Pakistan’s Missing Market. Resuming trade with India is a chance to escape spiraling crises.

[maithil]

Naah.. We are good.

 

[kris]

India will never attack Pakistan and take back P.A.K and Pakistan doesn't have the capacity to take back I.A.K so, sanity must prevail.

If we want good relations, then we both need to start from somewhere.

Even better option is to make Azad Kashmir jointly administered.

 

[kmc_chacko]

Even better option is to make Azad Kashmir jointly administered.

Trading of goods are ok but who is going to develop infrastructure ?

 

[karmaa]

Pakistan’s Missing Market

Resuming trade with India is a chance to escape spiraling crises.

foreignpolicy.com

As Pakistan lurches from one crisis to another, it needs a fundamental rethink of its geopolitical and economic strategy. Without it, any International Monetary Fund program—the most recent being a “stand-by arrangement” for around $3 billion, approved on July 12—only buys some time before the next cataclysm.

Pakistan must start putting sustainable and inclusive economic growth above all else, especially its elite-focused policies that have created a cycle of profligacy and austerity. Average annual economic growth between 2010 and 2022 has been lackluster, around 4 percent, and has been accompanied by a rise in Pakistan’s total debt as a share of its GDP, from 55 percent to 76 percent. Bangladesh, in contrast, grew at an annual average of 6.2 percent over the same period, while its debt to GDP ratio rose from 30 percent to 39 percent.

In addition to addressing spiraling debt, faster and more inclusive growth is the best pathway for the poor and vulnerable to join the middle class.

The big step Pakistan could take to reinvigorate growth would be to embrace trade with India, which is currently almost nonexistent. World Bank research, on which I worked, reveals that Pakistan’s exports could increase by 80 percent, with commensurate impacts on GDP and employment, if it had a normal trading relationship with India. Extrapolating from these estimates, Pakistan’s exports of goods, only a mere $31.5 billion in 2022, could be about $25 billion higher if trade with India was realized. Another World Bank study shows that India accounts for as much as 85 percent of Pakistan’s total unrealized trade potential.

Deeper economic engagement with India could also help address other acute problems in Pakistan’s economy, including rampant inflation, which has led to an increase in poverty over the last year; a rent-seeking private sector that constantly lobbies for protection and favorable tax treatment; and the long-standing energy crisis, exacerbated by the ongoing economic calamity. Given the free fall of Pakistan’s economy since 2022, trade with India could prove very valuable.

Trade with India has been virtually halted since 2019, following the Pulwama terrorist attack in India and the passage of the Jammu and Kashmir Reorganization Bill. Currently, Pakistan allows imports from India on an ad hoc basis. For trade to normalize in a way that allows Pakistan to reap its full benefits, Pakistan would need to first rescind the ban on imports from India, and India would need to remove the penal duty of 200 percent on Pakistani imports. These could be followed by Pakistan giving India “most-favored nation” status—the same tariff treatment as given to other trade partners—and India reinstating such status to Pakistan; both countries agreeing on a timeline for rationalizing tariffs; and Pakistan doing away with trade restrictions on land borders.

The effects would be swift. Under normal trading arrangements, Pakistan’s imports from India, like its exports, would increase significantly. Had Pakistan allowed standard imports from India, they would have helped alleviate back-breaking inflation affecting critical products such as wheat and onions (India is among the world’s top exporters), and mitigated the impact on the poor. Given the sensitivity to inflation in South Asia, the political benefits of inflation-reducing imports should not be underestimated.

Trade with India could also help increase competitive pressure and productivity in the domestic market. Moreover, the availability of an immense Indian export market could excite Pakistani entrepreneurs and introduce some added pressure on entrenched domestic industrialists. A larger market may also allow the incumbent players to be somewhat more generous in ceding space to potential competitors from Pakistan and India.

And then, on the energy front, India already exports power to Bangladesh and Nepal and has significant surplus capacity. Its solar power prices are amongst the lowest in the world. Given the easy geographical terrain, Pakistan can ameliorate its power crunch by importing power and refined petroleum from across the border in the Punjab, thereby fulfilling the promise of an earlier dialogue that stalled for political reasons. It might even herald a very promising renewable energy partnership.

In this way, a vibrant trading relationship with India can help Pakistan to realize significant structural gains in an organic rather than mandated manner: by inducing productivity improvement and innovation, reducing price distortions, and enabling higher inflows of foreign direct investment. These are well-known gains from trade, but given the immense underexploited potential of bilateral trade, such gains are likely to be quite important for the Pakistani economy.

