Pak means business

Trade can alter the subcontinent's economic and political landscape

In a great irony, one of Pakistan's weakest governments, led by President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani, has broken one of the country's biggest political taboos by throwing open its borders for trade with India.

Until recently, Pakistan's leaders had a simple political guidance: no trading with the enemy until the question of Jammu and Kashmir is resolved. Islamabad is now ready for business, and its new course could alter the economic, political and security landscape of the north-western subcontinent.

Pakistan's bold move is similar to the Indian decision in the late 1980s to separate the question of trade with China from the talks on the boundary dispute. Less than a quarter of a century later, China and India are locked in an expansive economic partnership.

The Pakistani cabinet's unanimous decision on Wednesday to immediately liberalise trade with India and lift all restrictions by the end of the year has not been unexpected. In fact, it was part of a roadmap for trade normalisation that New Delhi and Islamabad had painstakingly negotiated over the last one year.

But Delhi kept its fingers crossed. As in India, so in Pakistan, well-constructed foreign policy plans can easily go awry thanks accident-prone domestic politics.

Despite some residual opposition, Zardari and Gilani have delivered on normalising commercial relations with India. Their boldness vindicates Prime Minister Manmohan Singh's policy of engaging Islamabad despite the lack of progress in bringing the plotters of the November 2008 terror attack on Mumbai to justice.

Dr Singh's decision in the summer of 2009 to break the political linkage between the resolution of the Mumbai case and renewed dialogue with Pakistan drew much flak in India.

Pakistan's civilian leaders had little to do with the Mumbai attack; nor were they in a position to confront the forces that had organised it.

It would have been utterly unwise for India to turn its back on Zardari who came to power in 2008 promising to open a new chapter in relations with India.

As he mused in 2008 about putting trade, rather than Kashmir, at the centre of Indo-Pak relations, Zardari received a wrap on his knuckles from the so-called "deep state" in Rawalpindi.

26/11 was as much a setback to Zardari as it was to Dr Singh's efforts to rewrite Indo-Pak relations. Zardari's successful pursuit of his controversial Indian agenda underlines how much has changed in Pakistan and the need for India to rethink its conventional wisdom about the internal dynamics next door.

When it announced last November the decision to grant the "most-favoured-nation" status to India, the civilian leaders said the Pakistan army was on board.

The army's support to trade with India might be rooted in Rawalpindi's current preoccupation with opportunities and challenges on its western borders.

The army is also neck deep in managing the turbulence in the ties with Washington after the US Special Forces raided and killed Osama bin Laden in a safe house in Abbottabad last May.

Whatever might be the Pakistan army's calculus in not exercising the veto over trade with India, the decision will have significant consequences for the region.

Annual bilateral trade is expected to grow rapidly from the current pitiful figure of US$ 2.7 billion. According to business chambers in the two countries, trade volumes could reach US$ 10 billion by 2015, as the current indirect trade flows through the official channels.

That is just the beginning. As part of the current trade liberalisation, the two sides are close to easing the current restrictive visa regime, which was established way back in 1974.

Other agreements are on the anvil for letting their banks open branches across the border, permitting mutual investments, connecting electric grids, and promoting overland petroleum trade.

Further negotiations on all these issues are expected to take place in the coming weeks. If things move according to current plans, India and Pakistan could also consider more open overland transit trade across their territories to third countries.

As Delhi and Islamabad modernise the physical infrastructure for cross-border movement for goods and people on the Wagah-Attari border in Punjab, there is growing demand in Pakistan for a similar effort at Munabao-Khokrapar on the Rajasthan-Sindh frontier.

In facilitating Islamabad's shift to this sweeping new agenda, the commerce ministry in Delhi and India's business community sought to address Pakistan's concerns about the difficulties in accessing India's market.

Delhi will have to do a lot more to nurture and deepen the emerging economic engagement with Pakistan. For one, it must be politically sensitive to the current imbalance in bilateral trade which is likely to further widen in India's favour as Pakistan opens up.

India's current exports to Pakistan are nearly eight times the value of imports. Just as Delhi complains about the unequal trade with Beijing, trade deficit is bound to emerge as a political issue in Pakistan in the not-too-distant future.

India must consciously facilitate more imports from Pakistan. Demonstrating that trade with India can be both free and fair is a major strategic imperative for India.

As Zardari delinks the political from the economic, Dr Singh must signal that contentious security issues are not being taken off the table.

Dr Singh, then, must make fresh efforts to clinch mutually satisfactory agreements on Siachen and Sir Creek, where much progress had been made in the past.

It is also a propitious moment for India to consider new confidence-building measures within Jammu and Kashmir and on the line-of-control between the divided parts of the state.

As Delhi and Islamabad stare at the tantalising possibility for a rare virtuous circle in their bilateral relations, it is time for Dr Singh to schedule his long overdue visit to Pakistan.

The writer is a senior fellow at the Centre for Policy Research, Delhi, express@expressindia.com

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