Indo-Pak Summit: CBMs in the Economic Field

27 Jun, 2001    ·   513

Suba Chandran on the scope for improving Indo-Pak trade

D Suba Chandran
D Suba Chandran
 Director
There is great scope for cooperation between India and Pakistan in the economic field, which could be discussed during Musharraf’s visit to India . One of the issues that was discussed during Vajpayee’s visit to Lahore in February 1999 was granting the Most Favoured Nation (MFN) status to India by Pakistan . Though India had granted MFN status to Pakistan , the latter has yet to grant the same to India . 

 

 

Bilateral trade between India and Pakistan is dismal and has been governed by factors that are political rather than economic. Despite marking an increase in the 1990s, official bilateral trade in actual terms was merely Rs. 702.09 crores for the period 1999-2000. India ’s main exports to Pakistan include oil meals, spices, drugs, pharmaceuticals, dyes, rubber manufactured goods (except footwear), paints, plastic and linoleum products. Pakistan ’s main exports to India include rice, fruits and nuts, sugar, textiles, leather, cotton raw and waste, etc.

 

 

Whereas the official trade between India and Pakistan is roughly 200 million US dollars, the non-official trade approximates one billion US dollars. The non-official trade flourishes, because of Pakistan ’s refusal to buy certain Indian goods directly. Items such as medicines, videotapes, viscose fibre, cosmetics, alcoholic beverages, cotton fabric etc are traded through third countries. These goods are exported from India to countries like Singapore and Dubai , from where they are imported by Pakistan . Despite being imported through third countries, the Pakistani traders find Indian goods cheaper when compared to similar goods from other countries, especially from Europe , USA and Japan .

 

 

Besides non-official trade, there also exists illegal trade conducted across the border. Goods such as cement, tyres, tea and chemicals are the major items that are traded illegally. Thus, one major issue that could be focused during Musharraf-Vajpayee summit is making the non-official trade official.

 

 

There is enough scope to increase the trade between the two countries by exploiting the existing potential. For example, Indo-Pak trade could be increased in items like tea, coffee, textile machinery and iron ore. At present, Pakistan is purchasing tea from Kenya at a higher price. Despite being the second largest consumer of tea in the world, Pakistan imports less than two percent of its tea from India . Similarly, the textile machinery industry in Pakistan is under developed and its requirements are imported from Germany at a much higher cost. Even iron ore, a necessary ingredient for Pakistan ’s steel industry, is imported at higher cost from countries such as Australia and Brazil . Besides the actual cost, Pakistan has to pay, comparatively, a huge amount for freight and insurance for importing from these far away countries. Also, Iron Ore and textile machinery can be imported from India at a much lower cost; the CIF - Cost-Insurance-Freight would also be significantly reduced. Besides cutting down on the cost price, importing from India would make Pakistani goods such as steel and garments much cheaper, enabling Pakistan to compete better in the global market.

 

 

Another area where India and Pakistan cooperation is possible could be in providing better transit facilities for international goods to move through Pakistan to India and ultimately to South East Asian Countries.

 

 

Gas Pipeline from Iran to India through Pakistan

 

 

Iran has huge gas reserves and is willing to sell it to India ; negotiations to buy gas from Iran have been in progress for the past many years. Despite both countries having finalized the deal, its implementation is facing difficulties due to India ’s reluctance to the gas pipeline being laid through Pakistan . The most economic way to transport the gas would be over land through Pakistan . Pakistan is willing to be a part of such a deal, as it would be economically beneficial; it is expected that Pakistan would earn approximately 500 million dollars annually for the transit. Besides, the pipeline would also cater to Pakistan ’s gas needs during an emergency. However, India is reluctant for the land route proposal and prefers a sea route at a much higher cost. India ’s objection is based on security reasons; India perceives that Pakistan might block the route to hurt India economically in the event of any conflict. Musharraf has repeatedly announced his willingness to cooperate on this gas pipeline at various instances and India ’s security concerns could be allayed by involving international companies and making them shareholders. 

 

 

A decision on the gas pipeline could be reached during Musharraf’s visit, since the impediment to the decision has only been political. Likewise, Musharraf can also reduce unnecessary restrictions on imports from India , which is hurting Pakistan economically by extending the MFN status to India . 

 

 

 

 

 

POPULAR COMMENTARIES