Study findings: Trade with India will augment national wealth

To capitalise on the opportunity, Pakistan needs to outsmart India.

ISLAMABAD:

Trade normalisation with India can augment national wealth by over Rs470 billion per annum in addition to benefits of Rs70 billion to consumers in the shape of cheap imported goods, but all this requires outsmarting cunning Indian negotiators, according to the findings of an independent think tank.

Dr Hafiz Pasha, former finance minister and vice chairman of the Institute of Public Policy, said the institution’s research shows Pakistan’s economy can grow by an additional 2% per annum if both the countries bring an end to restrictive trade regimes.

Pasha was sharing the outcome of the research with a select group of journalists.

The findings of the think tank make a strong case for trade normalisation with arch-rival India despite recent escalation of tensions following violation of ceasefire at the Line of Control.

Pasha was of the view that trade normalisation, commonly known as granting the Most Favoured Nation (MFN) status to India, will also help reduce inflation on the back of availability of comparatively cheap Indian goods. He said over a period of three years the country will achieve $700 million in annual gains besides creating 200,000 new jobs.

In comparison with Pakistan, India will gain 0.5% of its gross domestic product (GDP).

“The government should go ahead with MFN, but should get meaningful concessions while negotiating further reductions in sensitive list maintained by India under South Asia Free Trade Agreement,” said Pasha while sharing the crux of the findings.

In February last year, Pakistan had abolished positive list containing only 1,956 items or 27% of the allowed tariff lines with 1,209 non-importable negative list, only 18% of tariff lines. The government has not met its commitment of abolishing the negative list by the end of December 2012, citing ‘concerns’ over the grant of MFN.

Pasha said as Pakistan has already opened up 82% of its tariff lines for Indian goods from just 27% before February 2012, there was no rational in reversing the decision on the grant of MFN. “Jumping from 27% to 82% was probably a very big move,” he remarked.

He said Indians have cleverly negotiated the reduction of Safta sensitive list by linking the reduction with the number of items instead of the extent of liberalisation. He suggested that the negotiators have been trapped in the number of tariff lines and they should focus on the extent of liberalisation aimed at maximising gains.

He said as a result of MFN overall Pakistan’s exports will get benefits on 64% of tariff lines, but in return the country is giving up on 90% of tariff lines.

Agriculture

Pasha was of the view that Pakistan has given up maximum in the area of agriculture. As a result of abolishing the positive list, it has opened up 92% of its agriculture sector to Indian goods.

In comparison, India is still protecting its agriculture through very high customs duties besides placing many products in the sensitive list of Safta. Still wheat, rice and mango are on the sensitive list, in addition to 100% duty on wheat, 70-80% duty on rice and over 30% duty on vegetables and fruits.

According to the research, there was clear asymmetry in Pakistan and Indian agricultural sectors. India
was subsidising its agriculture to the tune of 5% of GDP compared to subsidies equal to just 1.2% of GDP in Pakistan.

Pasha said under Safta 97% of Pakistan’s agriculture sector is open for Indian goods as compared to only 43% access granted by India.

The think tank suggests that the government should protect the agriculture sector by using the Safta platform.

Industry

The study finds that Pakistan’s industry is still heavily protected under the negative list and Safta sensitive list. It suggests that the government should drop many textile items that have been protected through sensitive and negative lists despite having comparative edge over Indian goods.

Instead, Pakistan should add most vulnerable goods like iron and ore, steel, pharmaceutical and engineering goods.

Published in The Express Tribune, January 12^th, 2013.

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