Fill the trade basket now

India and Pakistan must delink economic engagement from strategic issues. Reshma Patil writes.

india Updated: May 19, 2013 23:04 IST

When India and Pakistan’s new leaders sit down to manage their faltering relationship, they would do well to take a leaf out of the India-China relationship book and also take advantage of how the changing Chinese economy is indirectly bringing them closer.

A year ago, former Pakistan President Asif Ali Zardari cited India-China relations as a model to improve India-Pakistan ties by de-linking economic engagement from strategic disputes over Kashmir and terrorism. Zardari’s statement seems forgotten as South Asia’s two largest economies lurch from bilateral crisis to crisis this year and struggle to trade.

It’s noteworthy how India and China recently negotiated a major military face-off in Ladakh. Neither side threatened economic consequences. The prospect that prolonging the standoff might endanger overall relations in fact helped defuse military tensions. Even in 2009-10, while India suspended bilateral military relations yearlong to protest against China’s discriminatory visas for Indians from Jammu and Kashmir, Sino-Indian trade grew from $61 billion in 2010 to $74 billion in 2011. So the India-China template is useful to consider despite Sino-Indian distrust notably on China’s Pakistan policy and trade disputes on business barriers and India’s burgeoning $29 billion deficit.

Normal trade between India and Pakistan is difficult without normal political relations. Sino-Indian economic linkages are driven by high-level government intervention from both sides. Cross-border business visits are on the decline since two Indian soldiers were killed, allegedly by the Pakistani troops along the Line of Control earlier this year and recently after fatal jail attacks on Sarabjit Singh and Sanaullah Haq.

India expects the new government in Islamabad to keep Pakistan’s oft-postponed word to phase out a negative trade list and reciprocate Most Favoured Nation (MFN) status to liberalise trade. A genuine implementation of MFN status needs hard-to-get backing of the Pakistan military establishment. MFN opponents in Pakistan complain that Indian manufacturers will swamp Pakistan with superior technology and subsidised agricultural goods. Both India and Pakistan are discontented with growing deficits in their bilateral trade with China; this is an important lesson to balance future India-Pakistan trade baskets.

It’s lesser-known that comparisons with the Chinese economy help sustain their trade sentiment even during bilateral lows. India and Pakistan, though still deprived of cross-border foreign investments, now eye the other as an urgent addition if not alternative to their Chinese market where labour costs are rising in double-digits since 2010.

A 2012 poll of the Pew Research Center showed that six of 10 people in India and Pakistan favour increasing bilateral trade despite political distrust. This sentiment has to be optimised to consolidate long-term linkages by delinking business visas from political compulsions. Wiring money across borders must be simplified by opening bank branches on both sides.

India and Pakistan aim to double trade from $2.7 billion in 2011 to $6 billion by 2014. Unofficial goals are higher. But given recent political tensions, according to one estimate, bilateral trade may dip by 20% in 2012-13. As their economies slowdown, India and Pakistan cannot afford to waste more time depriving their entrepreneurs of markets next door for textiles, software, pharmaceuticals and joint ventures.

Reshma Patil is Associate Fellow, East Asia, at Gateway House: Indian Council on Global Relations, Mumbai
The views expressed by the author are personal

First Published: May 19, 2013 22:49 IST