All on board for normalisation of trade with India
By Babar Ayaz
In the chilling winter of Islamabad, relations with India — one time enemy no: 1– is warming up. Contrary to the general perception the cabinet decision to have non-discriminatory trade relations with India has the blessing of the establishment.
What has led to the change of decades’ old anti-India policy? Among many reasons two are prominent. First and foremost background interviews reveal that the establishment wants to ease the present US pressure by making peace overtures to the Eastern neighbour. Then a question is raised why Difa-e-Pakistan, conglomerate of Jihadi organisations and religious political parties is out on the streets spreading hatred against Indian and condemning the decision to normalise economic relations with it? This question is raised on the presumption that the Difa-e-Pakistan parties are just the puppet of the military establishment. Now this may be true partially. The establishment of any country including Pakistan is not monolithic. There is strong possibility that given the level of involvement with these groups some people may still be supporting them. For the top brass Difa-e-Pakistan is only serving as pressure tool against the US administration, as it shows them to better deal with moderate establishment leaders or else we have ugly and scary face of Talibanisation also.
And second, 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 has come of age to reach a level of confidence where they are willing to compete with their India counterpart. 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. And most importantly 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.
The inflow of the Chinese consumer products became possible because the previous government lowered the import duty tariff and there was no WTO caveat to restrain imports from our ‘best friend.’ This ended the era of protectionism which is in any at the cost of the consumers – the common man. Take for example import of knocked-down Chinese motorbikes which brought down the Japanese bikes prices overnight down by 20%. This did not close down the market leaders Atlas Honda, on the contrary they are still making more bikes and selling at premium claiming that they have better quality. Similarly, the number of Chinese motorbike assemblers and electronic goods industry mushroomed employing thousands of people directly and indirectly. This debunked the claim of the industry which sought protection all in the name of creating local jobs. Cheaper consumer goods expand the market and the businesses are forced to sharpen their competing skills. So it’s good for both the common man and the business.
However, some local industrial and agricultural lobby’s argument against the normalisation of economic relations with India is mainly based on the assumption: Indian industry will wipe out our industries and agriculture. But most of the chambers of commerce & Industry in Pakistan speak in favour of opening up the trade barriers with India.
Leading businessman of Pakistan Mian Mohammed Mansha says that there is huge market for Pakistani textiles in India. “Already we are thinking to appoint our franchisees in India for our textile products,” he disclosed. And he is not alone other major brands in Lawn production are thinking on the same line for a long time. But they were hesitant about the reaction of Pakistani intelligence and some Indian non-tariff trade barriers of India. Now that establishment mode has swung these businessmen are quite hopeful to enter the market where middle class size is as big as the European population.
Similarly, Pakistani cement industry is eagerly waiting for the development better infrastructure facilities for expanding their exports to India by road and rail. “Pakistan cement industry has almost 40% excess capacity and is capable of exporting around 15 million tons a year,” a leading cement producer from Lahore pointed out. As India does not have limestone availability from Wagha to Delhi, cement is brought from considerable distance in fast-growing Indian Punjab and Haryana. This could be dollar churning opportunity for Pakistani cement industry which is at present groaning under heavy debts of banks. The utilization of capacity will also increase their loan repayment capacity which will be helpful for the banks. This trade with India 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 tons in the last nine months of 2009-10, although price has come down from $55 per ton to $50
Another area where IT businessmen of both sides agreed at the Aman ki Asha meet in Karachi a few months back was that there is a great potential of expanding business between the two countries. India has booming IT industry fetching around $50 billion in exports. The cost of human resource in India is rising consistently which gives Pakistan an edge. The Indian IT industry leaders feel that they can sub-contract large volume of IT business to Pakistan if the trade relations normalise and they are allowed to set up joint ventures.
One of the major commodity importers 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. Indeed a good beginning for normalisation of relations and easing the life of the beleaguered Kashmiris.
One of the major impediments for expanding trade between the two countries has been that both sides do not have branches of each other banks. The decision by the central banks of both the countries to have meeting during the current month will hopefully allow Pakistani and Indian banks to open branches. To remove other non-tariff barriers signing of a customs cooperation agreement, mutual recognition agreement and Redressal of Grievances Agreement have to be worked out quickly. In this regard the Indian side has to reciprocate the Pakistani gesture of removing irrational trade barriers.
Businessmen also suggest that for the sea route trade direct shipping should be allowed and ships should be allowed to pick up cargo for other countries. This would bring down the transportation cost.
Estimates are that the unofficial trade between the two countries is over $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 $2 billion. True at present the balance of trade with India is tilted against Pakistan. Last year our imports from India were roughly US$1.7 billion, while exports were US$262 million. Interestingly in the same period our imports from UAE were over$5 billion, while our exports to the Emirates is meager. Now everybody in the trading community knows that the bulk of imports from UAE were actually of Indian origin. This shows that the system under which only 2000 items were allowed to be imported from India under the positive list did not reflect the real appetite for the Indian goods. The only problem is that import through third countries makes the products expensive for Pakistani consumers. Here a word caution is important. Critics of Pakistan-India trade would always quote that the balance of trade is India’s favour. I think that will remain the same given the Indian edge in many industrial areas. It has to be kept in mind the savings Pakistan would make in terms of importing from India instead of other sources on the cost imports and transportation.
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 once said 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 establishment allows debundling it, from other complex historical disputes. India and China have done that and today China is the biggest trade partner of India.
But to keep the normailsation process going ‘uninterrupted’ to borrow my friend Mani Shankar term both the countries have to ease the ridiculous visa regime which they practice at present not only for the businessmen for people of both countries. Experience has show that on each people contact the perception of the people who visit India or Pakistan changes dramatically. It is that goodwill bank of peoples’ relations that need to built which cannot be robbed by any terrorist outfit which they try to do by attacks like Mumbai.