A key question is whether Pakistan’s military, which in effect wields veto power, would go along with this trade-centered approach. It might—for both tactical, short-term reasons, and for longer-term security benefits. During the very hopeful 2011-2012 attempts to normalize trade between India and Pakistan, it was vested economic interests (such as the agriculture, automobile, and pharmaceutical lobbies), rather than the army, that prevented the final steps from being taken. Now that Pakistan is suffering from unprecedented economic hardship, the army has become a partner in an “economic revival plan” that focuses on exports and foreign investment. Given the plan’s focus on dollar inflows and investment, the army may not be averse to reaping the benefits of engaging with the “enemy” economy.

In addition, the army might prefer to not have two active borders to deal with. Pakistan’s relations with Afghanistan have deteriorated over the past two years, and consequently, its defense forces are quite busy on its Western border as they deal with cross-border and local attacks against the military and civilian population from the Taliban. In this situation, a quiet border with India—a cease-fire between Pakistan and India has largely held since February 2021—is an attractive proposition. Cordial trade relations could help in meeting that goal.

Kafiro ke sath tijarat karna khula tazad nahi hai ?

 

[The Accountant]

Pakistan should work on helping it's ailing manufacturing industries before it opens its economy to trade.

When a company/country optimizes its production processes, it can produce goods and services efficiently with fewer input resources. It cuts costs by reducing waste. This improved efficiency often leads to more profits to the company and in some cases lowering of prices of finished products which will ultimately benifit the end consumer.

Also, by enhancing its capabilities through technology, skills, and innovation(which Pakistan lacks at present) a company or organization can expand its product offerings and enter new markets.

As production becomes more efficient in a country, it not only boosts productivity but also stimulates economic activity.

Sorry our powerful persons are busy in making movies and keeping PTI in jail ... they have no time to let professuonal work

 

[maithil]

It is not like India is a land of honey. It is in a much better situation than Pakistan. But India could use all the trading partners to improve her negotiating position with the bug guys (read: China and USA)

Naah.. We would rather have our exports not increasing by few billions. Money/Trade is important but not in this one particular case.

 

[VkdIndian]

Economic growth generates from production efficiency and capability.

And pray tell us, how will it benefit from not having any trade with India?

 

[Silicon0000]

Pakistan's Road to economic liberation is through severe punishment of corrupt and development of human resource, rest are only top-up and dressings.

 

[The Accountant]

And pray tell us, how will it benefit from not having any trade with India?

Its will not but presenting it as the reason of ailment of economy of Pakistan is ballatant lie ... trade with india can be beneficial only after eliminating structural issues with Pakistan otherwise it will either jave no impact or negative impact as besides China Pakistani producers will have to compete another economy having benefits of economies of scale. For example indian auto sector has low cost due to high volumes. If auto sector opens up then Pakistani producer cannot compete and will shut down creating further negative position.

Bottom line Pakistan issue is cancer whereas we are being told to take asprin to treat cancer

 

[VkdIndian]

Bottom line Pakistan issue is cancer whereas we are being told to take asprin to treat cancer

That’s a fair point.

But, no trade can be done blindly. Checks and balances have to be included to ensure fair play.

Open trade with neighbours can reduce costs and ensure easier market access for many kinds of produces.
It may not be a bad idea to start with aspirin as administering cancer medicine directly may not be feasible.

 

[Maula Jatt]

Its will not but presenting it as the reason of ailment of economy of Pakistan is ballatant lie ... trade with india can be beneficial only after eliminating structural issues with Pakistan otherwise it will either jave no impact or negative impact as besides China Pakistani producers will have to compete another economy having benefits of economies of scale. For example indian auto sector has low cost due to high volumes. If auto sector opens up then Pakistani producer cannot compete and will shut down creating further negative position.

Bottom line Pakistan issue is cancer whereas we are being told to take asprin to treat cancer

So you protect your market like normal countries??
Not everything needs to be imported - like auto and other such things where we're at a disadvantage
You don't import or you put high tariffs

We'll only import things we really need as they're cheaper in India than elsewhere like for example stuff we don't produce or manufacture nor are we planning to manufacture/ produce

Closing off is not the best way to grow your economy

 

[Kaniska]

Pakistan’s Missing Market

Resuming trade with India is a chance to escape spiraling crises.

foreignpolicy.com

As Pakistan lurches from one crisis to another, it needs a fundamental rethink of its geopolitical and economic strategy. Without it, any International Monetary Fund program—the most recent being a “stand-by arrangement” for around $3 billion, approved on July 12—only buys some time before the next cataclysm.

