South Asia is an immense region in terms of population, comprising two billion people. Yet, since the partition of British India, complex geopolitical realities, regional complexities, and political and ideological differences have hampered the prospects of regional trade, connectivity, and development from Dhaka to Kabul. In the presence of the Hindu-led nationalist government in New Delhi, the chances of resuming and reviving regional trade between India and Pakistan appear even slimmer.
It is remarkable that once, the South Asian region was highly integrated in terms of trade and investment, with individuals from any background able to participate in commerce, regardless of religion, ethnicity, or race. Famous historian William Dalrymple has argued that from the Mauryan to Gupta to Mughal to British eras, all rulers who played an instrumental role in unifying India also paved the way for regional connectivity and trade. Notably, the volume of regional trade in South Asia was around 25% before the partition of British India, but this figure plummeted to 5% by the 1950s.
The founder of Pakistan, M.A. Jinnah, envisioned an ideal and prosperous relationship between India and Pakistan, where—despite being sovereign and independent states—trade, investment, goods and services, and the movement of people and ideas could flow freely between the two nations. Citing the example of the USA and Canada, Jinnah envisioned a similar relationship between the newly born states of Pakistan and India in 1947, during an interview with a foreign journal. As reference, the USA and Canada are now the largest trading and investment partners.
However, reality moved in a different direction than Jinnah’s vision. The uneven division of British India sowed the seeds of mutual hostility and led to the outbreak of the first Indo-Pak war in Kashmir. While the Kashmir issue became the primary cause of bitterness and antagonism, other issues such as water disputes, division of assets, and the refugee crisis also limited the chances of a positive start between the two countries in any domain.
Moreover, India’s actions and motivations to establish itself as the successor state to British India, by imposing hegemonic and dominant behaviour in the South Asian region, stifled the prospects for regional trade and connectivity. The famous Indian historian Ramachandra Guha has argued that most neighbouring countries view India as a “big bully” rather than as Vishwamitra, due to its hegemonic behaviour and continuous political interference in the domestic affairs of smaller countries in the region—an attitude that is not conducive to establishing trade and connectivity.
From Pakistan’s perspective, due to India’s hegemonic behaviour, fears of Indian dominance, and a policy of non-engagement, the country unfortunately placed most of its reliance on the West. By forming defence pacts such as SEATO (1954) and CENTO (1955), involving itself in foreign wars like the Afghan Jihad (1979-1989) and the War on Terror (2001-2021), and depending on foreign loans, aid, and soft investments, Pakistan has failed to diversify its trade prospects beyond a few Western capitals. Thus, since its inception, Pakistan has largely played geopolitics rather than geo-economics when it comes to trade and investment.
However, at the turn of the new century, geopolitical and geo-economic realities shifted dramatically. Both China and India have grown rapidly in terms of trade and GDP, alongside improvements in human development indicators. Fears of China’s economic rise have pushed the USA to forge a strategic partnership with India and designate it as the net security provider in the region under the USA’s Indo-Pacific policy. Since the USA’s withdrawal from Afghanistan, key policymakers in Pakistan have drafted a Geo-Economic outlook, moving away from an era dominated by geopolitics and hoping for a revival of regional trade.
In this context, Pakistan’s key policymakers are eager to revive trade relations with India, hoping that such an opening will be beneficial, especially given the country’s current economic crisis. The coalition government, under the Sharif family, is largely in favour of resuming trade with India. However, from New Delhi’s perspective, the policy of non-engagement, isolation, and rhetoric about Pakistan being associated with terrorism remains intact under the hard-line Hindu nationalist government led by Narendra Modi.
There are two groups that emerge when discussions on resuming trade with India arise. The optimistic group, which favours trade, argues that improved economic relations between India and Pakistan would alleviate poverty, facilitate investment and development, and promote people-to-people and cultural ties, thus reducing hostility and bitterness. Such meaningful trade and investment could also have the potential to resolve the Kashmir issue and other regional conflicts. On the other hand, opponents of this view argue that due to India’s larger economy, technological advancements, and better human development indicators, trade would primarily benefit India. This is evidenced by the trade surplus India enjoyed between 2004 and 2008 during a brief period of heightened trade relations, where Pakistan ran a negative balance of trade with India (approximately $3.6bn in trade volume). Additionally, any resumption of trade without a settlement on Kashmir—especially since the revocation of the region’s special status—would be seen as a sign of weakness by Pakistanis, and might erode Pakistan’s principled stance on the issue.
For a meaningful resumption of trade between India and Pakistan—which already seems a slim possibility—Pakistan cannot sideline its core positions vis-à-vis India, particularly on Kashmir. It is also worth noting that the South Asian Association for Regional Cooperation (SAARC), the main body for regional trade and investment, remains hamstrung and virtually paralysed by India’s stance of non-engagement and isolation towards Pakistan. Furthermore, credible reports of Indian involvement in terrorism and separatist movements within Pakistan, particularly in Balochistan, make it difficult for Pakistan to consider full trade relations with India, despite pressure from the USA to engage with India on American terms.
Sher Ali Bukhari
The writer is a UET alumni with keen interest in Pakistan’s foreign policy.
