MFN and beyond: Getting a foothold in the Indian market

Published: March 5, 2012

Market access is only part of the solution in kick-starting export growth. DESIGN: ESSA MALIK

Since the government’s decision to grant MFN status to India, considerable debate has abounded over the benefits the decision is likely to accrue for Pakistan. With potential access to the world’s second largest market in sight, a new dawn in economic relations with our neighbour is being heralded.

The theoretical benefits of trading with a regional partner notwithstanding, the MFN decision is likely to be of little tangible value for Pakistan beyond political posturing. Firstly, Pakistan’s economic and in particular, export stagnation has more to do with deep rooted structural deficiencies in the economy and misplaced policy objectives than the issue of market access to India. Secondly, MFN has done little in terms of enhancing Pakistan’s access to the India market – it has rather done the opposite. The latter fact actually carries potential damage for Pakistan’s frail industrial base. Even politically, the decision has not been valuable in improving our international image or garnering support in international forums.

Contrary to popular perception, mostly created by international experts, Pakistan’s denial of MFN has not been the main reason for a low volume of trade, and therefore of the sustained economic hiatus between the countries. India has been equally culpable, if not more, by maintaining a long list of non-tariff barriers to block imports which, in effect, target products from Pakistan.

The MFN decision has, however, guaranteed open access to the Pakistani market for India. Whatever increase in trade that takes place as a result will most likely be unidirectional, ie exports from India to Pakistan. Even without the MFN, recent trends indicate a worsening trade balance for Pakistan with India to the tune of $1 billion in the last five years. Conversely, Pakistan’s exports to India have remained static around $330 million since 2006-7 despite MFN access granted by India. According to bullish Indian estimates, the immediate impact of the MFN decision could worsen this trade balance by a further $7 – 8 billion.

Regardless of MFN status, Pakistan can and must look towards rapid expansion of exports, including those to India, but for that our economic priorities need to be set straight. Owing to its much higher productivity and substantial returns on investment, manufacturing growth is the key to economic expansion and a rise in exports. The history of all advanced countries, from Britain’s industrial revolution in the 18th century, the East Asian Miracle in the 20th century, to the recent rise of China and India, bears witness to this fact. In all these countries, market access was only part of a larger strategy of industrial targeting where manufacturing growth fuelled export growth.

Sadly, Pakistan’s strategy has been more akin to putting the proverbial cart before the horse. While the government’s recent market access initiatives have been noteworthy, industrial performance to make use of the increased access has been poor. Both public and private investments in manufacturing have nosedived since 2006-7, with 11% shrinkage only over the last one year. Resultantly, the manufacturing sector has been on a considerable decline recording 4% or less growth since 2005. The textile sector which forms almost 50% of Pakistan’s exports and is considered the country’s growth engine has remained virtually static and our share in global textile exports has actually diminished.

Besides the improbability of export expansion to India as a result of the MFN decision, the other potential economic benefits are only as good as textbook theories. Surely, analysts drooling over the possibility of importing cheaper raw materials from India must also see that unless there is a fast growing industry that can put them to use, the raw materials will only give competition to our local suppliers of the same product. Also, the potential advantage to the Pakistani consumers from cheaper Indian products may be miniscule compared to the economic deprivation caused by unemployment when domestic producers are displaced by Indian imports.

However, now that the MFN decision has been taken, there must be ways to restrict the impending damage while taking some advantage of the lopsided situation. For export expansion to the world in general and to India in particular, overall economic restructuring is required, through a well coordinated industrial policy. Higher value added industries must be targeted after careful analyses, and they should be given adequate protection. The government should not be afraid to use the WTO compliant trade remedy laws including anti-dumping, countervailing and safeguard duties to counter import surges, if the need arises.

The writer is a PhD candidate in Political Economy at the University of Cambridge.

Published in The Express Tribune, March 5th, 2012.

Reader Comments (20)

  • Ravish
    Mar 5, 2012 - 4:36AM

    Pakistanis just ensured their doom.

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  • Rajesh / Bangalore
    Mar 5, 2012 - 7:49AM

    I wonder if there are any studies by Pakistani economists / trade experts on which Indian Non-Tariff barriers specifically target Pakistani exports, so that these can be discussed.

    In all media reports I see blanket terms being used (emotionally) and the Indian response is generally to dismiss the Pakistani complaints.

    That’s another problem with Pakistani discourse – they tend to be very emotional and high pitched. I think its time some smart Pakistani’s make objective arguments to take their case forward.

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  • Karan
    Mar 5, 2012 - 12:44PM

    Another victory for India.. Well done GOI

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  • Mar 5, 2012 - 2:51PM

    Can anybody tell me why MFN to India is bad, but the same with China is good?

    If Pakistani industries can survive Chinese onslaught, then it can definitely withstand Indian one.

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  • American Pakistani
    Mar 5, 2012 - 2:55PM

    @Karan and Ravish Reading your comments just makes me really sad. Where is this deep hatred coming from?

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  • Sunty
    Mar 5, 2012 - 5:03PM

    @karan @ravish, guys you are just retarded. First don’t mix india-pak war history with business and industry. Neither india nor pakistan got any benefit just weapon manufacturing got benefits.
    Secondly wars are not between people because they spend their days and night for earning living, they don’t have all luxury to object government decision or put idiot comments as they don’t have internet in majority.
    Thirdly It is good for india’s industry that pakistan improve its economical status, so that they can buy. Only idiots will like to bankrupt their customers. who you will see your products if they don’t have any money to buy it ? So commerce should be balanced one.

    And don’t dare to consider me a pakistani because I am a patriotic indian writing from heartland of india.

