“It is our fundamental responsibility to enable our members benefit from existing and emerging trade opportunities both internationally and in the region. With this in mind we are starting a series of sector-specific “Doing Business with India” reports. The first report will layout the existing trade landscape and what it takes to export to Indian market. I hope this will help our members better prepare for fruitfully engaging in the Indian market vis-a-vis the forthcoming shift in the bilateral trading regime.”
Pakistan and India have much more to gain from improved bilateral trade. But the caveat is that the trade between the two countries is hassle-free, barrier-less and removed from historical baggage. This applies to both the countries. Trade liberalization between Pakistan and India has been extremely slow in spite of India granting Pakistan Most Favored Nation status in 1996. Pakistan is moving towards reciprocating. Trade between both side will be far more open. Both sides are adopting a much smaller a negative list of items not allowed for trade. Can the emerging trade regime prove to be a true turning in economic relations between the two countries? The answer is both a yes and a no. Yes, if both sides can coordinate well in helping their respective private sectors take lead in networking and partnering in a hassle-free and barrier-less environment. No, if both sides fail to act in timely manner to create an enabling environment for their respective private sector to do greater business efficiently and profitably together.
South Asia as a region has even more to gain from improved trade ties between the two countries. This will also determine the success of South Asian Free Trade Agreement signed in January 2006 which originally aimed at zero tariff rates by 2012. Both countries have a critical role to play in promoting free trade in the region. A lot has to be done in this regard. The region needs substantial investment in trade-related infrastructure for easing the movement of people and goods. Pakistan and India are well-placed to cooperate in trade facilitation. This is because Pakistan-India trade paradigm is shifting after more than a decade and half of stagnation. Pakistan is reciprocating MFN status to India and doing away the positive list of permissible item that increased from 600 items in 1996 to 1935 items in2011. Reciprocating MFN status to India will not greatly undermine the competitiveness of local industry because no economy has absolute competitiveness and comparative advantage in all areas of the economy. The reality is that goods that may not come from India will either come from China or some other country which not be best value for money. By doing greater business with India, some of our industry may lose out to competition while others will have access to one of the largest markets in the world next door. Distance matter in international trade. It reduces cost and time to complete a cross-border business transaction. Both Pakistan and India have this advantage. But it is not being fully harnessed for a variety of reasons including political opposition and bureaucratic bottlenecks on both sides.
This paper will highlight key features of the existing trade landscape between Pakistan and India, At present, the official trade between the two countries is far below the true potential. Most of the Pakistan-India trade takes place via third countries like Dubai. Transportation and communication links are far from being efficient. Apart from low trade in goods, very little business in services is being done. Trade talks are driven by government officials with private sector having a secondary- role. The trade-related infrastructure and facilitation is scant and week. Non-tariff barriers have taken deep roots. But at the same time, the level of trade preparedness on the part of local firms is also low. Our firms need investment for improving their manufacturing, packaging and marketing approach. This paper will highlight areas where our local firms need to focus for penetrating into India market.
The Trade Performance Gap
Pakistan and India together form the most populous and contiguous consumer market of world. Over 1.4 billion people or around 86 percent of South Asian population lives in these two countries. Two economies represent almost 95 percent of the South Asian GDP. The combined world trade of both countries stands around USS682 billion while their current official bilateral trade is still below US$2 billion. India exported over US$251 worth of goods and service in 2011. Imports into India increased to US$370 billion last year. The value of Pakistan’s international trade is less than one tenth of India’s global trade. Pakistan’s exports increased top over US$25 billion first time in 2011. Imports into Pakistan increased to over USS35 billion last year. This is around two percent of international trade and 0.4 percent of their combined world trade. Such a large market size can be a long-term source of economic growth for both the countries.
The Existing Landscape
Trade between India and Pakistan is very limited given the latent potential of bilateral business. Major bilateral trade is concentrated in few low-value high-volume trade-able items. Immediate export potential lies in clothing, food items, Soda Ash, Caustic Soda, dry fruit especially walnuts and dried dates, Gypsum, organic chemicals and dyes, leather, cement and salt. Although, the official trade of around US$2 billion can easily increase by manifold this will greatly benefit Indian businesses in the short-run because India is much larger economy. Indian firms are already enjoying greater economies of scale with far better state of infrastructure.
Author: Amjad Bashir, PhD.
Chief Economist, Lahore Chamber of Commerce Industry.
