November 12, 2011 admin

India and Pakistan must keep the momentum going

by Ranjit Singh Ghuman 

The beginning of land route trade between India and Pakistan is a historic event. The first Indian truck, loaded with fresh tomatoes, crossed the Radcliff Line (Wagha Border) on October 1, 2007. The very next day witnessed the crossing over of 19 Indian trucks full of tomatoes and two trucks carrying meat. From the Pakistan side, three trucks carrying consignments of fresh melons and dry fruits, all the way from Afghanistan, entered Indian territory on October 3, 2007.

Soon we shall witness Indian sugar, cotton, and engineering goods going to Pakistan and Pakistani cement, rock-salt, leather and textile goods coming to Indian through land route.

It is important to note that during 1948-49, nearly 70 per cent of trade between these two countries was through land routes. At that time, India’s share in Pakistan’s global exports and imports was 23.6 and 50.6 per cent, respectively. Pakistan’s share in India’s global exports and imports was 2.2 and 1.1 per cent, respectively.

Their importance in each other’s trade suffered a serious decline since then. India’s share in Pakistan’s global exports and imports dwindled to 1.3 and 0.06 per cent in 1975-76; and 1.1 per cent and 2.7 per cent, respectively in 2005-06. Compared to it Pakistan’s share in India’s global exports and imports shrinked to 0.02 and 0.4 per cent in 1975-76 and 0.7 and 0.13 per cent in 2005-06.

Economic rationality succumbed to political irrationality as a short bout of the 1965 War between India and Pakistan led to a nine-year trade-embargo between them. The fact of the matter is that trade relations between these two neighbouring countries is a natural phenomenon and any effort to create hurdles in the way would be unnatural. Moreover, economic rationality is in favour of promoting their mutual trade and economic relations.

The mutual trade between the two neighbouring countries has started increasing since 1989 in spite of the fact that Pakistan is yet to accord MFN status to India. The total trade turnover between India and Pakistan increased from US $63 million in 1989-90 to US $859 million in 2005-2006 and has already crossed US $1000 million in 2006-07. In addition to it, an unofficial trade worth about US $2000 million is taking place, between them, annually.

This trade is being routed through third countries like Dubai, Singapore, Hong Kong, Afghanistan and Gulf-States. This tortuous route costs both India and Pakistan dearly in terms of foreign exchange outflows as well as third party trading commission. Besides, illegal trade (mainly smuggling) worth about US $1000 million is also taking place.

It is amply clear that there are high trade potentialities between the two neighbour countries. Both the countries can exchange a large number of goods with each other. A comparative analysis of India’s global exports and Pakistan’s global imports, during 1997-2004, shows that Pakistan could import goods worth US $3616 million in 1997 and US $6495 million in 2004. However, Pakistan’s actual average annual imports from India during 1997-2004 were only 4.8 per cent of the potential imports. Had the potential been realised, Pakistan could meet 40 per cent of its import requirements from India during 1997-2004.

A comparative analysis of the global trade of two countries, during 1997-2004 again, shows that India could import 11 items from Pakistan. The value of these items comes out to be US $781 million in 1997 and US $2307 million in 2004. India’s actual imports from Pakistan, on an average, were just 6.4 per cent of the potential during 1997-2004.

Non-realisation of trade potentialities have caused immeasurable financial loss to both the countries. Both could have gained somewhere between Rs. 20,000-25,000 crores during the last 57 years (from 1951 onwards) had they fully exploited their mutual trade potentials. The gains were mainly in terms of lower prices, compared to global prices, and much lower transport and transshipment costs due to proximity with each other.

It sounds very strange that trade between the two neighbouring countries has been materialising mainly through sea-routes. It is irrationality of the highest order that goods are first transported to Bombay, then to Karachi and then to Lahore and other regions of Pakistan and vice-versa. It involves huge transport and transshipment cost in addition to 20 to 30 days time to reach the consignments at the destination.

The opening of Wagha border for land route trade is certainly a saner political decision. The people and political leadership of both the countries deserves appreciation. It is important to note that the distance between Amritsar and Lahore is just 50 kms.

A simple calculation, from the actual trade data of both the countries for the year 2004-05, shows that they have actually gained worth US$ 1077 lac (US $ 486 lakh by India and US $ 591 lakh by Pakistan) by trading with each other. These gains were just in terms of lower prices, compared to global prices. The mutual gains from trade could, thus, be enormous if we add savings in transport and transshipment costs and realise the full trade potential.

Besides, the friendly relations with each other can save a lot of expenses being incurred on defence. Pakistan has been spending about 5 to 7 per cent of its GDP on defence for the last about three decades. Compared to it, Indian expenditure on defence has been between 2 to 3 per cent of its GDP, during the same period. A major proportion of this expenditure may be attributed to the fear-psychosis and threat perception from each other. Besides, their acrimonious relations has resulted in an immeasurable human cost.

The neighbouring, but poor, countries can ill-afford the "luxury" of having acrimonious relations with each other. Both should understand that the real might and security of a country lies in its economic strength and stability and not merely in military strength. They could not solve any of their long standing problems, even after fighting three and a half wars and numerous skirmishes. Rather, the problems have gone more and more complex. Thus, the saner political leadership and people in both the countries must come forward to normalise and strengthen relations between them.

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