The writer served as deputy chairman of the Planning Commission from 2010 to 2013
Do not get me wrong! I am all for trade with not only India, but with everyone. As an economist, how can I disagree with openness? That is the fundamental tenet of economics that has been established since the times of Adam Smith and David Ricardo in the late 18th century. But openness means trade with all. Indeed, Pakistan should be open to trade with all, including India.
But the rhetoric is that it will be a panacea for Pakistan. Fantastic numbers are quoted with no basis because there can be no basis of a situation that has not happened. Besides we have possibilities of trading with everyone else. Why is our trade/GDP ratio not growing even though we have openness with many other countries, such as Iran, Afghanistan, Central Asia and the Gulf? There are some structural impediments that are not letting trade work and they will be there even if we do trade with India.
Yet, a large number of conferences, op-eds and media headlines are yelling all manner of grandiose claims on trade with India. An amount of $10 million will buy you a lot of claims on the subject. Interestingly enough, while we are spending $10 million dollars on this subject (and it is our money since it comes from aid committed to us), we have no money to study energy, governance, pricing, deregulation and many other such subjects. All our bets are on one issue — trade with India — which I find very surprising as a policy analyst. Policy must seek a multipronged approach for building an economy and society.
Let us look at the issue a little more closely. India is a large country with many states, some larger than even our Punjab. There are no trade barriers there. So, one would expect that all of its states would benefit from the union of India. All states will be growing at the same rate and converging to the same level of welfare. Over 60 years, equalisation would have taken place.
In a recent paper, Cherodian and Thirlwall look closely at the data and after much econometrics found that “regional differences in gross state domestic product per head in India have continued to widen”through the last six decades. Even if they control various policies and other state controlled variables, as well as resource endowments, they find that disparities are widening. They find that without state reform and development efforts, Indian integration or trade within India is not enough to get the poor regions to catch up with the richer regions.
If trade has not helped the poor Indian states to catch up with the rich, why is there such grand expectation of it for us? Why are we willing to postpone domestic reform and wait for trade with India?
Economics 101 affirms that openness is important. It opens up a highway. But the highway is only useful to someone with a nice car, with a smooth powerful engine, a good driver and gasoline in the tank, and passengers ready to travel. If we have a poor quality car (poor governance), amateur driver (nonprofessional, non-research government), no energy, and all the passengers living of SROs, why do we expect the car to move well on the highway? We can continue to ask for more openness but let us not forget domestic reform.
In fact, domestic reform must be our priority number one!
Published in The Express Tribune, February 8th, 2014.
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COMMENTS (34)
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@Rex Minor: True...the Al-Azhar university in Cairo, Egypt by the Fatimids also started as a center of Islamic learning, is now one of the best center of leaning. In Karachi we have Darul uloom run by Taqi Usmani and his learned brother, with Islamic banking and Fiqh. Darul Uloom Deoband in India is another example.
@Rex Minor: "The entire basis of the Western and Islamic civilisations are the scriptures! ."
Really? Perhaps there is a reason why western civilization is called and not christian civilization.
The Author says "The donors have spent over $10 million to buy out all our leading intellectuals" Wonder why does he not count himself as a leading intellectual. And if he is not then let us consider all his faulty arguments that only indicate a deep bais and not logic or principals of sound economics.
@Jonny:
Your narrative is though long winded but appears to be sincere. Pakistan could, however, instead accept the offer from the Federal Republic of Germany, in establishing its industry base equivalent to that of the chinese. Why follow the Indian way of Tata and co. or Lakhshmi Mittel, who have hitherto failed to feed the millions of Indian poor.
Rex Minor
@Mard-e-Haq:
The turmoil as you call it in Islamic world is due to the struggle between the forces of Aufklarung of the religion of Islam and those authoritative military regimes who were propped up by the military thereby causing hiccups in the spring revolution. The wind of change in the Islamic world, however, is not stoppible and will stay on course. Pakistan is a developing country and must make it an industrialised unit to meet the challenges of the 21st century. It must reform its educational institutions which can turn out its talented reservoir of people into practical elites for the industry The federal republic of Germe any is the power house in the European Union and if it can assist the Chinese Industrialisation project, there is no reason why Pakistan cannot benefit from this opportunity. Pakistan must learn to produce for its domestic and export industry.
