Economic Relations with India

A safe guesstimate is that every second household in Pakistan is doing at least a Rs50 trade with India every week, if not more. There are around 34 millions households in the country. Don’t believe me? Then do not buy an Indian film DVD on your weekend this Friday. And yes don’t surf to an Indian movie or to those third rate Star Plus soaps on the cable network, which your wife loves.

Yes the Indians are not getting any benefit of this trade because all the Indian movies sold or shown on the cable networks are pirated. But the fact remains that had it been a legal trade both sides would have benefited. Indians would have got their royalty and Pakistan government would get revenue from this illicit trade.

Anyway the positive message of this flourishing ‘illegal trade’ is that people of Pakistan have no aversion to India as it is commonly believed on the other side of the border. There was a time when Pakistani TV plays were equally popular in India as well.

This not all, you walk down the ‘Paan Market’ in the lanes of Lahore Anarkali you would find many Indian products which are brought in by the travelers who take the Samjhota Express twice a week. The demand is so high, a shopkeeper admitted to me and the supply is low. So what is the solution, they make counterfeit products like ‘Baba tobacco and pan masalas’ and some embroidered clothes.

On the other hand a leading commodity importer Raees Ashraf Tar Mohammed says that imports of spices and edible commodities from India through Karachi and Lahore dry port is declining fast. He says that much of the trade of commodities which have sales tax, import duty and withholding income tax has been redirected through LoC (Kashmir-to-Kashmir) as they have only 2% withholding tax. Businessmen who trade in commodities on a day-to-day basis are not happy with the LoC duty free trade and the government is losing revenue. But the fact is that this has opened a good business avenue for the Kashmiris living on both sides of Kashmir. A good beginning for normalisation of relations and easing the life of the beleaguered Kashmiris.

On both sides of the border some politicians, bigot terrorists, foreign office Babus and those who live on the war economy try to make normalisation of relations between the two countries as difficult as possible. But the people are ahead of them in trading where there is a market.

Estimates are that the unofficial trade between the two countries is around $2 billion. This does not include smuggling of items which move both ways depending on the market price. Officially Pakistan’s total trade with India is around $1.3 billion. This figure can shoot up if hurdles in the way of the exports of cement to India are removed. From over 786,000 tones in cement exports to India in 2007-08, it has dropped to 336,000 tones in the last nine months of 2009-10, although price has come down from $55 per ton to $50.

Pakistan’s leading businessman Mian Mohammed Mansha, who has been an ardent supporter of expanding economic relations with India, says “I am still a supporter of not only increasing trade between the two countries, but investing in each others countries.”  Although in the case of cement exports to India, Mansha himself a large cement producer says “I am quite disappointed by the non-tariff trade barriers used by the Indian government.” Explaining the problems being faced by the cement exporters, he said in the first place the quality check of cement takes a long time which is necessary for the exports from Pakistan. Secondly, the frequency of trains for carrying this bulk item is not enough to meet the orders because wagons are not made available on the other side. Thirdly, the Indian government does not allow transportation through trucks by making parking of the trucks difficult. Mian Mansha thinks if these barriers are removed and free exports from Pakistan is allowed it would be beneficial for the consumers in India as cement is available at almost half the price in Pakistan compared with the prevailing per bag price in Indian Punjab. He says that the Pakistani government has been cooperative to the cement industry which is exporting to India.

Other exporters from Pakistan say that cement is just an example of the protectionist policies of India, though officially they have given us MFN status. “I think that the Indian cement manufacturers lobby creates such difficulties to keep the cement prices up. Admittedly this protectionism is not one sided, some of the Pakistani manufacturers also try to discourage imports from India.

In spite of this, businessmen like Mian Mansha feel that they can open their textile industry outlets in India, because the Pakistani fabric is liked by the Indian consumers. As Mansha is the Chairman of MCB Bank in Pakistan he is also keen to expand the banking relations with India.

He is not alone in this. Since the nineties a paradigm shift has been seen in the position taken by the Pakistani business community vis-à-vis economic relations with India. The same class used to be against opening up trade with India in the past fearing that they would not be able to compete in the open market. What brought this change of heart? One, Pakistan’s business grew under protectionist policies and reached a level of confidence where they were open to compete. Two, as the Indian rupee became stronger and cost of production in India went up, Pakistani businessmen felt that not only can they compete in the home market; they will have access to the Indian market of over one billion people. Three, their fear that they would not be able to compete with India were washed away once they braved the avalanche of cheap Chinese products coming into Pakistan.

While much focus of both the countries has been on the trade relations, the governments of both countries are weary about allowing investment in each other’s countries. Given the fact that we share many business communities like Sindhi Hindus, Parsis, Gujrati, Punjabi and Bohra, there is a great scope of investment in each other’s countries. A leading hotelier Byram Avari said once that peace between the two countries would be strengthened if the businessmen will have long-term investments in each other’s country. The expansion of the economic relations would create a strong foundation for a lasting peace, only if our politicians debundle it from other complex historical disputes. India and China have done that and today China is the biggest trade partner of India. (ayazbabar@gmail.com)

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