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  • Anil
    Mar 5, 2012 - 5:18PM

    @Anoop: You have to look at the figures and ask the Pakistani businessmen if they have really survived the Chinese onslaught. China’s FTA w Pakistan has ruined Pakistan’s manufacturing base and is continuing to do so.

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  • G. Din
    Mar 5, 2012 - 5:20PM

    @American Pakistani:
    “Where is this deep hatred coming from?”
    From all acts for the last century by Muslims of the subcontinent against non-Muslims. You have always sought nothing but ill for us and attempted everything to materialize it. Now, you are bewildered about the source of that “deep hatred”? Don’t act that coy!
    As far as the MFN is concerned, I agree with the author. Pakistanis should denounce it.

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  • Mar 5, 2012 - 6:41PM

    Pakistan never denied MFN status to India. Pakistan only had discriminatory restrictions.

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  • Ved
    Mar 5, 2012 - 7:50PM

    Looking forward to buy some items from Pakistan. I know they’ve very good capability than Indians in some of the industries and must concentrate on their strength rather trying to sell everything to India. It is win-win situation to both and emotion do not have any place when it comes with doing hard business and bargaining. In my opinion it is textile, garment, sugar, dairy and poultry products which can be used as initial export to India.

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  • Arijit Sharma
    Mar 5, 2012 - 9:22PM

    For me the litmus test is – can Indian vehicles be exported to Pakistan ?

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  • Karan
    Mar 5, 2012 - 9:28PM

    @G. Din: I am sorry but you are very wrong. My hatred ( if u consider my previous statement as hatred) is against pakistanis ( because of their idealogy) and not against Muslims. My best friend is a muslim and i am proud of my friendship.
    And please dont come up with things like Indian muslims are good because they are a minority in India. Even some of the muslim majority countires like turkey,malaysia,indonesia have very good muslims and in general are very progressive people.NOT ALL FINGERS OF THE HAND ARE EQUAL always remember this.

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  • Suresh
    Mar 5, 2012 - 9:41PM

    Pakistan has weathered many storm, and this too will pass. Heard lot about Muree beer and scotch. Keenly look forward to it here in India.

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  • Its (still) the Economy Stupid
    Mar 5, 2012 - 9:53PM

    Every businessperson knows that market is very dynamic and name of the survival game is adjustment and innovation. If schools are teaching cram and regurgitate the facts then innovation is missing when these children grow up. All countries during free trade agreement go through this rhetoric. It is US companies competing with rest of the world through cheap labour from China at the cost of destroying global manufacturing. Grant the MFN as it will amprove the standard of living of Joe average.

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  • zalim singh
    Mar 5, 2012 - 11:16PM

    welcome to India. But behave.

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  • G. Din
    Mar 6, 2012 - 12:21AM

    @Karan:
    “My hatred ( if u consider my previous statement as hatred) is against pakistanis ( because of their idealogy) and not against Muslims. “
    One of my best friends is a Pakistani psychologist and he is a good neighour, too. So, what does it prove? We are not talking about individuals; we are talking about behaviour of groups/collectivities which have characteristics of their own. If your Muslim friend is good -and I believe he must be if you are vouching for him- then how come as a part of collectivity known as Pakistani, he becomes bad because of ideology? If he is as good as you say he is, why would he subscribe to a “bad” ideology? Or, is he a part-time Pakistani and a part-time Muslim? I hope you understand the point I am trying to make. Individual Muslims when they arrive at the gates of Europe and America are every bit as good and as undemanding and as grateful for the privilege to be let in as the rest of us. Then, the collectivity kicks in and they demand shariah law or only halal meat to be served in the school cafeteria where majority of children is still non-Muslim or freedom to clothe their women folk in head-to-toe coffins regardless of the laws of the land.

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  • Rajendra Kalkhande
    Mar 6, 2012 - 2:50AM

    What options does Pakistan have as far as trade is concerned ? Fine, MFN status to India is harmful for Pakistan. Which other country is there in the world with whom Pakistan can trade and benefit? Haven’t you tried that since 1965 ? Have Chinese built industries in Pakistan ? What is your trade plus with China, the so called your best friend? I don’t think Indians are too emotional whether you trade or don’t trade. Its all commercial. You buy from who gives the bet terms and you sell to the one who pays the most.. simple.. In India you have ready made market for cement and coal. If relations progress, Indian will provide much better trade terms to Pakistan than China.

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  • Deb
    Mar 6, 2012 - 3:08AM

    Can’t wait for Muree Beer.

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  • Marium Lodhi
    Mar 6, 2012 - 4:28AM

    The Indian lot on this page

    Though I appreciate the enthusiasm with which you have tried to critique ( If you can call it that) this article , please let me attract your attention towards something :

    The author is not claiming an Indian conspiracy , which you have been trying to negate by asking for thorough research on the kind of impediments that India places on Pakistani products. The NTB example is just to make a point that even countries with larger and diversified export base (India, China , Brazil ), employ various strategies ( NTB’s) as a means of protecting their industry from competition.

    Nor is the article a source of praise for the Indian government for pulling one over its Pakistani counterparts . Thus, the over enthusiastic anti-Pakistani block, please take a break…**

    What it does do however , is to address the benefits political or economic that Pakistan may derive from such a move. Which under the current circumstances and I agree with the author are next to none. Thus, if you wish to debate on an article that has absolutely nothing to do with India, try debating on the technicalities of it rather than making defensive non relevant hypothesis. Peace!Recommend

  • Falcon
    Mar 6, 2012 - 5:32AM

    @G. Din and @Karan: There is a famous saying in spiritual science: “The wider is your net of hatred, the longer is the spiritual journey ahead of you.”. It seems you certainly have a long way to go!

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