Rex Minor
With Arab countries facing increasing turmoil -- as is much of the Islamic world -- Pakistan may need to find new export markets. India is one of them. I suppose a segment of the Pakistani pseudo-elite may want to consider themselves Arabs -- the only they can heft weight against the real elite -- but it flies against the natural order of business.
The question to be asked to author is what happened to his policy prescription when he was in power.
I think that Pakistan can have benefit from trade relation even if it is in favor of India at starting. It will benefit Pakistan in the following ways but to get at the level of mutual benefit it will take some time. The pakistani government will have do the following over a period of time. The benefit will be as follows:
1.At present open trade with India. Start importing medicines and bikes and cars from India. Indian products are of stranded quality, cheap and have a brand name. Since India and Pakistan share the same border it will be easy to import. Do this for five to six years and slowly start building good relation with Indian companies like TATA etc. Start collaborating and invite them for a collaboration for development in Pakistan.
2.Since by that time Pakistan will have a sound trading relationship with India, it can also ask these companies for Transfer of Technology over time for setting up manufacturing plant in pakistan and produce products locally there. There benefits will be as follows - -People will get employment. -Income level of people will increase. -Quality services and products which will be advance in technologically atleast from the present one. -Transfer of Technology will enable the local company to produce its one products and can do research freely to develop its own technology. -there will be competition in your market. The local companies will have to increase their quality or sell their goods and services at lower prices. Because if they will not do it then they will not remain in market. -It will safeguard the consumer's interest. 3.Location wise, culturally and since Pakistan were one nation before separation, no one else will understand Pakistan's need better then India.
The above are some of the pros among many others. The only cons is- -It will take atleast 15 to 20 years for all this. I mean to say building faith in a nation which have involved in 4 wars before amongst each other is not an easy task.
I am not including any disruption due to the chaos going on in Pakistan due to militant's activities. For the above to take place it is very important for Pakistan to eradicate all the militants and militant's activities. Unless and until you will not safeguard the interest of investor they will not invest in your country. Even some of you may argue that Pakistan is safe then also it what projection the world is getting of Pakistan is not good. I think you are losing atleast 5-7 % of your trade due to the people like Ziad Hamid. He is not putting good impression on those nation which are capable of producing employment in Pakistan. Also to set up industries in Pakistan investor will not feel safe if militant's will be active in Pakistan.
Most positive aspect of trade between India and Pakistan will be no war between India and Pakistan because - Let us take a case that India and Pakistan are involved in trade which amounts to $ 100 Billion then I don't think India would like to lose its money and Pakistan would like to lose jobs created in the country due to the industry set up. Also a time will come when India and Pakistan will at the same level but it may take a time of atleast 50 years if started now and everything goes well.
I hope the people of Pakistan will understand how the can increase their low economy unlike the writer above.
Also brothers look better in arms not with arms on border front.
Best wishes to people of Pakistan.
Very accurately pinpointed structural issues that lie at the heart of stagnation if not decline of Pakistan's economy.
Beside $10 million + ($10 Million to be spent) charge, writer did not elaborate anything which prove that trade will not help both country to improve relationship. Sorry to say that author might done his education in Madrasa. (Hate India mindset) ET please publish this.
@Professor: India Pakistan trade has been on the back burner for the last 65 years and there is an opportunity to correct this now.If for some reason 'Economists' do not see any benefit India can wait for the next 65 years and the world will still move on.
The question to ask is: Will more trade with India benefit Pakistan's economy? If the answer is a resounding 'no', don't do it. The author is sidetracked by a lot of baggage that he carries regarding trade with India.
Trade between two countries will be beniefited for both sides and gave a chance to peace.
LOL!! This guy served as deputy chairman of the Planning Commission from 2010 to 2013????? No wonder your country's economy's in such a mess!!!
Good Luck
As an economist, I fully agree with Dr. Nadeem's argument. Whenever Pakistan becomes able to produce more and produce quality products, export markets will be found regardless of whether there is trade with India or not. Trading with India can surely help, but it is not the solution as such. The solution lies in creating an economic environment that allows producers the right incentives to produce and produce export quality material.
Wow, i hope you went to some sort of school before calling yourself a economist. First you claim in your conspiracy theory that all the intellectuals are bought out by India then you compare Trade with India with trade with Afghanistan and Iran.
