India Pakistan Trade Relations

FICCI FPCCI

history• After the dissolution of the British Raj in 1947, two new sovereign

nations were formed—the Union of India and the Dominion of Pakistan. The subsequent partition of the former British India displaced up to 12.5 million people, with estimates of loss of life varying from several hundred thousand to a million.[1] India emerged as a secular nation with a Hindu majority population and a large Muslim minority while Pakistan was established as an Islamic republic with an overwhelming Muslim majority population.[2][3]

• Soon after their independence, India and Pakistan established diplomatic relations but the violent partition and numerous territorial disputes would overshadow their relationship. Since their independence, the two countries have fought three major wars, one undeclared war and have been involved in numerous armed skirmishes and military standoffs. The Kashmir dispute is the main center-point of all of these conflicts with the exception of the Indo-Pakistan War of 1971, which resulted in the secession of East Pakistan (now Bangladesh).

India Pakistan

Population 1,210,193,422[5] 170,600,000

Area3,287,240 km² (1,269,210 sq mi)

796,095 km² (307,374 sq mi)

Population Density 382/km² (922/sq mi) 214.3/km² (555/sq mi)

Capital New Delhi Islamabad

Largest City Mumbai Karachi

GovernmentFederal republic, Parliamentary democracy

Islamic Parliamentary Republic

Official languagesHindi, English and 20 other official languages

Urdu, English

Main Religions

80.5% Hinduism, 13.4% Islam, 2.3% Christianity, 1.9% Sikhism, 0.8% Buddhism, 0.4% Jainism[6]

95-98% Islam (80-95% Sunni, 5-20% Shi'a), 1.6% Christianity, 1.6% Hinduism, others

GDP (nominal)$1.537 trillion ($1,265 per capita)

$174.866 billion ($1,049 per capita)

GDP (PPP)$4.06 trillion ($3,339 per capita)

$464 billion ($2400 per capita)

Military expenditures $36.03 billion (1.83% of GDP) $5.1 billion (2.8% of GDP)

Country comparison

Seeds of conflict during independence

About half a million Muslims and Hindus were killed in communal riots following the partition of British India. Millions of Muslims living in India and Hindus and Sikhs living in Pakistan emigrated in one of the most colossal transfers of population in the modern era. Both countries accused each other of not providing adequate security to the minorities emigrating through their territory. This served to increase tensions between the newly-born countries.According to the British plan for the partition of British India, all the 680 princely states were allowed to decide which of the two countries to join. With the exception of a few, most of the Muslim-majority princely-states acceded to Pakistan while most of the Hindu-majority princely states joined India. However, the decisions of some of the princely-states would shape the Pakistan-India relationship considerably in the years to come.

• Junagarh dispute• Kashmir dispute• Wars and conflicts• Water rights• Bengal refugee crisis• 1971 Bangladesh Liberation War• Simla Agreement• Nuclear programmes and agreements, talks, and confidence

building measures• 2001 Gujarat Earthquake in India• 2005 Earthquake in Pakistan• 2007 Samjhauta Express bombings• 2008 Mumbai attacks

Possible solutions to the Kashmir issue

• The status quo• Currently a boundary – the Line of Control (LOC)- divides the region in two,

with one part administered by India and one by Pakistan. India would like to formalize this status quo and make it the accepted international boundary. Factors Opposing – Pakistan rejects the plan partially as it will get lesser control over the region and wants greater. Kashmiri political parties too would oppose the plan as it violates the UN resolution for a referendum

• Referendum as proposed by the UN• Pakistan insists on this solution which was proposed after ceasefire of the

first Kashmir war while India insists on Kashmir being an integral part of India.

• Kashmir becomes a part of India• Though New Delhi and much of the Hindu population of Jammu and

Buddhists in Ladakh would have no objections to such a plan.[36] Factors Opposing– The Muslim majority population of Pakistan-administered Azad Kashmir, might object the outcome as would a majority of those in Kashmir valley in India

• The status quo for something else• Pakistan accepts the status quo in return for India giving away disputed Sir Creek• Kashmir becomes a part of Pakistan• Kashmir joining Pakistan. Factors Opposing– The communities of Hindus of Jammu and

the Buddhists of Ladakh would object the outcome. Hindu Kashmiri Pandits, who were forced out of Kashmir by militants are also a major topic to consider.

• Kashmir becomes an independent sovereign republic• As an independent state, the region would most likely be economically viable with

tourism probably being the largest source of income, however being a landlocked country, it would be heavily dependent on India and Pakistan. Factors Opposing – The outcome is unlikely because it requires both India and Pakistan (and potentially China) to give up territory.

• A smaller independent Kashmir• A smaller independent Kashmir formed out of the current strip of Kashmir

(administered by Pakistan) and the Kashmir valley (controlled by India). This would leave the Northern areas with Pakistan while India retains Jammu and Ladakh. However this region should maintain good relations with both India and Pakistan as it is landlocked and is covered with snow in winter. This region can also have its defence and foreign relations jointly handled by India and Pakistan. Factors Opposing – The outcome is unlikely because it requires both India and Pakistan to give up territory.

