Chang­ing Di­rec­tions

Pak­istan pre­car­i­ously hov­ers be­tween eco­nomic growth or com­plete eco­nomic melt­down. Re­cent se­nior level talks on bi­lat­eral trade be­tween In­dia and Pak­istan could be an an­swer to Pak­istan’s trade and in­vest­ment woes.

Southasia - - Cover Story - By Mo­hi­ud­din Aazim

Trade lib­er­al­i­sa­tion be­tween Pak­istan and In­dia is ex­pected to ben­e­fit both coun­tries in many ways. But whereas In­dia is ap­proach­ing this is­sue as part of a broader strat­egy, Pak­istan has long been un­der do­mes­tic pres­sure to pur­sue it rather tac­ti­cally.

The re­cent grant­ing of MFN (most favoured na­tion) sta­tus by Islamabad to In­dia was hardly ap­pre­ci­ated in Pak­istan and largely crit­i­cised, even though it meant that Pak­istan would ef­fec­tively treat In­dia at par with other na­tions in ex­ter­nal trad­ing.

As a re­sult of the re­cent high level talks be­tween Pak­istani and In­dian au­thor­i­ties, Pak­istan has agreed to re­strict the list of non-trad­able items with In­dia to a bare min­i­mum. In re­turn, In­dia has promised to re­view all non-tariff bar­ri­ers. In terms of en­ergy agree­ments, the is­sue of im­port­ing 500 megawatts of elec­tric­ity from In­dian Pun­jab to La­hore is yet to be worked out.

In­dia has al­ready per­mit­ted an in­flow of in­vest­ment from Pak­istan but Islamabad is yet to re­cip­ro­cate. It is dif­fi­cult to as­cer­tain if Pak­istani com­pa­nies have made any prof­itable in­vest­ment in In­dian cities (notwith­stand­ing scan­dalous real es­tate deals in In­dia by some Pak­ista­nis). Some fed­eral gov­ern­ment of­fi­cials be­lieve that a few com­pa­nies, owned by Pak­istani ci­ti­zens, based in Bangladesh, Sin­ga­pore and Dubai, have in­vested mil­lions of dol­lars in In­dia.

In an act of good­will, Pak­istan re­cently or­gan­ised a one-coun­try ex­hi­bi­tion in New Delhi and the re­sponse of In­dian con­sumers was over­whelm­ing.

Pak­istani en­trepreneurs show­cased and sold a vast range of con­sumer prod­ucts that in­cluded hand­i­crafts, jew­ellery, pre­cious stones, women’s cloth­ing, food items and mar­bles. In­dia has said it will hold a sim­i­lar event in La­hore or Karachi some­time this July.

Apart from hold­ing sin­gle-coun­try ex­hi­bi­tions in In­dian and Pak­istani cities, the two coun­tries are also inch­ing to­wards joint ven­tures in mega in­fra­struc­ture projects like the con­tro­ver­sial TAPI gas pipe­line. for In­dia and Pak­istan to par­tic­i­pate in bi­lat­eral and re­gional large-scale projects of pub­lic im­por­tance. Pak­istan’s po­si­tion is clear: it wants to pur­sue TAPI but is not ready to drop the pro­posed Iran-Pak­istan gas pipe­line project de­spite all op­po­si­tion from the US. Ad­di­tion­ally, Pak­istan is ready to im­port 500MW elec­tric power from In­dia but at the same time is also adamant about im­port­ing 1000MW elec­tric­ity from Iran.

The mid-April in­au­gu­ra­tion of a modern trade gate or in­te­grated check

Ac­cord­ing to Pe­tro­leum Min­is­ter Dr. Asim Hus­sain, Afghanistan, Pak­istan and In­dia have agreed on the tran­sit fee that each coun­try would charge for the trans­porta­tion of Turk­men gas. The $7.6 bil­lion project will carry one tril­lion cu­bic me­ters of nat­u­ral gas over a pe­riod of 30 years and will help Afghanistan, Pak­istan and In­dia meet their grow­ing en­ergy re­quire­ments. Pre­lim­i­nary agree­ment on TAPI is ex­pected to be fi­nal­ized dur­ing this sum­mer.

The con­struc­tion of the pipe­line would open up nu­mer­ous av­enues post at Wa­gah has won ap­pre­ci­a­tion from the pub­lic and busi­ness­men in both coun­tries. Equipped with a ded­i­cated pas­sen­ger ter­mi­nal and sprawl­ing cargo fa­cil­ity, the trade gate will help in boost­ing peo­ple-to-peo­ple in­ter­ac­tions and busi­ness con­tacts be­tween the two neigh­bors.