You have also compared inter nation trade with international trade.
I salute to your brilliance dear friend, i hope you dont teach in any school
If trade with India discourages the rent seeking importer, encourages the exporter and reduce the prices of goods poor eat like rice, wheat, vegetables, and motorbikes then it is good. If it is likely to do the reverse then it is bad. Dr. Nadeem is right if he is emphasizing the role of the government to make sure the positive effects of trade reach the masses. But I can only wonder that he belongs to the class of economists who insists on minimal government role in resource allocation. Especially they favor no government intervention on the basis of distribution of income. I find some sort of inconsistency in his analysis on this aspect.
Pakistan should understand that many adversaries have tremendous trading realtions. Now, It upto Pakistan to either learn from them or stay in its own world. eg: 1) China-Japan Trade (Total Trade: $342 Billion - tilted in Japan's favour) 2) China-US Trade ( Total Trade: $510 Billion - heavily tilted in China's favour) 3) China-India Trade (Total Trade : $90 Billion - heavily tilted in China's favour)
Thank you Dr Haq for this beautiful article. 'Economic integration' with India translates as simply economic dependency of India.
The author opens his blog with a biased attitude thus losing rationality of his argument. There is no rationality for both countries not to trade with each other. Demand, quality and protection of local producer should dictate trade. Pricing one's produce is very important and freight is an important component of it. Trade with India, Iran, Afghanistan therefore makes sense as they have common borders with Pakistan. If political situation improves, this trade should extend to Central Asia, China, etc via land route. Of course trading with EU or US should be encouraged. I have really not understood the objective of this blog, which is influenced by an obsession.
Maybe the author believes importing indian products via Dubai and paying a hefty commission to the intermediaries plus paying for the imports in Dollars is a better option than importing directly from India.
"So whatever you read by people, know that it is not freely written." Including this piece?
The comparison of trade between India and Pakistan with trade between states of India are unfair. One will be an export oriented trade and hence may involve govt subsidies, policies etc whereas interstate trade is not generally govt policy oriented ie pure market forces will determine that. India is especially an agrarian country and depends on monsoon to a large extend, Monsoons determine which part of India get better output than govt policies. Another factor which determine output is education which is largely a state subject in India as well as population.
"..An amount of $10 million will buy you a lot of claims on the subject..." Dear author, Are you sure it is $10 million? In my estimate it is $10.1234567889 million.
Let me make this simple for Nadeemal Haque - normal and increased trade will need to better relations between the countries which will mean lot less money on military which will mean lot more money for investment in social infrastructure. Get it?
Am sure he knows this, 'coz he kept throwing 10 million dollar amount left right and center. Probably because he got paid - significant amounts - so that billions continue to get spent on military.
@Toticalling: "The only people who do not encourage trade with India are some western countries fearinhg loss of exports to Pakistan." Good joke.
This guy was Deputy Chairman of Planning Commission for 3 years, and did not implement any of the prescriptions he has been suggesting to us for a while now. I think he has no right to sermonise us any more.
Trade makes it more difficult to start wars as that damages tarde relations. Afterall trade helps create jobs and only idiots will risk job losses because of war mongering attitudes. One of the reasons why Germany started war was because its neighbors hindred trade and export chances. I say India produces cheaper products and can be easily tranported to us. I see Indian cars in many countries, including South Africa and many arab cvountries. So why not Pakistan? I am sure India will purchase our products as this is part of reciprocal interests. The only people who do not encourage trade with India are some western countries fearinhg loss of exports to Pakistan. and of course India haters. War mongering and hate talk has not achieved anything, let money intersts take the upper hand. It will not hurt, I am sure.
Author should get out of subcontinental habit on impugning others motives for opinions which he may not agree. He should stick to facts.
It is true that there are poor states within India and reason is there are structural impediments between states for commerce etc.
Better question will be are they better off with open trade with other states in India or not. Answer is obvious and it will be same for Pakistan.
The reason domestic reforms can't happen in Pakistan and even India is because of strong constituencies against it. It doesn't matter if the trade with India goes ahead for them. They will oppose no matter what.
We just have to move ahead with freedom/openness where ever we can get support for be it domestic or international.