The Hindu Business Line : Impact on trade with Pakistan

As far as can be gauged, the immediate future of India-Pakistan relations is likely to be beset by problems drawing strong sustenance from the terrorist assault on Mumbai in November last year. This is a fair expectation given the evasive tactics being currently employed by Islamabad to wriggle out of an indefensible position, on the one hand, and, on the other, the strategic imperative that faces New Delhi in getting Pakistan to acknowledge that those responsible for the Mumbai outrage were based in its territory.

It remains to be seen how the current face-off will work itself out, specifically whether Washington will support to the hilt Islamabad’s present line of “defence” which is relying heavily on the stability factor within Pakistan. As far as can be made out, the argument employed officially by the Pakistanis runs as follows: Islamabad is in no position to hand over terrorist suspects to New Delhi since the price to pay would be internal turmoil and, probably, an end to the present civilian outfit apparently in charge of the country’s affairs. Political and social chaos on the domestic front would in turn most certainly affect Pakistani military contribution to the larger US strategic campaign on the Afghan front. Would such a scenario be acceptable to Washington?

Inability to control terrorists

Latest reports suggest that the US has more or less agreed to the Pakistanis themselves bringing to book those involved in the Mumbai events, the basic assumption being that this would rock less the domestic political set-up and thus affect to a smaller extent the larger Afghan campaign even though the Americans have enough evidence which incontrovertibly points to Pakistan-based terrorist elements orchestrating the Mumbai events. As far as Islamabad is concerned, the absence of an extradition treaty with New Delhi has come in handy for the Zardari-Gilani establishment in that it can cite this fact to argue that Pakistan is in no way obliged by treaty to hand over those involved in the outrage to New Delhi.

Islamabad has already used the tactic of activating the military bogey to deflect attention from its failure to control terrorist elements operating from its territory. Indeed, here too, as a side-ploy, it has tried to impress on Washington that if “limits” are crossed the anti-Taliban campaign in Afghanistan could suffer. But this ruse has been exposed now and it would be only sensible to expect Islamabad to try other routes to deflect the world’s attention from the central point of its inability to control terrorist elements in its own territory, one of these perhaps being an increased emphasis on a “trade clampdown” which New Delhi may resort to to punish its neighbour.

trade disruption

Not surprisingly, the first noises have already been made in this direction with media reports across the border reportedly claiming that while New Delhi has already “suspended land trade through the Muzaffarabad-Srinagar route after the Mumbai incidents”, it has threatened “to stop trade along other routes” as well. A senior functionary of the Federation of Pakistan Chamber of Commerce and Industries (FPCCI) has been quoted as saying that bilateral trade has been hit “because Pakistani businessmen are afraid to travel to India (in view of) the present circumstances and similarly Indian businessmen are not travelling to Pakistan”.

What is important here is that the onus of the reported trade disruption has already been put on the Indian side with the point being made that New Delhi has taken the initiative to halt the exchange. In an effort to dress the alleged Indian step in an even more ugly attire, it is being argued that the present disruption has come at a time when bilateral trade between the two sides has been looking up. The FPCCI functionary concerned has argued that “in the last seven years, the trade relations had improved considerably between the two countries with a lot of effort and we should not allow these gains... to be eroded”.

There is in fact little doubt that the bilateral trade exchange has increased by leaps and bounds in the recent past with the turnover presently estimated at $2.3 billion compared with just about $345 million in 2003-2004. It is however somewhat ironic that Pakistani businessmen should be crowing over this fact when Islamabad has been steadfastly uncooperative in formally encouraging the trade exchange, as is indicated by its continued refusal to give India most-favoured nation treatment even in the face of a clear WTO stipulation that it should do so.

Indeed, according to one study conducted a few years ago, total informal trade in the South Asian region was around $3 billion, of which more than two-thirds was accounted for by the India-Pakistan exchange. In fact, the FPCCI functionary quoted above has himself said that while direct trade between the two countries has been hit by the alleged Indian clampdown, “third-party trade via Dubai still continues” although “the worry is that (it) may not be for long if the stalemate continues”.

Needed, political push

Clearly, and specially at a time like this when exports generally are on the way down, it would not make sense for New Delhi to clamp down on trade with Pakistan although it is abundantly apparent that the Pakistan economy would be affected much more than the Indian economy. This is because India enjoys a huge trade surplus with sales to Pakistan at around $1.90 billion against imports of a paltry $300 million. In fact, the Federation of Indian Export Organisation director-general has done well to state unambiguously that no disruption of trade has taken place till now and that, instead of barking up this particular tree, Islamabad would do infinitely better if it were to provide the political push necessary to get India-Pakistan trade really going.

It is often said that Pakistan can survive as a State only if it is in a perpetual state of confrontation with its neighbour, which probably explains why the Kashmir issue is always kept alive by Islamabad, particularly the Pakistan military. From New Delhi’s perspective, however, its neighbour is a part of reality and, therefore, cannot be ignored. Further, unlike the predominant view in Islamabad, since there is no virtue in being in a perpetual state of confrontation with that State, every effort needs to be made to have normal relations, a strong economic exchange being a veritable sine qua non for such a relationship. New Delhi, therefore, should be doubly careful of not walking into the trade-disruption trap.

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