 "Pak left behind in the race, India can help catch up: Ishrat Hussain")
You recently said the foregone benefits to the people inhabiting India and Pakistan are substantial owing to an absence of a proper trading regime between the two countries. How much of a loss are we talking about?
The potential is that of $10 billion, although some say it is $15-20 billion. I take a very conservative estimate; if all trade barriers were removed and trading was normalised, India-Pakistan trade should be $10 billion. A lot of employment could have been generated and industries could have been expanded. Most empirical studies calculate that riding on the back of low transport costs, dismantling of tariff and non-tariff barriers, grant of the Most Favoured Nation (MFN) status to India by Pakistan, and improvement of logistical arrangements, the total volume of bilateral trade should be able to rise to approximately $8-10 billion annually. Pakistan and India together shipped more than $300 billion worth of goods to all parts of the world in 2011. This increased volume would still account for three per cent of the two counties’ trade volume, and will not cause any major dislocation to the existing channels of trade followed by the two countries.
What intangible benefits are in sight if bilateral trading relations between India and Pakistan are normalised?
Investments will take place and production will increase. As a result of this, employment will be generated. Simultaneously, as what is known as the multiplier effect, industries providing services to these export bodies will make further investments to reap benefits. So, trade is a very powerful multiplier for economic expansion, employment and growth. The full-scale realisation of trade potential will take some time. Like a newly planted sapling, it will require tender care.
Pakistan is heading for an election in March. Names of several new parties are doing rounds, including Imran Khan’s Tehreek-e-Insaf. Then, there are the usual ones, such as the Pakistan Peoples Party and the Pakistan Muslim League. If there is a change of government, will normalising trade relations with India still be on the agenda?
All political parties unanimously support that relations with India on trade and investment should be normalised.
That is unprecedented, and has never happened before in Pakistan’s history. What is the reason for this sudden change of mind?
Pakistan now feels it is being left behind in the race. India is a big economy — eight times bigger than Pakistan. Smaller economies must try to benefit from the growth in bigger economies. For example, Canada is a small country but the standard of living of its people is quite high because of the benefits it availed from the US. Similarly, after the North American Free Trade Agreement, Mexico has done extremely well because of its trade relations with the US. So, if Pakistan tries to benefit from its neighbours China and India, we can do well.
But given the mindsets on both sides and the vested interests in play, do you actually feel trade normalisation will take place between India and Pakistan, and the MFN trading status will be given to India?
Yes, it will be a reality. Right now, it is only a matter of timing. Pakistan’s commerce minister is trying to convince agriculturists making noise against the fact that India subsidising its agriculture will damage Pakistan’s agriculture. This has caused an unexpected delay. Finally, policy-makers, for a variety of internal and exogenous circumstances, seem to have overcome their reservations, and a momentum has been built in the last several months to move the process forward.
But time and again, we have seen just the reverse taking place. That is largely owing to the historical legacy that both neighbours had and share. In such a scenario, will geopolitics and trade go hand-in-hand?
I think mindsets are changing now. The middle class of Pakistan today is assertive, and so it is in India. India has Anna Hazare creating noise. Similarly, we have Tahir-ul-Qadri making noise. Such movements are attracting the educated, upper-middle class who are not captive to old way of thinking. Their mindsets are different. Besides, we have more youth in the country. More than 50 per cent of the population is below the age of 25. They have no baggage of a ‘bad’ history. They are global citizens; they are always on the internet, or Facebook or any other social networking site, and they are constantly learning from the rest of the world.
The two main issues that confront Pakistani businessmen today in doing business with India are the absence of a level-playing field and the trade surplus that India enjoys with Pakistan.
Trade surplus is not wrong in my view. Bilateral trade balance with any particular country does not have to be positive. There would be no trade in that case. Pakistan would run a trade deficit with India just as it does with China, and surpluses with other countries. With the signing of the free trade agreement with China, Pakistani markets and producers have already adjusted to relatively cheaper imports from China. They no longer consider that there is any substantial threat from Indian products flooding Pakistani markets and displacing domestic industries. Their working hypothesis is that with cheaper substitutes as inputs, raw materials, components and parts from India, Pakistan would be able to do much better, reduce the unit cost of production and penetrate a much larger market.
What steps should be taken immediately?
Agreements that have been signed between both the governments need to be implemented. This is a bureaucratic problem. We make good policies but we are poor at implementation. We need to involve private sectors in the process. More bank branches need to be opened, too.
You are not enthused with the Indian government’s recent decision to allow investments from Pakistan.
I think the government should simplify the rules, and an investment category for visa should be set up. For example, a Pakistani businessman today can come to India multiple times, but if he is setting up an investment in India, there is no category, and he has to come frequently. There should be no restrictions on the cities he can visit, and the visa should allow multiple entries for an unlimited period.
How do you view Bilawal Bhutto Zardari’s entry in Pakistan’s politics? We have Rahul Gandhi occupying centre stage in India. Do you foresee a transformational change in both countries?
Well, I hope so. Younger people are smarter than us. They will see that it is better to have good and cordial relations with neighbours.