Pakistan must start putting sustainable and inclusive economic growth above all else, especially its elite-focused policies that have created a cycle of profligacy and austerity. Average annual economic growth between 2010 and 2022 has been lackluster, around 4 percent, and has been accompanied by a rise in Pakistan’s total debt as a share of its GDP, from 55 percent to 76 percent. Bangladesh, in contrast, grew at an annual average of 6.2 percent over the same period, while its debt to GDP ratio rose from 30 percent to 39 percent.

In addition to addressing spiraling debt, faster and more inclusive growth is the best pathway for the poor and vulnerable to join the middle class.

The big step Pakistan could take to reinvigorate growth would be to embrace trade with India, which is currently almost nonexistent. World Bank research, on which I worked, reveals that Pakistan’s exports could increase by 80 percent, with commensurate impacts on GDP and employment, if it had a normal trading relationship with India. Extrapolating from these estimates, Pakistan’s exports of goods, only a mere $31.5 billion in 2022, could be about $25 billion higher if trade with India was realized. Another World Bank study shows that India accounts for as much as 85 percent of Pakistan’s total unrealized trade potential.

Deeper economic engagement with India could also help address other acute problems in Pakistan’s economy, including rampant inflation, which has led to an increase in poverty over the last year; a rent-seeking private sector that constantly lobbies for protection and favorable tax treatment; and the long-standing energy crisis, exacerbated by the ongoing economic calamity. Given the free fall of Pakistan’s economy since 2022, trade with India could prove very valuable.

Trade with India has been virtually halted since 2019, following the Pulwama terrorist attack in India and the passage of the Jammu and Kashmir Reorganization Bill. Currently, Pakistan allows imports from India on an ad hoc basis. For trade to normalize in a way that allows Pakistan to reap its full benefits, Pakistan would need to first rescind the ban on imports from India, and India would need to remove the penal duty of 200 percent on Pakistani imports. These could be followed by Pakistan giving India “most-favored nation” status—the same tariff treatment as given to other trade partners—and India reinstating such status to Pakistan; both countries agreeing on a timeline for rationalizing tariffs; and Pakistan doing away with trade restrictions on land borders.

The effects would be swift. Under normal trading arrangements, Pakistan’s imports from India, like its exports, would increase significantly. Had Pakistan allowed standard imports from India, they would have helped alleviate back-breaking inflation affecting critical products such as wheat and onions (India is among the world’s top exporters), and mitigated the impact on the poor. Given the sensitivity to inflation in South Asia, the political benefits of inflation-reducing imports should not be underestimated.

Trade with India could also help increase competitive pressure and productivity in the domestic market. Moreover, the availability of an immense Indian export market could excite Pakistani entrepreneurs and introduce some added pressure on entrenched domestic industrialists. A larger market may also allow the incumbent players to be somewhat more generous in ceding space to potential competitors from Pakistan and India.

And then, on the energy front, India already exports power to Bangladesh and Nepal and has significant surplus capacity. Its solar power prices are amongst the lowest in the world. Given the easy geographical terrain, Pakistan can ameliorate its power crunch by importing power and refined petroleum from across the border in the Punjab, thereby fulfilling the promise of an earlier dialogue that stalled for political reasons. It might even herald a very promising renewable energy partnership.

In this way, a vibrant trading relationship with India can help Pakistan to realize significant structural gains in an organic rather than mandated manner: by inducing productivity improvement and innovation, reducing price distortions, and enabling higher inflows of foreign direct investment. These are well-known gains from trade, but given the immense underexploited potential of bilateral trade, such gains are likely to be quite important for the Pakistani economy.

A key question is whether Pakistan’s military, which in effect wields veto power, would go along with this trade-centered approach. It might—for both tactical, short-term reasons, and for longer-term security benefits. During the very hopeful 2011-2012 attempts to normalize trade between India and Pakistan, it was vested economic interests (such as the agriculture, automobile, and pharmaceutical lobbies), rather than the army, that prevented the final steps from being taken. Now that Pakistan is suffering from unprecedented economic hardship, the army has become a partner in an “economic revival plan” that focuses on exports and foreign investment. Given the plan’s focus on dollar inflows and investment, the army may not be averse to reaping the benefits of engaging with the “enemy” economy.

