Pakistan-India trade

I was recently invited to a (webinar) conference organised by the CRRID (Centre for Rural Research and Industrial Development) Management, India, on the topic: Indo-Pak Trade Embargo: Impact on Punjab Economy. The discussion revolved around the latest study prepared by CRRID outlining that loss of trade between Pakistan and India and especially through the corridor of Wagah-Attari should be restored as a priority. The paper argues that the stalling of trade between Pakistan and India since August 2019, is adversely affecting the local population on both sides of the border, as they have lost work and jobs, in the process escalating poverty. It explains that the average annual trade between India and Pakistan during 2014-15 and 2018-19 was to the tune of IRS1605710 lakh. This trade came to a grinding halt after the imposition of 200 percent custom duty by India on all imports from Pakistan with effect from 16 February 2019. It came to a complete halt on 9 August 2019 when Pakistan imposed a complete trade embargo on its trade with India. Significantly, India has been enjoying a high favourable balance of trade (IRS981680 lakh, average annual) during 2014-15 and 2018-19, which has been lost due to trade embargo. The average annual trade of India with Pakistan through Wagah-Attari land route (ICP Attari) during 2016-17 and 2017-18 was to the tune of Indian IRS406330 lakh. This comes out to be 25 per cent of their total mutual trade. The share of imports varies from 47.4 percent and 59.78 percent. This shows the significance of Wagah-Attari land route trade in India’s total trade with Pakistan.
My response from the Pakistani perspective reads as follows: The paper, as shared, and the workings prepared by Prof Ghuman and Haqiqat Singh Sahib, are indeed very insightful and yes, one does agree that in principle there is every reason for one to be a strong proponent of trade in general and for promoting India-Pakistan trade in particular. However, at the same time, one also needs to be a pragmatist in realising that economic relations cannot function in a vacuum. Nations and countries are made of living people and unless trade respects each other’s rights, interests and more importantly, it positively touches the lives of the populace on both sides or of all trading partners, it cannot be sustainable.
When it comes to modern trade, what we need to understand anew is that its very nature stands changed over the last decade or so. Post 2008’s financial crisis countries have come to view both, bilateral and global trade very differently. Gone is the once blind romance with free and fair trade at any cost and the lofty notion of the World being a global village. Today, instead the focus has shifted to reviving home industry, spurring domestic demand, creating jobs at home, and using employment as an all-important tool in achieving equitable growth and in eradicating poverty—in short, the age of protectionism is back.
The yesteryears mantra of ‘trade, trade and trade’ seems to have been unceremoniously dropped, ironically by the very former champions of free trade, that is the moment their economies got hit by the present wave of recession. Now in what is being termed as a fresh approach, it is being argued today by nearly all modern-day trade economists, Stiglitz, Atif Mian, Piketty, Krugman and others, that contrary to the previously held belief whereby all forms of trade were desirable, in reality it is only equitable trade that is sustainable and one that should be entered into. Meaning only trade that can bring about (between trading countries) mutual prosperity, common development and growth, combined innovation, a complimentary incubator-effect, and of course in the process, lead to the much talked about world peace, while on the other hand, an imbalanced trade instead turns counterproductive leading to ill will, disputes, domestic pressure, trade wars and even possible military conflicts. In essence, what this means is that in today’s changed global scenario, in order for trade to succeed it needs to take place as a complete economic package: investment, currency swap arrangements, mutual financing, surplus utilisation for common benefit, technology transfer, human resource development and its free movement, and of course, the accompanying trade in form of exchange of required goods. A prime example of this could be the Chinese OBOR initiative in general and the CPEC initiative with Pakistan, in particular. In contrast, a cursory look at the Pak-India trade history and we see an equation heavily skewed in India’s favour, something that going forward will have to change. If bilateral trade between these two countries has to be restored in a meaningful way then the old and perhaps obsolete terms of the past will have to make way for fresh thinking and in ensuring a level playing field, because the region and the world in the meantime has moved on. Now with CPEC firmly arriving as a game changer, the former terms of trade where India while enjoying more than 80 percent trade surplus, yet was unfairly using NTBs to either circumvent mutual agreements or to altogether undermine the very bilateral trade governance framework, or was (in parallel) hurting or trying to embarrass Pakistan internationally or strangulating at will Pakistan’s agreed and rightful water share, or flaring up unprovoked border tensions, or demanding access to the western corridor without providing any reciprocity on the eastern front, are (terms) no longer tenable. SAARC, which could have been a powerful forum to address some of the highlighted issues has unfortunately also been rendered ineffective, since unilateral Indian decisions like refusing to attend its Islamabad Summit (neither in letter nor in spirit) or by shooting down the collective/regional Bhutan Hydel Power Project’s Proposal under the joint auspices of SAARC, have simply not helped, and these to only name a few.
