In­dia-Pak­istan ten­sions af­fect $37 bn trade po­ten­tial: re­port

Hindustan Times (Ranchi) - - Business - Im­tiaz Ah­mad let­[email protected]­dus­tan­times.com ■

ISLAMABAD: Po­lit­i­cal ten­sions be­tween In­dia and Pak­istan are a ma­jor hurdle in the way of achiev­ing bi­lat­eral trade po­ten­tially worth $37 bil­lion and also an im­ped­i­ment to boost­ing trade within the larger South Asian region, ac­cord­ing to a World Bank re­port ti­tled Glass Half Full: The Prom­ise of Re­gional Trade in South Asia.

For­mal trade be­tween In­dia and Pak­istan could be $37 bil­lion or 15-fold more than cur­rent lev­els, the re­port said. It iden­ti­fied four crit­i­cal bar­ri­ers to re­gional trade—tar­iffs and para-tar­iffs, real and per­ceived non-tar­iff bar­ri­ers, con­nec­tiv­ity costs and a broad trust deficit.

Com­plex re­la­tions and po­lit­i­cal ten­sions be­tween the two coun­tries in South Asia have ad­versely af­fected In­dia-Pak­istan bi­lat­eral trade as well as trade within the region, said the re­port. While Pak­istan and In­dia col­lec­tively rep­re­sent 88% of South Asia’s gross do­mes­tic prod­uct (GDP), trade be­tween the two coun­tries is only a lit­tle over $2 bil­lion.

The bank ad­vo­cated do­ing more trade via the Wa­gah-At­tari land bor­der, which is cost-ef­fec­tive when com­pared with the sea route. Pak­istan per­mits only 138 items to be im­ported from In­dia through the Wa­gah-At­tari land route. The re­port es­ti­mated that by re­duc­ing ar­ti­fi­cial trade bar­ri­ers, trade within South Asia could grow roughly three times, from $23 bil­lion to $67 bil­lion. Nearly 80% of the value is lost be­cause of ten­sions be­tween In­dia and Pak­istan.

The South Asia Free Trade Agree­ment (Safta) would not work un­til the two largest re­gional economies trade with each other, said World Bank lead econ­o­mist and lead au­thor of the re­port, San­jay Kathuria.

He called on Pak­istan to pro­vide In­dia the most-favoured na­tion (MFN) sta­tus in or­der to en­hance bi­lat­eral trade. Small mar­kets at the In­dia-Pak­istan bor­der should be set up as a con­fi­dence-build­ing mea­sure to pro­mote bi­lat­eral trade, said Kathuria, adding that the open­ing of the Kar­tarpur cor­ri­dor would as­sist in bridg­ing the trust deficit that has ex­isted be­tween the two na­tions.

The re­port stated that the pref­er­en­tial ac­cess granted by Pak­istan on 82.1% of tar­iff lines un­der Safta was par­tially blocked in the case of In­dia be­cause Pak­istan main­tained a neg­a­tive list com­pris­ing 1,209 items that could not be im­ported from In­dia, it noted.

In prac­tice, many of these items are ex­ported from In­dia to Pak­istan through third coun­tries, usu­ally the UAE. The re­port said the size of in­for­mal trade be­tween Pak­istan and In­dia was 91% higher than the for­mal trade.

“A favourable trad­ing regime that re­duces high costs and elim­i­nates bar­ri­ers could boost in­vest­ment op­por­tu­ni­ties that are crit­i­cally re­quired for ac­cel­er­at­ing growth in the coun­try,” added World Bank coun­try direc­tor for Pak­istan Il­lango Patchamuthu.

Pak­istan’s trade with South Asia ac­counts for only 8% of its global trade, de­spite the region be­ing the world’s fastest grow­ing. In­tra-re­gional trade in South Asia is among the low­est at about 5% of to­tal trade com­pared with 50% in East Asia and the Pa­cific.

“The con­tri­bu­tion of ex­ports to the to­tal na­tional out­put of Pak­istan is just 10% and the coun­try can no more sus­tain con­sump­tion-led growth,” said World Bank direc­tor of macro­eco­nomics, trade and in­vest­ment Caro­line Fre­und. She said an over­val­ued ex­change rate led to the in­flux of cheap im­ports into Pak­istan, which also be­came a bar­rier to an in­crease in ex­ports.

“Pak­istan’s cur­rency is still far from its mar­ket value and the coun­try has per­formed poorly due to its over­val­ued cur­rency,” com­mented Fre­und, adding that im­ports into Pak­istan from South Asian coun­tries may also be hand­i­capped by China’s pref­er­en­tial ac­cess through the Pak­istan-China free trade agree­ment.

The re­port ar­gues that the costs of trade are much higher within South Asia com­pared with other re­gions. The av­er­age tar­iff in South Asia is more than dou­ble the world av­er­age.

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