India, Pakistan Talk Business

Recent moves by the nuclear-armed antagonists India and Pakistan towards closer economic ties by dismantling trade barriers could signal cautious changes – and positive ones -- in the way the two nations deal with each other.

Pakistan’s cabinet approved a proposal to remove restrictions on prohibited imports from India by December, a statement from Pakistan Prime Minister Yousuf Raza Gilani’s office said recently.

Following a pattern that has worked successfully in India-China relations, the two countries are moving forward by setting aside the complex and intractable issues of security and Kashmir and pushing more practical, smaller steps, thus striving for more realistic goals.

By de-linking border disputes with trade over the last decade, a structured framework of talks has been formulated to iron out territorial issues between Beijing and Delhi. That has allowed Sino-India trade allowed to flourish irrespective of the status of disputed land between the two countries that is a cause for constant friction, including deployment of troops and air power.

“Flourishing trade is the biggest confidence building measure among any two nations and improved economic engagement will help build peace and stability,’’ said, India’s commerce minister Anand Sharma, who visited Pakistan recently.

The two countries have fought three wars since independence from Great Britain in 1947, with a long series of other ugly provocations and tensions over the disputed Kashmir region.

With the latest trade changes, only a small list of items can’t be traded between the two countries, paving the way for Islamabad to grant most favored nation status to India, which the latter granted to Pakistan in 1996. Instead of reciprocating at that time, Pakistan created a “positive list” of items that could be imported from India. That list has grown from a few hundred items to around 2,000, primarily in chemicals, base metals and machinery and electronics, although the trade list is funneled through unofficial channels, mainly Dubai, which raises the cost of goods and delays their delivery. It is estimated that India-Pakistan trade could rise to over US$6 billion by 2014 from the current US$2.5 billion.

That doesn’t mean there aren’t problems. All of the official trade is now routed between the Indian city of Amritsar to Lahore in Pakistan via the Wagah crossing. Infrastructure development on both sides of the border – and perhaps in seaports as well – will be necessary to modernize the antiquated facilities that exist now.

Good business relations build a strong constituency for peace over a period of time and remove the trust deficit between different populations which is the bedrock for further trade and progress. Pakistan’s fears of being swamped by Indian goods seem unfounded as competition is expected to lower costs, invite investment and improve efficiencies that ultimately benefit the consumer – and perhaps to cut the level of mistrust between the two countries.

There are signs of new thinking in the efforts by Islamabad and New Delhi to move forward beyond the deeply-rooted suspicions that have resulted between them. The usual position for Pakistan has been to link advances in peace talks, including what are dubbed as confidence building measures, to a solution to Indian Kashmir, which it considers a disputed area illegally occupied by India. India looks as Kashmir as its sovereign territory.

New Delhi has demanded that relations can only be improved after Islamabad clamps down on Pakistan-based terrorist groups such as the Lashkar-e-Toiba, which have orchestrated devastating attacks on India. Islamabad’s position is that it is unable to control militancy or else there would not be so many terror attacks in Pakistan itself.

Crucially, the positive turnabouts in Indo-Pak have come about when the incumbent Zardari-Gilani democratic government in Pakistan has looked its weakest given its recent problems with the all-powerful Army, which is known to have a vested interest in portraying India as a threat.

In the past, by selling India as enemy number one, the Army has been able to build on its image as sole protector of the Pakistani people, usurp power and have a big say in the largesse that continues to flow from America.

The military aid from Washington to Pakistan earlier was to pre-empt any expansion designs on the part of the US’s Cold War adversary the former Soviet Union and, in the wake of the 9/11 attacks on New York and Washington, DC to fund the war on terror with Islamabad considered an ally in the battle being fought in Afghanistan and remote north western tribal regions to flush out jihadi groups.

The US role can’t be discounted in the latest trade thaw between India and Pakistan. It is clear that the Zardar-Gilani combine are no match for the entrenched interests within the Army and the Inter-Services Intelligence unit had Washington not demanded a democratic government as the only way that the country can move forward and continue to receive US aid.

The attendant factor of a hydrocarbon-rich Iran also cannot be ignored. An economically backward Pakistan, woefully lacking in energy sources, has been seeking energy from Tehran to tide over its acute power and electricity deficits, a matter that has not gone down well with America.

Iran, of course, happens to be Washington’s current enemy number one for its supposed independent nuclear program, which the US believes is a pathway to eventually building nuclear weapons, as it though Iraqi leader Saddam Hussein to be building weapons of mass destruction earlier.

Unlike India, which has been heeding Washington’s urgings to squeeze Tehran financially by looking at other oil and gas import options, a desperate Pakistan has been seeking Iran to plug its problems.

Islamabad is going ahead with plans for a truncated Iran-Pakistan gas pipeline that was to extend to India earlier. It is looking at expensive LNG and oil supplies for its power plants and automotive sector, while also importing electricity directly from Iran.

America would any day prefer Pakistan to deal with India for its economic needs and economic progress rather than the “pariah” Iran. New Delhi and Islamabad have already broached the subject of Indian surplus electricity supplies from its western bordering states.

Yet, even if the shadow of America cannot be discounted in the latest peace efforts between India and Pakistan, it only bodes well for the South Asia region. For a change, America’s muddled Middle East politics could result in positive vibes between two nations usually at loggerheads with each other.

(Siddharth Srivastava is a New Delhi-based journalist. He can be reached at