Trade with In­dia

The Pak Banker - - FRONT PAGE -

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.

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