Flowers blooming on Indo-Pakistan trade

Written by S Narayan | Updated: Nov 24 2004, 05:30am hrs
The focus during the visit of the Prime Minister of Pakistan is as much on improving trade as on dialogue at the political front. The eagerness of the commerce ministers dialogue with other Saarc ministers on Monday, the negotiating stance of the petroleum minister, all point to an acceleration of expectation that flowers will bloom on the Indo-Pakistan trade front. A World Bank study suggests that improving transport links, communications, customs and tax cooperation would benefit producers and consumers alike in both the countries. With official trade at around $200 million, compared with nearly $600 mn with Bangladesh, there are significant opportunities for enhancing bilateral commerce. Intra-Saarc trade, currently estimated at around $6 billion, is expected to increase several-fold in the future.

Following several years of stop-go discussions; the signing of Safta in January 2004 marked a major step forward in improved trade relations in the region. Saftas trade provisions are to come into force by January 2006 and are to be fully implemented by December 2016. Current excitement stems from the fact that both the PMs are acutely aware of the advantages of enhanced trade the meeting of the banker PM and the economist PM will surely see commerce-enhancing language. There is also recognition that the Pakistan economy has turned in a stellar performance in 2003. At the macro-level, its fiscal deficit is under control, revenue deficits are close to zero and growth rates will match Indias this year. Forex flows are healthy, imports and exports are growing, and there are clear signs of a resurgent economy. All the more reason that Indian entrepreneurs should want to be part of the good news.

Further, with the MFA due to end in 2005, Bangladesh, India and Pakistan are likely to emerge as significant global players for textiles. Regional cooperation in trade will enhance the economic strength of this bloc, in securing a greater share of the global market in textiles.

India needs greater control over energy resources and the India-Iran gas pipeline would be high on the agenda. This project has been hanging fire for nearly eight years, and has received an impetus since the Indian PM and the Pakistan President met in New York in September. There is also the opportunity of exporting diesel to Pakistan. Gas is likely to emerge as the most important fuel for India in the coming decade, and this pipeline, along with a pipeline from Myanmar through Bangladesh, would greatly enhance Indias energy security.

In the past, trade opportunities have been limited given the overwhelming political content of the bilateral dialogue. Pakistans fears of Indian goods flooding the local market and the inability of Pakistans manufacturers to compete with Indian goods have been cited as reasons in the past. But Pakistan has free trade with China and has not faced much difficulty in competing with Chinese goods. Both countries would stand to benefit through access to Central Asian markets by the land route. Pakistani manufacturers could use Indias large market size. Joint ventures, especially infrastructure and IT products, between India and Pakistan would be attractive proposals for foreign investors.

Focus of Pakistans PMs visit is trade as well as political dialogue
Instead of seeking too much too soon, gradualism may lead to dividends
If Chinese companies can do contract work here, why not Pakistani firms
Given all the positives and advantages, there is still some apprehension that progress in bilateral trade relations will be slow. This is the overhang of decades of low success on the political front, and needs to be set aside. Perhaps, instead of seeking too much too soon, a gradual approach may lead to greater dividends. There are several ways in which it should be possible to think out-of-the-box, to the mutual benefit of both.

First, the end result should be an equality of opportunity. A simple way to start could be to identify a list of goods and services on each side, which could be put on a fast track approach. Is it possible to initially structure every transaction into a trade balancing, mutually advantageous one almost akin to barter For example, if a company in India wants to exports automobiles, and another wants to import sugar, it should be possible to conceive of a clearing house of industry associations that handles both transactions, and all four parties, simultaneously, so that there is an equal benefit stream at the end of each transaction somewhat cumbersome and slow, but, given the emotional hesitations, transparent and a win-win. Second, there has been little discussion on the opportunities available in financial markets. Is it possible to allow FIIs from Pakistan to operate in Indian securities markets, and for mutual listing of shares in each others exchanges The regulatory frameworks can easily take care of ownership and control concerns. Similarly, opportunities in the futures and commodities markets in India would be of interest to investors in Pakistan, and a preferential, low obstacle approach could easily be worked out. Further, availability of opportunities to invest in mutual funds and debt market instruments, would be an attraction for individual investors in Pakistan.

Third, one finds a large number of Chinese companies doing contract work in India. Why not companies from Pakistan Again, one could start with bilaterally balanced projects and go on from there. Geographical proximity could see exploitation of hydel potential as a huge opportunity.

There are also opportunities in services like health and education, wherein the Indian institutions can reach out directly to the other population with the particular service. These could become a platform for strengthening confidence. Finally, joint ventures in the two countries, and even in third countries like the Central Asian republics, could offer new avenues for cooperation.

It is possible to learn lessons from the strategies adopted by China to enhance trade with Asean countries, and with Japan, Korea and even Taiwan. Politics aside, trade would be the instrument to enhance the well-being of the citizens of South Asia, and there is a great opportunity now.

The author is a former finance secretary and economic advisor to the PM