In addition, the army might prefer to not have two active borders to deal with. Pakistan’s relations with Afghanistan have deteriorated over the past two years, and consequently, its defense forces are quite busy on its Western border as they deal with cross-border and local attacks against the military and civilian population from the Taliban. In this situation, a quiet border with India—a cease-fire between Pakistan and India has largely held since February 2021—is an attractive proposition. Cordial trade relations could help in meeting that goal.

What is the incentive for India to normalize its trade with Pakistan even if Pakistan is interested. I have been waiting to see India and Pakistan resume their very basic bilateral series in respective countries. Indian Govt is not not even ready for such kind of cross border cooperation. So I really doubt any Indian Govt will take any further initiative to normalize trade with Pakistan if we are not being incentivized in either political or trade way.

 

[Kaniska]

DS,

We will never become subservient to India and I am not saying this just because it is some matter of pride for me. Pakistanis will eat grass but won't let that happen (iA). Also, keep in mind that what we did to ourselves in the 80s and 90s with, as you say hatred along religious lines etc., you are doing it today in India.

That aside, I agree with the other parts of your post that our enmity was/is not eternal. Prior to 1965, the people of the two countries would visit each other openly (actually even our Chiefs of Defence Staff/C-in-C's used to visit each other) and we had liberal policies on people-people and inter government contacts.

We have nothing doctrinal in our religion which teaches us hate of Hindus (we believe your religion is polytheist in nature, but so is Christianity as per our views, yet we get along with Christians so why not Hindus?). Our conflict is political and not religious (the division was on religious basis but Jinnah and Gandhi did not think it would end up in a 70 year war of the religions between the two) and this should be kept in mind. The same as the case of Palestinians and Israelis (take note I did not use Jews here for this very reason because the conflict is political in nature).

Ideally, we need to have a peace akin to what England and France arrived at after 100 years of many, many bloody wars and outright hate for each other's religious beliefs. I don't even think Pakistan and India have it that bad.

we should just see how China and India trade with each other. Keep aside emotions separate from trade and follow the economics where each nation trade with their benifits.

 

[VkdIndian]

What is the incentive for India to normalize its trade with Pakistan even if Pakistan is interested.

It was Paksiatn that had set the conditions before stopping all the trade. Now they find themselves in a bind and would find it hard to backtrack. Afterall, internal politics is not an easy game. How would they justify blame of giving up on Kashmir cause, if they start the trade.

The trade activity creates opportunities for people who want to take it. Paksiatn can get quite a lot of stuff at cheaper rates, that isn’t produced domestically and they import from other countries at higher rates.

So I really doubt any Indian Govt will take any further initiative to normalize trade with Pakistan if we are not being incentivized in either political or trade way.

Yeah. The trade volume at its peak was less than 2 billion USD. Which isn’t a big number for India. The current lot in Delhi wouldnt accept any precondition before starting the trade.

 

[The Accountant]

So you protect your market like normal countries??
Not everything needs to be imported - like auto and other such things where we're at a disadvantage
You don't import or you put high tariffs

We'll only import things we really need as they're cheaper in India than elsewhere like for example stuff we don't produce or manufacture nor are we planning to manufacture/ produce

Closing off is not the best way to grow your economy

Read my statement once again. Our issues are different then opening or closing trade with india ... ur issue is cancer u r talking about head ach .. open trade with india open trade with israel ... what differemce does it gonna make which it didnt with rest of the 198 countries of the world ? Support ur statements with facts not ur opinion

That’s a fair point.

But, no trade can be done blindly. Checks and balances have to be included to ensure fair play.

Open trade with neighbours can reduce costs and ensure easier market access for many kinds of produces.
It may not be a bad idea to start with aspirin as administering cancer medicine directly may not be feasible.

I am not against opening trade with india but the OP is presenting it a solution to our problem without presenting any single fact or figure.

If we do some factual analysis then may be its beneficial or may be its against us ...

For example west included china in WTO to gain duty free access to 1 .2 billion population but what is the end result we all knows...

My objection on OP is that he is suggestong cure without looking at the problem. Look at the problem .. find a solution and if solution is trade with india then why not but if it is expected to create net trade deficit the why to put further pressure on external account ?