Pak India Trade

Pakistan India Trade Benifits

Despite the political issues that divide Pakistan and India, steps could be taken toward better economic relations through expanding trade between the two countries.

It is believed that increased trade relationship can play a vital role in normalizing the political relationship between the two countriesBoth countries are members of the South Asia Free Trade Area (SAFTA) established in January 2006. India has given Most Favorite Nation status to Pakistan in 1995. In1947. In 1948-49, 70 per cent of Pakistan’s trading transactions were with India, while 63 percent of Indian exports went to Pakistan.

The trade volume between the two nation is $ 2.70 billion however trade through third country and illegal channels is quite significant and is estimated to be more than $ 2 billion.The results show that on the basis of existing pattern of Pakistan’s trade with the rest of the world and price structures, the total trade potential (exports plus imports), between Pakistan and India could be around $ 5.2 billion.

The potential exports to India is estimated around $ 2.5 billion. The export items include fresh and dry fruits, sugar, raw cotton, gems, fish, marbles onyx, and textiles.

Granting MFN status to India Pakistan can not only increase its exports by capturing a big market but also stands to save substantially by substituting some of its imports from the rest of the world with India.The Indian trade regime is still more restrictive than its counterpart in Pakistan. According to an IMF study, India’s trade restrictiveness measures 8 (on a scale from 1 to 10), while Pakistan’s index stands at 6 [IMF (2004)].The two broad reasons, generally quoted, for low volume of trade between the two countries are (i) the presence of non-tariff barriers in India; and (ii) the absence of MFN status to India. While the first reason is quoted exclusively by the Pakistani exporters the second reason is shared by traders on both sides of the border.As regards the trade barriers, both India and Pakistan have had a very restrictive.Both countries need to build public support for trade liberalization between them. Initial steps should focus on the following bilateral measures.

1. Easing restrictions on visas.
2. Removing the requirement that rail wagons carrying goods across the border return empty.
3. Opening additional road border crossings and bus routes.
4. Increasing air links between the two countries (particularly establishing flights between Islamabad and New Delhi);
5. Increasing the number of customs posts; and allowing branches of Indian and Pakistani banks to operate in the other country.
6. Pakistan granting MFN status to India and in turn India significantly lowers tariff rates for goods of particular interest to Pakistan (such as textiles and agricultural products).
7. Facilitating energy trade between the two countries through building gas pipelines and eventually joint energy grids.
8. Allowing trade in information technology.
9. Harmonizing customs procedures and eliminating obstacles to foreign direct investments by the other country.

The potential for trade between the two countries is huge, There is no doubt that increasing trade would significantly raise GDP and household incomes in both countries, and would particularly benefit Pakistan.Trade will of course not solve all the problems between the two countries, but it could be an important catalyst in the lowering of tensions, which certainly has to be in the interest of both India and Pakistan.

It is asserted that the opening up of Pakistani market for all Indian products would hurt the domestic manufacturing sector. The arguments reflect that our industry is noncompetitive and inefficient relative to the Indian industry. It is expected that the Pakistani markets will glut with cheap Indian products and the domestic producers will not be able to compete due to lower prices. Specifically, the domestic auto and the electronics industry may face tough competition as the Indian industry is relatively well established and efficient. For the textiles sector, it is argued that since the Indian textiles industry is more into the domestic supply as compared to an export oriented Pakistani textile sector, the low cost textiles of India would wipe out the Pakistani textile production meant for the domestic consumer.

Opening the borders does not suggest an unrestricted flow of Indian products. All the Indian imports will remain subject to the tariffs already in place. It can be argued that if the Indian goods remain cheaper than their domestic counterparts even after paying the import duties, then why not allow them? Though the ultimate conclusion could only be based on gains in general welfare, there is no doubt that the consumers will be the net gainer in this situation.