Social Relations

Cultural links▫ India and Pakistan have shared cultures, cuisines

and languages which underpin the historical ties between the two. Pakistani singers, musicians, comedians and entertainers have enjoyed widespread popularity in India.

▫Relations between Pakistan and India have also resumed through platforms such as media and communications. Aman ki Asha is a joint venture and campaign between The Times of India and the Jang Group calling for mutual peace and development of diplomatic and cultural relations.

Geographic links

• The Indo-Pakistani border is the official international boundary that demarcates the Indian states of Punjab, Rajasthan and Gujarat from the Pakistani provinces of Punjab and Sindh. The Wagah border is the only road crossing between India and Pakistan and lies on the famous Grand Trunk Road, connecting Lahore, Pakistan with Amritsar, India. Each evening, the Wagah border ceremony takes place at the Wagah border in which the flags are lowered and guards on both sides make a pompous military display and exchange handshakes.

Linguistic ties

Linguistic ties

•Hindi and Urdu are an Indo-Aryan language and the linga franca, as well as national language, of North India and Pakistan respectively. Standard Urdu is mutually intelligible with Standard Hindi. Both languages share the same Indic base and are so similar in phonology and grammar that they appear to be one language.

Sporting ties

• Cricket and hockey matches between the two (as well as other sports to a lesser degree such as those of the SAARC games) have often been political in nature. During the Soviet invasion of Afghanistan General Zia-ul Haq traveled to India for a bout of "cricket diplomacy" to keep India from supporting the Soviets by opening another front. Pervez Musharaff also tried to do the same more than a decade later but to no avail.

• In tennis, Rohan Bopanna of India and Aisam-ul-Haq Qureshi of Pakistan have formed a successful duo and have been dubbed as the "Indo-Pak Express."[41]

India Trade Policy• Facilitated by Federation of Indian Chambers and Commerce (FICCI) and

the Federation of Pakistan Chambers of Commerce & Industry (FPCCI)

• Removing government controls and creating an atmosphere of trust and

transparency

• To set India as global hub for manufacturing, trading, and services

• Free Trade Agreements/Regional Trade Agreements/Preferential Trade

Agreements

• Simplification of levies and duties on inputs used in export products

• Upgradation of all the sectors of the Indian economy, especially through

imports

Pakistan Trade Policy

• New liberal investment policy allows investments in almost all sectors

• Manufacturing Sector

▫ 100% equity holding is allowed to the foreign investors

▫ NOC)is not required for setting-up a business unit in Pakistan

▫ Strict government protocol is to be followed for making investments in sectors

like Radioactive materials, Arms and ammunitions, Explosives, Currency, mint,

and security printing

▫ No new unit for the manufacture of alcoholic beverages or liquors will be

allowed

• Non-manufacturing sector:

▫ Registration of the companies with Security Exchange Commission of Pakistan

▫ the State Bank of Pakistan's relevant provisions are to be met accordingly for

making investments in Pakistan

▫ Foreign investment in Pakistani market are now allowed in sectors like Service,

Infrastructure, Social and Agriculture

Pakistan Trade Policy

Bilateral Trade and Issues

• Bilateral Trade

▫ The existing trade between Pakistan and India is conducted via three

different ways: official trade which is dismal, Nonofficial trade, illegal

trade

▫ India and Pakistan partners in SAFTA

▫ Pakistan violation of the SAFTA by not granting MFN status

• Issues:

▫ Economic and Political Issues

▫ ‘Fear factor’ (paranoia) or ‘Enemy Syndrome’ and mistrust

Share of India's total Exports, 1990-2000:

to Pakistan: 0.2 - - 0.4

Share of India's total Imports, 1990-2000:

from Pakistan: 0.2-0.6

Share of Pakistan's total Exports, 1990-2000:

to India: 0.4 - 2.4

Share of Pakistan's total Imports, 1990-2000:

from India: 0.2- 0.6

Source: Chadha, Rajesh and Devender Pratap, 'New Era of India-Pakistan Trade Relations: More Butter and Less Guns', unpublished mimeograph, New Delhi, 2003.

India Pakistan Trade 1990-2000 (max and min range, in %)

Pakistan's Total Trade + Trade with India 1992-2002 (in US$ million

Source: State Bank of Pakistan, Annual Report, various years, Karachi.