Also, from the Pakistani perspective, since India has historically always benefited from this trade, so in today’s context it is important to determine that is India still a competitive or viable import swap option for Pakistan? On the first point, while there are a number of studies, both on the Pakistani and Indian sides placing the mutual trade potential from anywhere from $10 billion to $30 billion (in the last such exercise done by the FPCCI), a good yardstick would be to simply look at the current Pak-China trade figures, optimistically assume that as much as 50 percent can be shifted to India on price competitiveness, and then just half this number—naturally not all Chinese exports to Pakistan are replaceable and although even 50 percent—at this time—seems rather ambitious, still it could be a good starting point. So, going by this exercise, it puts the potential to around $10 billion/annum, which by any stretch of imagination is quite sizable and a good target to set. On the second point, it seems that this is precisely where the challenge lies when looking to meet any type of (future) targets set for the Pak-India trade. India itself presently suffers with serious competitiveness issues vis-a-vis China and runs a fairly large trade deficit in its bilateral trade with China, thereby implying that at least in the short-term the areas or products where Pakistani imports could significantly be switched from China to India, are likely to be quite limited.
In any case regardless of the size of the actual trade potential between the two countries, it would be a shame if it was to remain unutilised by falling prey to politics of hate and adventurism. Also, as very aptly presented by Prof Ghuman and Haqiqat Sahib in their study, there exist natural synergies between West and East Punjab and it would again be a pity if people in the two Punjabs cannot benefit from these commonalities or to cement and build on their natural affinity and warmth towards each other. Agreed, that this sort of tangible bilateral cooperation between the two Punjabs looks difficult under the prevailing circumstances, but it would be a productive exercise to try and genuinely determine what perhaps should be the way forward in breaking the existing logjam? Regrettably, the answer to this may not be very simple, in fact on the contrary may instead tend to be quite tedious or complex, for two main reasons: First, since a good part of the problem stems from gross mutual mistrust and given the dangerous Hindutva mindset now brewing in India and the unrelenting aggression of its current leadership, it is unlikely that this trust deficit will be resolved any time soon. And second, for successful trade and bilateral cooperation to come through what is required is an inclusive approach that not only encourages cooperation and supports trade per se, but also does so without prejudice. Regrettably, this is where India invariably falls short, both at home and abroad.
If India indeed wants an honest attempt at restoring the stalled trade relations with Pakistan, then some critical irritants will first need to be addressed.
This time around adopting a holistic approach that goes beyond merely trading of goods and also accommodates cross investments; currency swap arrangements; opening of financial linkages; technology transfer; human resource development and its sharing; a visa regime made easy; and last but not least, a risk-free and conducive environment for business to take place freely. A joint apex body with private sector representatives from both sides must be set up; have the authority to monitor and ensure that business carries on regardless. Restoring occupied Kashmir to its pre-August 5, 2019, status is also important.
One does realise that this commentary may not go very well with some of my Indian friends, but believe me if we have to genuinely live in peace and prosper together, then it is about time that we start tackling the long-standing thorny issues by taking the bull by its horns!

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