here, which would have its own spin-off benefits. Government revenues would benefit from the tax incomes generated and business persons of Pakistan would also benefit from the more than one billion strong Indian market, with a middle class of over 300 million people with increasing purchasing power, which is much larger than the total population of many industrialised countries. Normal trade relations will therefore expand the potential for foreign direct investment in Pakistan considerably.

The FICCI study that I just referred to points out that many of Pakistan’s exports would benefit and become even more competitive, a point which has been made by both sides, through cheaper raw material and intermediate inputs from India. This would apply to the plastics, leather and textile industry. The Pakistani domestic and industrial consumer would also benefit from lower prices in several sectors including engineering industry and transport equipment.

Goods from other neighbourhood economies with whom Pakistan has normal trade relations have not swamped Pakistani markets. For example, out of US$ 1.8 billion worth of trade with China in 2002, Pakistan’s exports are quite substantial and to the tune of US$ 750 million. There is no need therefore to harbour any special fears about India. The wide range of products of potential trade such as chemicals, industrial machinery, cement, tyres, tea, pharmaceuticals, etc. clearly show the complementarities that exist between our two economies.

Bilateral trade between India and other SAARC countries has not been to the disadvantage of the other SAARC countries nor has it been to the sole advantage of India. For example, there has been a remarkable increase in the level of trade with Sri Lanka, and this is a point I would like to particularly emphasise, following the Free Trade Agreement signed in 2001. In 2002 alone, exports of Sri Lanka to India grew by around 137%. Consequently, we have now created a Joint Study Group which is studying how to take us into the next generation of economic partnership with a focus on trade in services and investments in each other’s countries. Similarly, we also hope to commence negotiations on a Free Trade Agreement with Bangladesh before the end of this year. Let me assure you that we in India have no intention to overwhelm Pakistan’s economy through trade. Our aim is only to have a normal trade relationship, and promote trade in a manner that people of both countries benefit.

Friends, it is also unfortunate that not enough progress has been made in SAFTA and SAPTA so far. SAARC came into being in 1985. Almost 18 years later, very little progress has been made with regard to its primary objective of economic cooperation. After eight years and four rounds of SAPTA negotiations, intra-SAARC trade forms only 4% of the total trade of South Asia. The number of products on which Preferential Tariffs have been exchanged with Pakistan is in particular, minimal.

As early as 1997, there was also a decision at the summit level to have a South Asian Free Trade Area by the year 2000. However, till the beginning of 2002, only one meeting had taken place, and efforts continue to be made to delay this process. We are now in the second half of 2003, and not a single meeting has taken place this year on SAFTA despite the Kathmandu Summit mandate for a speedy conclusion of the talks to finalise the Framework Treaty. I know that your group needs no convincing of the immense benefits that would accrue from such an arrangement.

In fact, I believe that along with a free trade arrangement for goods and merchandise, we should also have free flow of investment and services within the SAARC area. We are also prepared to work for reasonable levels of uniform value addition norms for all countries in South Asia, and for harmonisation of tariff regime.

In a globalizing world, regional trade is increasingly seen as a protective measure against external shocks. According to some estimates, intra-regional trade between ASEAN countries is over 40 per cent of its total trade. The European Union too trades over 65 per cent within itself. And these figures have been achieved because both ASEAN and the EU have not allowed political differences amongst member countries to hamper trade within the region.

There is much that we can achieve together. Our representatives have worked successfully and productively in international fora including the WTO, and on discussions in UN fora on issues of poverty alleviation, access to better healthcare, ensuring education for all, and solutions to problems of environmental degradation.

Ladies and Gentlemen,

India is today one of the fastest growing economies of the world, ranking fourth in terms of purchasing power parity. India remained relatively unscathed from the 1997-98 Asian financial crisis and maintained a healthy growth rate despite recession in major world economies over the past several years. We have built external foreign exchange balances of around US$ 82 billion. From a food grains importing country, we are net exporter of good grains today. Our rate of inflation has also been well under control over the last five years. A Morgan Stanley Dean Witter report felt that were it not for the resilience of China and India, the world economy would have been in deep recession in 2002.

We are proud of our achievements and confident of the future. At the same time, we are also clear that if we want to secure this future, our neighbours must become full partners in this endeavour and make equal if not more economic progress. We wish to celebrate together as we purposefully move forward. It is for this reason I recently suggested that even as we implement fully the SAARC Charter, we should also start thinking of a South Asian Union. If other regions could achieve this kind of Union, despite political, social and economic differences, there is no reason why we should deprive our people of this opportunity. I repeat this here today to show India’s commitment to the concept of a South Asian Union. We are prepared to enter into discussions on this issue from tomorrow, if other countries of the region are willing.

My intention is not in any way to wish away or to underplay the differences that exist between us. We must, at the same time, exploit the potential for cooperation that exists. I am confident that this would increase the political and economic space to create and exploit additional areas of cooperation and deal with differences. This is the approach that we have successfully adopted and productively followed in our relations with others.

Friends, the challenge faced by India and Pakistan is whether we can truly live together as good neighbours. Till now, we have witnessed the simple logic of mutual economic benefits being overwhelmed by political and other differences between our two countries. I believe that the time has come for us to reverse this trend and for economics to attain a dominant role in our bilateral interaction. It is businessmen such as you and Chambers of Commerce and Industry of the two countries who can play a critical role in this regard.

In conclusion, the most important objective that India seeks to achieve in the next decade or so is to completely banish poverty from our land and to provide our people with a better quality of life. This objective would naturally benefit from peaceful and cooperative relations in the region and the rest of the world. We intend to continue to pursue the twin objectives of peace and economic progress with determination. 

I would like to once again thank the Federation of Indian and Pakistani Chambers of Commerce and Industry for the initiative they have taken to convene this meeting and for this very important contribution to the improvement in relations between our two countries.

I wish you success in your deliberations. I would also urge you to work out specific joint recommendations to both Governments for taking the trade and economic relationship significantly forward.

Let me assure you that the Government of India would not be found wanting in implementing these joint recommendations.

Thank you very much.

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