Bilateral trade between India and Pakistan during the year 2005-2006 onwards

YEAR Exports to Pakistan Imports from Pakistan Total Trade

2005-06 689 180 869

2006-07 1349 323 1672

2007-08 1944 288 22322008-09(Apr-July) 614 124 738

(In US$ million)

Source: DGCI&S Kolkata through NIC DOC

Top ten items of export to Pakistan from India during April-July 2008 (2008-2009)

Sr. No. Commodity Value in US $ million

1. Dyes & coal tar chemical 153.48

2. Petroleum (crude & products) 65.39

3. Cotton raw including waste 54.40 4. Oil meals 39.11 5. Spices 33.29

6. Manmade yarn, fabrics, made-ups 30.59

7. Drugs, pharmaceuticals & fine chemicals 28.06

8. Plastic & linoleum products 27.12 9. Other cereals 26.24 10. Rubber mfd. products except footwear 15.44

Source: DGCI&S Kolkata through NIC DOC

Top ten items of import from Pakistan into India during April-July 2008 (2008-2009)

Sl.No. Commodity Value in US $ million million

1. Petroleum, crude & products 48.87

2. Cement 30.66

3. Cotton yarn & fabrics 13.95

4. Leather 5.40

5. Lruits & nuts excl cashew nuts 5.17

6. Lther commodities 4.25

7. Lon-ferrous metals 2.33

8. Eool, raw 2.13

9. Organic chemicals 2.07

10. Metalifers ores & metal scrap 1.97

Source: DGCI&S Kolkata through NIC DOC

(In US$ million)

Steps towards Improvement• Improvement in communications

• Trade festivals and exhibitions

• Enhancing cultural exchanges

• Increasing air links

• Allowing branches of Pakistani and Indian banks to operate in each

other country

• Opening additional border crossings, bus and rail routes

• Easing visa restrictions

• Allowing transit trade

Has Pakistan committed any violation of international laws relating to trade by refusing to reciprocate India's action under the Narasimha Rao Government (1991-96)

No. It has not. After the birth of Pakistan in 1947, the GATT ), had, by a special provision, permitted Pakistan to impose reasonable restrictions on its trade with India because the economy of the newly-created state through the partition of India was, in its perception, in a much disadvantageous state as compared to that of India. However, it is now 57 years since Pakistan was born. It is illogical for it to continue to apply discriminatory policies towards India.

Why have different Pakistani Governments been opposed to granting the MFN status to India and to normalising the bilateral economic relations?

They generally give what they project as the pending dispute over the future of Jammu & Kashmir as the reason. They say that unless and until the Kashmir dispute is resolved, there cannot be a normalisation of the economic relations. But, the real reasons are more economic than political.

Pakistani textiles  are of a much better quality than Indian textiles, but more expensive and hence not easily affordable by the poorer sections of the Pakistani society. Indian textiles, though poorer in quality, are within the reach of the poor people. Hence, the Pakistani textile have always been worried that if the Pakistani market is thrown open to Indian industries, the cheaper indian textiles could flood their market affecting them.

In 1993 and 1996Mrs.Benazir Bhutto had set up a working group to examine the implications of Pakistan granting the MFN status to India. The group had strongly advised against it till its economy was diversified to the same extent as that of India. It drew the attention of the Government to what it described as the economic plight of Bangladesh because of India's alleged economic hegemony and warned that Pakistan could become another economic Bangladesh if it prematurely opened its market to India.

Another reason is to resist India and Afghanistan to use the land route for their bilateral trade, by granting India transit rights. They are worried  that if a two-way transit trade between India and Afghanistan is allowed, it would start affecting their profits.

What is the present state of trade between India and Pakistan?

Pakistan has a restricted approved list of  commodities in respect of which it  allows bilateral trade. Goods smuggled across the border include items such as cheap textiles, audio and video cassettes, pan leaves etc. Exports to Pakistan are mainly in respect of machinery and spare parts, particularly for their textile industry and even for Government-owned port installations.

What is the position regarding the gas pipeline from Iran to India via Pakistan?

The proposal for a gas pipeline was first mooted by Iran when Benazir Bhutto was the Prime Minister between 1993 and 1996 and later byNawaz Sharif Government  also. At that time, the Inter-Services Intelligence (ISI) had advised them that they should not agree to the extension of the pipeline to India since the  availability of gas from Iran could strengthen India's economic and industrial capability.

The project did not take off due to India's security concerns which arose from  the following factors.

the pipeline would have to pass through the Sunni majority areas of Balochistan where there is considerable anti-Teheran and anti-Islamabad feelings.

is the possibility of the Government of Pakistan itself stopping the supplies in the event of a military conflict with India.

Neither Iran nor Pakistan nor India would have the kind of money, equipment and technology required for laying the pipeline. Iran will have to raise money abroad to make the project a reality. At present, multilateral institutions such as the Asian Development Bank seem to be  inclined to financially support the project, but unless and until there is an improvement in the USA's relations with Iran which is doubtful .

What then are the options before India?

Keep up the psychological pressure on Pakistan for the grant of the MFN status. It is a psychological weapon which India has for projecting Pakistan to the international community as an unreasonable power.

Intensify the interactions with those sections of the Pakistani business community which are in favour of  an normalisation of the economic relations in order to step up pressure on Islamabad from its own business class.

Keep the talks going on the pipeline issue without any illusions regarding its early and smooth implementation.

Identify other areas of co-operation which could be projected to Pakistan as stand-alone areas.Co-operation in the field of agriculture between Indian and Pakistani Punjabis  as another possible stand-alone area which Pakistan would be prepared to take up without linking it to the Kashmir issue. Pakistan's agriculture has not been doing as well as that of India, forcing it to import wheat periodically. This is an area which needs to be explored intensively.