India-Pakistan trade
Muhammad Yasir Khan
Dialogue has commenced once again between India and Pakistan, let us all hope and pray that these talks do not fall victim to any mischief. International trade is a crucial activity for both countries, which some people think can be a good starting point in bringing lasting peace to the region. India is building itself as shining example of open economy with leapfrogging GDP growth rates and higher levels of investment. Foreign investors look favorably to Indian markets due to reliable security situation, consistent policies and ever-growing appetite for consumption by middle-class Indians.
While the rest of the countries are jumping over one another to get a piece of the rising and shinning India’s profitability , we, the most natural partners by virtue of our very close proximity (besides many other factors), are not even in line for sharing the boons of economic relationships.
Benefits of forging strong economic relationships between the two countries are not hidden from anyone. A quick Google search opens up several academic and non-academic studies on the topics of free trade between India and Pakistan.
A study available on State Bank of Pakistan’s website reports that for year 2004-05 our annual trade with India was only $836 million, just 2 per cent of our total trade for that year. Quoting another study the report states that the cost of non-cooperation in the region for Pakistan is $511 million annually (this figure is for region but considering India’s size the bulk of this figure can be attributed to it). We also need to keep in mind that these figures are at least five years old, think about how much begging we have to do for a similar tranche from international financial institutions. This does not end here, the document quotes from a World Bank study which put the potential gains from trade with India in 2002 at $1.3 billion or 1.8 per cent of Pakistan’s GNP in 2002. This amount in current dollar terms would definitely be much more than that.
According to a working paper of Indian Council for Research on International Economics (ICRIE), Pakistan can benefit from India in strengthening a number of economic sectors. The most important one from Pakistan’s perspective is that of textile design. Textile being the largest component of our exports makes it a strategic sector; however, it is not hidden from anyone that we have made little headway in modernising the sector. Indians, due to their superior technology background, have made progress in textile design particularly in computer-aided designing; a partnership with India can bolster this area of our traditional strength and will help us improve the share of value-added textile products in our exports. Then there are areas like energy, India is building hundreds of dams while we still don’t have enough budgetary allocation for building just one Diamir-Basha dam.
The ICRIE study also highlights that the costs related to trade between the two countries through indirect routes are nearly three times of the costs if goods were transferred directly. While in the presence of such high costs a policy brief published by the Peterson Institute of International Economics revealed that informal trade between two countries (mostly via Dubai) amounts to $3 billion per year. This certainly points to the fact that even under increased transportation costs there is still huge potential for the two countries.
With so much benefit attached to improving economic relations, we made any progress in that direction because of inherent mistrust and enmity between the institutions of the two countries. As individuals we all want peace but the problem lies at the institutional level. A very interesting experiment, at improving relations through institutional efforts, is taking shape in the form of “Aman ki Asha”. Let us hope this brings the two countries together for peace.
The writer is a policy analyst. Email: myk2111@columbia.edu
Courtesy NEWS
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