Being neighbourly

More trade with Pakistan could provide a major boost to India's flagging economy

India's economy continues to sputter. Thanks in great part to a slowdown in services and manufacturing, growth has fallen to 5 per cent. A new OECD report released on April 10, just days after Prime Minister Manmohan Singh spoke optimistically to Indian business leaders about returning growth to 8 per cent, forecasts weakened growth for 2013.

New Delhi has announced various measures to revive the economy. These range from imposing new taxes on the super-rich to lowering the public deficit and creating a more investment-friendly environment. Yet, there's another step that could bring a major boost to India's economy: more trade with Pakistan. Officials in New Delhi have disclosed in private conversations with Pakistani business leaders that trade liberalisation could enable the country to enjoy 8 per cent growth.

India-Pakistan trade is closer to normalisation than ever before, thanks to Islamabad's announcement in late 2011 that it was now ready, in theory, to extend Most Favoured Nation status to New Delhi, 15 years after India granted this privilege to Pakistan. Yet, normalisation remains elusive because Pakistan has failed to remove the negative list of the 1,209 goods it won't trade with India.

Conventional wisdom holds that the ball is in Pakistan's court. Trade can only be formalised after Islamabad eliminates its negative list. In fact, as explained in a new Wilson Centre report, "Pakistan-India Trade: What Needs To Be Done? What Does It Matter?" (edited by myself and Robert M. Hathaway), there's also much that India can and should do now to facilitate trade normalisation.

A chief order of business for India, according to our report's contributors, is to address three major Pakistani grievances concerns that help explain Islamabad's delay in removing its negative list.

First, India should simplify, and make more transparent, its trade rules and procedures. Pakistani businesspeople often complain about India's non-tariff barriers. Yet, in many cases, what they complain about are either not barriers at all (such as measures permitted by the WTO on safety and health grounds), or issues already addressed by India. New Delhi should make its trade regulations clearer especially for food produce, pharmaceuticals, and other products requiring prompt attention. This would help reduce Pakistan's confusion and, with time, its complaints about India's non-tariff barriers.

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