Pak-Indian trade

History narrates that Peshawar used to be the biggest trade route of the world centuries ago. The area, which now constitutes Pakistans Punjab, was predominately trading with neighbours 60 years ago. Flash forward 50 years and the West had had the lions share of trade at the start of this century. In the last decade, slowly but surely, trade was shifted towards the East; China and UAE emerged as two big trading partners. This change is attributed more to the opening up of China and emergence of a cosmopolitan UAE. Another two countries with little share in trade but brisk growth rates are India and Afghanistan, which are a hope for restoring the historic economic vibrancy of Pakistan. Going forward, to regain economic surpluses, opening up of traditional routes is inevitable. Policymakers and intellectuals on both sides of the border have recognised this fact, with negotiations taking place on visa policy, non-tariff barriers and movement of both social and economic capital. Its just a matter of time now. People on both sides recognise that economic prosperity leads to national security, especially for Pakistan, which is lagging behind owing to its structural issues, inconsistent policies and being a smaller economy. Hence, the flow is logically from India to Pakistan and the latter could be the prime beneficiary of the knowledge spillover. The tilt of the bilateral trade balance in favour of India and the fear of losing competitiveness of industries in Pakistan are not unwarranted. But, it is going to generate surpluses in the long-run. Keeping this in mind, the need is to make borders porous. At the same time, on table negotiations to secure key industries is imperative. Indians are smart and visionaries. They pounce upon opportunities both within the private and public sector. The building of a high-capacity refinery in Bathinda - 137 kilometers from Lahore - is meant to have a share in Pakistans oil imports. On the other hand, the public sector is cognisant of food security - the Indian government is subsidising virtually all the key inputs in agriculture produce. This includes subsidies on diesel, fertiliser, power and water. To add to the ado, average Indian import tariff on agricultural goods is close to 40 percent. Meanwhile, Pakistan is doing away with the subsidy culture and local farmers are compensated with high support prices of their produce. This is evident from a shift in income from urban to rural areas - it was the right approach to redistribute surpluses. At the same time, Pakistans average import tariff on agricultural goods is a mere 10 percent - a quarter of what Indians have. So, Pakistan is a clear loser in terms of price competitiveness in agricultural products. There is a policy dilemma - how to protect close to half of the labour force engaged in agriculture and allied industries, after opening up Agro trade with India. If subsidised again, does Pakistan have the fiscal space to do so? How will it eradicate economic inefficiencies created by these subsidies are the questions to ponder upon. The budget debates both at Federal and provincial levels shall deliberate this issue to reach an amicable solution. More on the other industries is to follow. ======================================================== PAKISTANS KEY TRADE PARTNERS ======================================================== ($ mn) FY04 share FY11 share ======================================================== USA 3,738,327 14% 5,221,503 9% UK 1,353,548 5% 1,940,750 3% UAE 2,120,075 8% 7,667,055 13% Saudi Arabia 1,381,609 5% 4,877,175 8% China 1,398,383 5% 5,789,927 9% India 460,964 2% 1,731,859 3% Afghanistan 405,788 2% 1,875,174 3% -------------------------------------------------------- Total trade 26,000,000 61,227,000 -------------------------------------------------------- Source: SBP ========================================================