By Babar Ayaz
A pleasant surprise for the 600-strong Pakistani businessmen delegation, which visited Delhi to participate in the four-day ‘Lifestyle Pakistan’ exhibition, in the second week of April, was the announcement by Indian Commerce and Industries Minister Anand Sharma that India is working on lifting the ban on Pakistani companies to invest in his country. Most of the members of the visiting trade delegation were excited that trade relations between the Siamese twins are normalising, but opening India’s doors for investment for Pakistan was almost a surprise.
India investment policy allows foreign direct investment (FDI) through ‘automatic route’ or through ‘government route.’ While there are many areas, according to the study released by Associated Chamber of Commerce & Industry India, in which 100% foreign investment is allowed “subject to certain specific conditions as specified by the Consolidated FDI Policy 2011”, in telecommunications 74% FDI is allowed of which 49% is allowed through automatic route. But the real issue for many Pakistani textile magnates who are keen to open their retail outlets in India is that so far India has not allowed FDI in the retail trading. The most recent case is that of the powerful world retail giant Walmart which was not allowed to open its outlets in India in spite of American diplomatic pressure. Leading textile businessmen say that they would give franchise of their fabric and garments to local partners to overcome this restriction.
Both India and Pakistan have so far kept their borders closed for each other’s FDI. Indian Commerce and Industry Minister Sharma said in the presence of his Pakistani counter-part Amin Fahim that “procedural requirements are underway and would be notified soon.” This would put pressure on Pakistani policy-makers who have been reluctant to allow Indian FDI in the country, although Pakistan has a liberal foreign investment policy. As FDI is dropping in Pakistan, opening our doors for Indian investors is likely to help Pakistani economy. Many large Indian conglomerates have been investing in China in spite of the fact that both countries have border disputes. President Zardari had proposed to follow the China-India model to normalise the relations in 2008. But at that time establishment which holds the real power was allergic to make any concessions to India. Then Zardari was pushed back by the opening of his past corruption cases and ultra-nationalist media. Now there has been a change in thinking in Rawalpindi.
On the other side leading Indian anchor and columnist Karan Thapar says: “Sadly and foolishly in 2008 the Indian government ignored this proposal. Zardari is too new, too weak, too simple our skeptics argued… In 2012, Zardari has revived the proposal and this time, it’s widely believed, with the support of the army.”
But on the other side of the spectrum are Indian and Pakistani hawks who want to derail the process. In Pakistan the religious extremists are stuck to traditional approach that no peace initiative should be taken till the Kashmir issue is solved. On the Indian side the ultra-nationalists want Pakistan to prove its sincerity by sentencing Mumbai attack masterminds and arresting Hafiz Saeed. But the response of the Indian public and media during Lifestyle Pakistan and Zardari’s one-day ‘shrine diplomacy’ clearly manifested that the forces of peace are getting stronger. TDAP Chief Tariq Puri aptly responded to the Indian concern about terrorism in an interview to Times of India: “Business is a phenomenon which has its own contours and dynamics – it finds its way, no matter what is happening in the country…that’s the message we want to convey – terrorism should not be allowed to take the business hostage. Both countries should not allow this.”
Pakistan textile and other consumer goods industry realises that to enter the Indian market they will have to find some local partners. At the ‘Lifestyle Pakistan’ organised by the Trade Development Authority of Pakistan (TDAP) most of the textile fabric and fashion designers were overwhelmed by the response from the Indian public and media. But many designers and leading textile exhibitors said that they are more interested in finding good partners who can open their outlets. The exhibitors claimed that almost 95% of their goods were sold quickly in the first two days as retail sales were allowed which shows that there is a strong appetite for Pakistan textile. “Lifestyle Pakistan has given us a good market testing opportunity,” a Service Industry manager told me. He was hopeful to find market for the two and three wheelers’ tires.
But some of the participants were of the view that the real benefit of such trade exhibitions is to get orders for exports and develop business-to-business relations. While the big boys already have good contacts and were seen having sideline meetings in the five-star hotels with their Indian counterparts, the medium-sized companies felt that TDAP and Pakistan Commercial Consul should have made match-making efforts and invited targeted businessmen. Particularly, the furniture, marble and onyx exporters were of the view that they have to fend for themselves without any help. TDAP Chairman Tariq Puri, who had worked hard to arrange this event, did not agree with the complainants. “Ask the cribbing furniture exhibitors if they have managed to sell their products or not,” he challenged. He debunked criticism that the pre-exhibition advertising was missing and that most of the coverage in the media was focused on Lawn, while other products did not get sufficient publicity. Puri says the fact is that over 100,000 visitors attended the fair at the Pragati Maidan exhibition center proves that the event was successful.
However, it was generally agreed by Pakistani businessmen that many hurdles have to be passed before it can be said that the business relations between the two countries have normalised. Some obstacles are: that visa regime should be eased where not only the businessmen, but all the people who are security cleared once should be given multiple entry and multiple-cities visas for one to two years as it is done by the Schengen states. The strict visa regime at present has not stopped terrorists and intelligence agents crossing the borders of India and Pakistan, hence the present ridiculous regime is only keeping well-meaning peace loving people away from each other; that Pakistani textile exporters want India to bring down import duty on their products to compete with Sri Lanka and Bangladesh — the issue can be solved if both countries follow the SAFTA tariff regime; that the testing of products should be made easier and third party certificates of internationally reputed companies should be accepted; that more land routes should be opened quickly and upgraded on the pattern of Wagah-Attari Integrated Check post which has now the capacity of handling 600 trucks a day; point of entry and point of exit at present has to be the same which makes travel for the visitors difficult, this restriction should be abolished; and lastly, the roaming facility for telephones should be allowed.
Once the whole system is streamlined experts believe that Pakistan-India trade could be increased from the present US$2.6 billion to around $6 billion within two years. This would not be an increase in the existing trade volume but only a correction of the system. At present it is estimated that at least $5 billion trade is being done between Pakistan and India through Dubai and Singapore expensive route. Direct trade would bring down cost of products for the end consumers.
Some critics of the opening of trade with India point out that India exports to Pakistan even under the restricted regime were $2.23 billion in 2010 as against Pakistan’s exports of only $248 million. This is the trade imbalance situation when only 17% items were allowed to be traded by Pakistan before agreeing to give MFN status to India effectively from end 2012. But the Pakistani businessmen are of the view that we have negative trade balance with all the major trade partners like China, USA and Europe. Important factor which is undermined by the critics is that Pakistan will only import what it is already importing from other countries and no special treatments is given to India. On the other hand because of the proximity, transportation cost would be lower and cheaper Indian machinery would be available to Pakistan — resulting in foreign exchange savings. Same is the case with India which can import a number of items on which Pakistan has competitive advantage once the non-tariff barriers are lifted.
There are some contemporary Delhi based journalists who think that trade and economic relations would not help in building peace between the two countries as long as there are unresolved border issues. But the fact remains that businessmen of both countries are the ruling classes in their respective countries. They may be pushing for peace with an eye to make more money by having an access to a huge market, but the by-product of their greed is that they are pushing their establishment towards peace. The people of both countries would be the ultimate beneficiary of this initiative. It is now up to the peaceniks of Pakistan and India to take advantage of the favourable situation and out-maneuver the hawks on both sides of the divide. (email@example.com)