In­dia-Pak­istan Po­ten­tial for Trade Lib­er­al­iza­tion

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Over the years, a pat­tern of ‘switch­ing’ ne­go­ti­a­tions has been seen be­tween In­dia and Pak­istan, al­ter­nat­ing be­tween terrorism and trade. But the talks in 2011 pre­sented both agen­das on the ta­ble. In­ter­est­ingly, these talks come af­ter a pe­riod of si­lence of two years af­ter the 2009 Mum­bai at­tacks and have been trig­gered by the cricket diplo­macy seen at the World Cup. The dif­fer­ence in the na­ture of the two events marks a healthy way for­ward.

Un­der the im­pact of glob­al­iza­tion, trade in­ter­de­pen­dence be­tween coun­tries is very im­por­tant. How­ever, in the case of In­dia and Pak­istan these as­pects have been se­ri­ously marred by po­lit­i­cal dis­putes.

Though the trade talks are un­struc­tured and open to mul­ti­ple is­sues, the ma­jor tar­get ap­pears to be the recog­ni­tion of MFN sta­tus for In­dia by Pak­istan. It is ex­pected that if Pak­istan of­fers this sta­tus to In­dia, ma­jor po­lit­i­cal dif­fer­ences could be re­solved.

Cur­rent trad­ing vol­ume

In 2005, both In­dia and Pak­istan wit­nessed a trade boom with ex­ports of 76% and 64%, re­spec­tively. This was a con­trast to the post-Mum­bai at­tacks sce­nario. The cur­rent trend of In­dia’s out­ward trade with US and China, with Pak­istan look­ing to­wards China and Iran for trade op­por­tu­ni­ties, can­not be de­scribed as wholly neg­a­tive. But if Pak­istan and In­dia were to come on board to­gether, trade would wit­ness newer pos­si­bil­i­ties.

The 2009-10 fig­ures re­veal a to­tal of only $1.78 bil­lion trade be­tween the two coun­tries, with In­dian ex­ports com­pris­ing $1.5 bil­lion and Pak­istan $0.28 bil­lion. This shows that the re­gion con­trib­utes less than 3 per­cent of the GDP to the global econ­omy, while it makes up 23 per­cent of the to­tal global pop­u­la­tion.

In con­trast to for­mal rev­enue build­ing trade, in­for­mal trad­ing worth bil­lions of dol­lars is be­ing car­ried across the borders of In­dia and Pak­istan. In fact, cross bor­der smuggling and move­ment of goods through per­sonal bag­gage are ma­jor con­trib­u­tors to the in­for­mal trade sec­tor.

An item be­ing sold at $1 in In­dia dou­ble in price by the time it reaches Pak­istan as it has crossed a long dis­tance and passed through many hands. The corruption of in­for­mal trad­ing is harm­ing both the coun­tries equally, just like the prob­lem of terrorism is not a sin­gle coun­try is­sue.


In Pak­istan’s in­ter­est, In­dian im­ports like sugar can boost the coun­try’s stocks. Re­duc­tion of im­port du­ties on fresh fruit, dry fruit and tex­tiles could move the trade graph up­wards. Cot­ton from China is ex­pen­sive for In­dia; Pak­istan can pro­mote cot­ton trade by road and through sea and rail to earn high rev­enues.

Chem­i­cals and dyes, pre­cious min­er­als and stones, pulses and spices and au­to­mo­bile tyres are all bil­lions of worth in trade be­tween the two coun­tries. Ma­chin­ery and me­chan­i­cal ap­pli­ances, along with rub­ber and plas­tic can open new in­vest­ment op­por­tu­ni­ties.

The fash­ion in­dus­try and com­puter soft­ware from Pak­istan are ripe enough to reach the In­dian mar­ket. If col­lab­o­ra­tions in the IT, me­dia and fash­ion sec­tors are en­cour­aged in Pak­istan and In­dia can build strong trade ties in a short time.


Per­mis­sion to bring in live­stock and veg­eta­bles through the Wa­gah bor­der to cut soar­ing prices in Pak­istan is not worth it, un­less mar­ket­ing of Pak­istani prod­ucts in the In­dian mar­ket is done by ap­ply­ing the Economies of Scale con­cept.

Bulk man­u­fac­tur­ing of com­modi­ties like ce­ment, tex­tiles, phar­ma­ceu­ti­cal prod­ucts, syn­thetic fiber and con­sumer prod­ucts can be un­der­taken for the In­dian mar­ket for sale at cheaper rates. This could en­able Pak­istan to get a con­sid­er­able share with In­dian pro­duc­ers. Sim­i­larly, the pro­duc­tion from the In­dian in­dus­try could be uti­lized on the ba­sis of its huge man­u­fac­tur­ing ca­pac­ity and cheaper labour.

More im­por­tantly, Pak­istan has at­tained a sound pace of de­vel­op­ment in the telecom­mu­ni­ca­tion sec­tor. Ef­fec­tive strate­gies to pen­e­trate the In­dian mar­ket would bring huge prof­its. In the con­sumer goods and medicines, In­dia and Pak­istan should col­lab­o­rate for high pro­duc­tion at lower prices. This will cre­ate a fur­ther boost in de­mand.

As far as the trans­porta­tion of prod­ucts is con­cerned, the growth of both rail and air trans­port be­tween the two neigh­bours have suf­fered over the years un­der po­lit­i­cal pres­sure and se­cu­rity con­cerns. Road links have done bet­ter but they have not helped build trade vol­umes at any sig­nif­i­cant level.

In­di­rect routes used by traders such as Dubai, en­tail high cost with low re­turns. It is all the more im­por­tant that ship­ping and avi­a­tion agree­ments be re­vived in the in­ter­est of mean­ing­ful prof­its for both sides. Ac­cord­ing to an­a­lysts, a free trade agree­ment could bring in noth­ing less than $10 bil­lion worth of trade to the two coun­tries

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