Trade with India
Media reports have lately discussed the possibility of strengthening trade relations between India and Pakistan. These reports have come in the context of a recent statement by the Indian High Commissioner that small positive steps are needed to improve the environment. He also said that Pak-India trade has the potential of touching the level of 30 billion dollars. In this regard it is relevant to point out that hostility between the two countries has not prevented Pakistan's imports from India to rise by an average of 10 percent every year since FY07 to nearly $2 billion in FY16. India is among Pakistan's top 10 trading partners in terms of imports, without accounting for products that get routed through UAE and other countries.
It may be a bit premature and overoptimistic to consider the potential of $30 billion bilateral trade indicated by the Indian High Commissioner but it cannot be denied that given the right conditions the present volume of bilateral trade can easily be doubled. A 2016 paper by ICRIER on Pakistan and India's informal trade puts a figure of $4 billion for Pakistan's imports routed through other countries while Pakistan's formal imports in FY17 were 1.7 billion. This indicates that at imports upwards of $5.7 billion, India is in actuality Pakistan's top trading partner after China. Informal exports to India are estimated at $0.7 billion and formal exports were $0.4 billion, resulting in a trade deficit of about $4.6 billion.
At the heart of the bilateral trade issue is the grant of Non Discriminatory Market Access (NDMA) to India. There are both for and against arguments on this point. The last time India was preparing for elections, the NDMA was on the cards. Back channel talks with PM Modi's party conveyed the message that if this was resolved during Congress's tenure, BJP would not be willing to continue to play ball. Hence, it was shelved to be revisited at some future point, which may have turned out to be a blessing in disguise. With Pakistan and India eyeing olive branches as the country prepares for election, normalising trade relations might become a battle cry all over again. In that case, liberalizing trade with India warrants a look at the impact on the current account deficit and local manufacturing.
According to a report, a confidential document by the Ministry of Commerce from last year states that most stakeholders support granting of NDMA to India and allowing import of all goods through Wagah. However, four sectors, namely agriculture, automobiles, pharmaceuticals, and yarn manufacturers expressed some reservations. Their concerns were allayed by including these industries' products on the Sensitive List, or in the case of the agri sector protected through Sanitary and Phyto-Sanitary measures as well. Otherwise, NTC, through anti-dumping and countervailing duties, was thought to be competent enough to provide adequate protection.
Pakistan's current trade deficit with India and lack of diversified value added exports would bear witness that MoC's view is overly optimistic. Pakistan Business Council, at one point a staunch proponent of liberalizing Pakistan India trade did so with the caveat of a level playing field. Now it has taken a more nationalistic stand and wants preferential treatment for Pakistan made products. Trade liberalization would benefit Pakistan's exports but it is important to remember that Pakistan's potential imports from India are about 4 times the size of Pakistan's potential exports. This aspect of the matter must be kept in mind while allowing India greater access to Pakistani markets.