Opening borders for trade — a reliable driver of regional growth and development, has largely benefited most parts of the world with South Asia still outlying as an exception owing to the inflexible standing of Pakistan and India — the two most important neighbours in the region. The fear of India’s economic dominance has been preventing the trade opportunities among the regional players, and the same has been the biggest factor of dismay in Pakistan when it comes to opening up bilateral trade with India. However, this reason behind the status quo is unfounded and without any empirical evidence.
An over-careful approach towards opening trade by Pakistan, and a complex trade regime based on industry specific non-tariff barriers by India are holding the two countries from exploring and benefiting from their huge economic potential, keeping their people deprived of the quality of life they deserve.
However, both countries have respective strengths — hard earned over a period of more than seven decades that could complement for a larger good.
After opening its economy in the 1990s, India has very smartly positioned itself as a knowledge economy based on its huge investments in modern technology and higher education. This sowed the seed for India’s future growth in the information technology sector. At the same time, in addition to becoming one of the leading destinations for technology related outsourcing, India has gained a competitive advantage in the manufacturing industry related to pharmaceuticals, chemicals, iron and steel, automotive products and agricultural machinery.
Likewise, Pakistan has got an edge in textile products and apparel industry, and a high trading potential in the agriculture sector, including fresh fruits; cement and its raw materials — gypsum and clinker; mined items like rock salt; light engineering goods — fans, washer and dryers; surgical instruments; sports goods; leather products; and chemicals like caustic soda.
Both countries have been trading in the goods with respective positive comparative advantage but only on the need basis, following a disruptive trade pattern. These adhoc policy regimes and weak government support have kept the trade volumes to the minimal level.
The opportunity lies in augmenting these respective strengths with the additional shared strength in the areas of agriculture, pharmaceuticals and chemicals — the industries in which both countries have gained efficiency and sophistication over time.
Sharing knowledge and experience in the common areas of expertise can help improve the processes and production further. Free flow of technology and expertise could contribute towards increasing the competitive advantage of the sectors with shared strengths, making them more attractive for the global market — a way of increasing the region’s share in global trade.
Both Pakistan and India have been making efforts to develop competitive products for global market, and there is a huge potential to complement respective strengths to overcome handicaps of each other resulting in the most cost-effective quality products.
Nevertheless, the primary beneficiaries of this normalised trade will be the citizens of Pakistan and India who will experience a significant fall in the cost of traded goods providing an impetus for accelerating economic growth through a multiplier effect.
The high rate of economic growth supplemented by a rapidly developing and modernising industry has brought a clear strength to India. However, this booming economic supply needs larger markets with higher demands to balance the situation. Whereas, on this side of the border, Pakistan — one of the youngest countries and an emerging economy has got the potential to make use of its large qualified and skilled workforce to complement the available technology next door — letting the economic benefits spill over throughout the region.
No doubt, there are a lot of trade opportunities calling attention of the two countries to become most vibrant trading partners in a liberal economic relationship. At the same time, there are ample investment opportunities in both countries especially in the areas of food processing, chemicals, pharmaceuticals, automobile components and information technology.
A study by the Federation of Indian Chambers of Commerce and Industries has identified software export, processed seafood, healthcare products, pesticides, dyes and pigments, auto component, LPG cylinders, and value-added leather products as the areas of potential joint ventures between India and Pakistan.
The expected outcomes of the improved bilateral trade and investment scenario between Pakistan and India are not limited to economic and social development but have tentacles reaching out to improving the security situation for the two neighbours, and the whole region. With higher financial stakes on both sides there will be a natural development of lobby groups on both sides that are expected to discourage frequent political interventions hindering trade — thus promoting peace and cooperation.
The revival of trade talks in 2011 resulted in normalisation of trade showing encouraging signs by way of improved trade volumes and better bilateral relations, but it lost the way — the bilateral trade between Pakistan and India is still under five billion dollars despite a much larger potential. Political will — the primary impediment, is restoring with the realisation that normalised relations between Pakistan and India are a must for a developed and progressive South Asia, calling for reinstituting the stalled trade talks. Though there are always both — winners and losers, in opening borders for trade, evidence driven focused policy support can take care of the associated apprehensions; and, initiating an effort to arrive at an agreement on non-tariff barriers could be a preliminary confidence-building measure for a larger, comprehensive and supportive policy framework.
Published in The Express Tribune, September 13th, 2018.