Trade with India

Freer trade could mean we either bring down our duties or divert our procurement to India instead of China, Europe.

When people argue that Pakistan has little to gain from liberalising trade with India, they couldn’t be further from the truth. Fact of the matter is, Pakistan has so much to gain from normalising its trade relations with India that minds steeped in the language and perception of ‘patriotic protectionism’ are not even able to get a handle on the scope of the proposition.

This isn’t about tallying up which industry will find a market in India and which one will not be able to compete. Of course, there will be winners and losers as the normalisation proceeds, but the process will be complex. The auto sector, for instance, is likely to see many losers. Pharma and fertiliser and value added textiles are likely to see many winners. Agriculture will find better quality seeds and pesticides and larger markets in India, but will see the price of urea fertiliser climb.

This isn’t about drawing up a list of items we have to sell to India. Let’s not take a shopkeeper’s view of such momentous changes. This is about ‘import substitution’ of an altogether different variety. For instance, where our pharmaceutical manufacturers have had to purchase equipment and raw material from Europe or America, they will now have access to one of the world’s leading pharmaceutical industries to tap into science, technology and human resource. India is the world’s largest importer of urea fertiliser and industry insiders say that with access to the Indian market, urea made from imported liquefied natural gas (LNG) becomes competitive for them. These same investors would be willing to set up an LNG import terminal, capable of bringing in up to 500 units of the vital fuel, of which 100 units can be consumed in their urea plant, and the balance sold to the state distributor, thereby helping to alleviate the shortages in the country.

The kinds of production possibilities that open up once you magnify the playing field are huge — in fact, they’re historic — and those with initiative and wherewithal will be able to capture the moment. Those wedded to the older, rentier ways will find it hard to adapt and inevitably resist the move. I say let them go. I’ll be glad to buy my next car from India, sold to me by a local distributor of course, rather than pay exorbitantly over here and then pay additional ‘own’ money or wait months for delivery, during which time they could arbitrarily hike the price again and make me pay the difference.

I for one am sick and tired of hearing from our textile industry about all their problems and difficulties. They’re always complaining as a reflex action, and I know that those complaining the loudest are usually the ones making the most amount of money. In spite of all their hype about gas shortages and what not, last year they raked in more money than ever before if the export figures are anything to go by. I really wonder why the record exports of last year do not show up in revenue numbers for corporate income taxes paid by our textile magnates. The same people who are very clever at evading taxes suddenly become very dumb at finding ways to adapt to changing realities. I say those who can’t adapt should be told to start winding up their businesses and take up golf instead.

Of course, there will be problems to work out along the way. Non-tariff barriers (NTB), for instance, are a reality. But everybody has NTB related complaints regarding India, not just Pakistan. Those NTBs that are Pakistan specific will disappear as normalisation proceeds but, more generally, NTBs are something we will be talking about for years and years to come, along with every other country that trades with India.

Who knows what will happen to our regime of administered pricing, we might be forced to start rolling it back since setting prices by committee may not be feasible in the new complex environment that will open up. Who knows what will happen to our tariff structures regarding the rest of the world. India assesses far smaller duty on tea than Pakistan, for instance, and freer trade could mean we either bring down our duties or divert our procurement to India instead.

The point is that a large transformation will be upon us, even if it’ll come slowly. An enormous rectification of the historic record, a return to a more natural and time tested economic reality where the territories that comprise Pakistan offloaded their output into large markets that fed all of North India, as well as mediating between the major economic regions of the world, the Middle East, China and India. Of course, much work remains to be done. The nitty-gritty of the job must begin now. But what needs to be borne in mind is that there is only one direction to go: forward. Staying bottled up behind walls and remaining stubbornly wedded to a primitive autarkic model of growth is no longer an option.

Published in The Express Tribune, November 10^th, 2011.