Endless Possibilities For Economic Growth If Pakistan Resumes Trade With India

Endless Possibilities For Economic Growth If Pakistan Resumes Trade With India
One hardly hears any good news amid the coronavirus pandemic, and this crisis has immensely affected the global economy. Therefore, the news reports that came in February this year about India and Pakistan deciding to honour the LOC ceasefire of 2003 were a pleasant surprise. I was hoping that the media would report on this important development extensively. However, the achievement of those who must have labored for such progress strenuously did not get as much appreciation as they deserved.  

The subsequent decision of the ECC to import cotton and sugar from India is a further encouraging development despite the federal cabinet’s later cancellation of the same. The cabinet made trade with India conditional to it withdrawing the abrogation of Article 370 that it unilaterally announced on 5th August, 2019. It goes without saying that not only the Kashmiris and Pakistan vehemently rejected the abrogation, but a wider section of India also rose against it. 

This article is, primarily, an attempt to review the pros and cons of trade with India in the given environment. 

It may prove to be of some guidance if we analyse how a few other neighbours have handled their political disputes, when it came to mutual trade and economics. The most apt example is that of China and Taiwan. China has never recognised any status of Taiwan other than it being its province. However, it has never really attempted to solve the dispute through physical force, either. Also, since the past many decades, they have had excellent economic relations, while each side maintains its political stance. Only in 2019 the value of goods’ exports from Taiwan to mainland China and Hong Kong was ~132 Billion USD, while it fulfills ~20% of its import needs from China and Hong Kong. Also, Taiwan’s investment in mainland China exceeds 150 Billion USD

Similarly, despite the ongoing tensions between India and China preceded with even a mini-war in 1962, bilateral trade has continued. In 2020, it valued ~78 Billion USD. It was probably this business that kept them in check during their recent stand-off. 

Russia and Turkey also have a long history of disputes. However, even the downing of the Russian plane in 2015 by the other could not cause any major dent in their relationship. It is because their economic interests are strongly entwined with each other. Their bilateral trade was valued ~26 Billion USD in 2019. Also, their reciprocal investments have reached 10 Billion USD. Additionally, with Bluestream and TurkStream (aggregate capacity: ~4500MMSCFD) running through the black sea from Russia to Turkey further reinforce their bond. Tourism is another strand connecting them strongly with ~7 million Russian tourists visiting Turkey annually. 

Malaysia and Singapore could not live together. The relationship remained strained for some time even after their separation in 1965. However, their disputes have always remained in check because of their mutual economic interests. Singapore’s trade volume with Malaysia was ~S$108 billion in 2017 along with a heading list of FDI in Malaysia.  

Malaysia and Indonesia also have an uneasy past, but the bitterness appears to have been overshadowed by the economic bond between the countries with an annual bilateral trade volume of ~20 Billion USD and Malaysia among the top five in FDI in Indonesia. 

The above examples teach us that irrespective of their sizes, no one can take any of the concerned countries lightly. Their economic prowess grants them sufficient leverage at every foru -- a consequence of giving due primacy to economic interests and the ability of living with conflicts and still developing synergies in parallel.  

What is to be done? 

Due to the tension between Pakistan and India intra-regional trade among the SAARC countries amounts to only 5 to 6%, whereas, for Asean countries it is 25%, in EU it is 68% and even in African union it is 16%. GCC countries have also made phenomenal progress in mutual cooperation despite their frictions such as the one between KSA and Qatar or the ongoing dispute between UAE and KSA on oil production quotas in OPEC.  

Kashmir would remain a flashpoint until it is solved by India to the utmost satisfaction of all the stakeholders. However, history has taught us that when nations come into contact in trade and commerce, the synergy soon starts casting its shadow over other aspects. Therefore, while continuing to drive their political stances, emulating others in economic relations may prove to be more advantageous for the subject neighbors instead of the status-quo. 

Experts estimate that their bilateral trade can potentially grow up to at least 40 Billion USD in a short time. Some of the areas of synergy can be as follows: 

1) Pakistan has great potential in gemstones and jewelry; whereas, with exports of ~29 Billion USD in 2020, India has already developed a robust value chain in the field. This presents a great possibility of mutual growth through joint ventures of various permutations. 

2) Coal provides ~70% of India’s electricity. With coal imports of ~23 Billion USD by India in 2019, it can prove to be a sizable market for Thar coal. Similarly, with annual fertilizer imports of ~7 Billion USD by India, synergies can be developed for Thar coal based fertilizer exports from Pakistan.

 3) With more than 50% of its oil and ~65% of gas production coming from off-shore fields, India has immense experience in off-shore drilling and field development. The neighbours can look for synergies in the said domain. Similarly, due to its immense oil refining capacity (~257MMT), India annually exports petroleum products of 35 Billion USD; whereas, Pakistan (refining capacity: 14-15 MMT) imports around 45% of its requirement from other countries. The two can look for cooperation in this area; especially when India plans to augment its refining capacity by another~400MMT by 2040. 5) Connectivity is a major challenge for India in trade with Central Asia. Pakistan can serve as the shortest route to India for trade with the said region. This can also prove to be an optimal source of energy for India, which is targeting to ramp up its GDP to 5 Trillion USD, by 2030

The above ideas may seem quite farfetched, but they amply highlight the immense possibilities of mutual trade and consequential economic growth.  The future of South Asia is, after all, hinged on how the two nuclear powers carry their responsibility towards peace and prosperity of their masses. If the latest Human Development Index of the UN ranks Pakistan at 154 with a value of 0.557, India is also not placed far above either with a rank of 131 and a value of 0.645, when Norway tops the list with a value of 0.957.  These stark numbers should dictate their future priorities.