Cur­rently the vol­ume of ex­ter­nal trade be­tween Pak­istan and In­dia is around $2 bil­lion with the bal­ance of trade heav­ily tilted in fa­vor of In­dia. Com­merce sec­re­taries of the two coun­tries have said on sev­eral oc­ca­sions that bi­lat­eral trade vol­ume would rise dra­mat­i­cally once Islamabad and New Delhi se­ri­ously ex­plore ways of do­ing more trade with each other.

Busi­ness­men say for­mal ex­clu­sion of a long list of items from the neg­a­tive list of trad­able items with In­dia would help in curb­ing smug­gling of those items into Pak­istan. Nu­mer­ous medicines, herbal prod­ucts and food items of In­dian ori­gin are either smug­gled di­rectly into Pak­istan or en­ter via Dubai ev­ery day. In the first case, it af­fects the much-needed rev­enue gen­er­a­tion and in the sec­ond case, the ad­di­tional cost of in­di­rect im­port in­flates our over­all im­port bill. That is why the Min­istry of Com­merce is now work­ing on al­low­ing im­ports of all-but-se­lected-few items from In­dia. In re­turn, In­dia will pro­vide Pak­istani prod­ucts eas­ier and wider ac­cess into its mar­kets.

Nor­mal­iz­ing the eco­nomic re­la­tion­ship be­tween Pak­istan and In­dia has al­ways been the onus of what­ever strate­gic frame­work Pak­istani pol­i­cy­mak­ers made to neu­tral­ize the air of an­i­mos­ity be­tween the two coun­tries. But for one rea­son or the other this ob­jec­tive has never been achieved.

Now, fol­low­ing the global re­ces­sion and amidst slower-than-ex­pected re­cov­ery of the in­ter­na­tional econ­omy, the emerg­ing ground re­al­i­ties de­mand that coun­tries in Asia can­not af­ford to un­der­mine the in­tra-SAARC trade po­ten­tial. As a re­sult, both In­dia and Pak­istan re­alise the ur­gency of en­hanc­ing trade and the di­rec­tion of trade is grad­u­ally shift­ing from the West to East. (China and the UAE are re­spec­tively Pak­istan’s first and sec­ond largest trad­ing part­ners, with the U.S listed as third, ac­cord­ing to lat­est data re­leased by the Pak­istan Bureau of Statis­tics).

In or­der to reap fur­ther ben­e­fits of this change in di­rec­tion, Pak­istan needs to pri­or­i­tize its trad­ing rela-

tion­ship with South and Cen­tral Asia. In the com­ing years, re­liance on the Mid­dle East in terms of trade and in­vest­ment will grad­u­ally be­come too com­pet­i­tive. Cur­rently the US, Eu- rope, China and In­dia are pen­e­trat­ing fur­ther into Mid­dle East­ern mar­kets. If Pak­istan nor­mal­izes its trade and in­vest­ment re­la­tion­ship with In­dia, it will help in re­duc­ing the trust deficit and in turn re­duce the de­fence ex- pen­di­ture with­out com­pro­mis­ing on na­tional se­cu­rity. This de­vel­op­ment is crit­i­cal if Pak­istan en­vi­sions greater in­vest­ment in health, ed­u­ca­tion and fi­nance.

Nor­mal­iz­ing the eco­nomic re­la­tion­ship be­tween Pak­istan and In­dia has al­ways been the onus of what­ever strate­gic frame­work Pak­istani pol­i­cy­mak­ers made to neu­tral­ize the air of an­i­mos­ity be­tween the two coun­tries. But for one rea­son or the other this ob­jec­tive has never been achieved.

“Pak­istan lies at the heart of a rapidly trans­form­ing world around its bor­ders,” says Mr. Ijaz Nabi, a vis­it­ing fac­ulty mem­ber at the La­hore Univer­sity of Man­age­ment Sci­ences. To the North and East are skill and sav­ings- rich, China and In­dia. To the West are re­source-rich Cen­tral Asian states, Iran and Per­sian Gulf states. “Re­open­ing the tra­di­tional East-West-North trade routes and link­ing them with a strong North-South cor­ri­dor will make Pak­istan the trade hub of South Asia,” he ar­gues.

Pak­istan has a tough but ur­gent de­ci­sion to make. It can either seize this op­por­tu­nity with en­thu­si­asm or else lose its way to a con­fused tac­ti­cal ap­proach. Time is run­ning out and the coun­try’s de­ci­sion will de­pend on how it wants to re­shape its eco­nomic strat­egy in the post-re­ces­sion, knowl­edge-based, re­gion-cen­tric model of growth.

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