Trade between India and Pakistan is expected to get a big boost with Islamabad deciding to move towards a negative list for India. Estimates by trade associations show that the current $3-billion bilateral trade could see a four-fold increase in the next couple of years if the political climate remains conducive.
Pakistan has till now been following a positive list approach for India, which means only items on that list could be exported to Pakistan from India. However, it has now decided to keep a negative list of about 1,200 items. This implies that all products, apart from those mentioned on the list, can now be exported from India to its western neighbour.
This move is certainly a significant step towards removing barriers to bilateral trade. Moreover, what is really pertinent is that the current negative list put out by Islamabad may be completely phased out by the end of the year
The opening up of trade between the two countries has to now lead to greater bilateral investment from both sides. There is now a need for the two industries to look at how value chains can be built across the subcontinent. This would help strengthen the economies, build a large class of customers and also enhance people-to-people contact, which is crucial to keeping the momentum of trade high.
Industry, on both sides of the border, strongly advocated this opening-up by Pakistan for many years. With the government now heeding to their request, it will be important to use this opportunity to build greater synergies between the two countries.
To begin, industry may want to focus on a few products to boost bilateral engagement. Textiles and clothing as also processed food products offer a large scope for employment in the subcontinent and an equally large scope for greater cooperation.
India has been laying special emphasis on the food processing industry to overcome wastage. Nearly 30 per cent of India’s fruit and vegetables are wasted for want of processing facilities. Cooperation in this sector across South Asia can help build a strong industry with the availability of a large intra-domestic market for products.
On textiles and clothing, the two sides may need to work together to ensure that synergies are developed and a strong value is built that helps both countries increase their presence in global markets.
The opening of the Pakistani market for Indian products comes at a time when India is growing its presence in global markets. The Economic Survey shows that international trade now accounts for nearly 53 per cent of the gross domestic product (GDP) compared to 37 per cent in 2004-05, pointing to increased integration with the global economy, which is not limited to the stock market and the banking system alone.
In the past few years, the top 15 countries of interest to India for exports have changed substantially and the number of advanced nations on the list has been shrinking. Interestingly, the US has lost its top position and is now ranked third after the UAE and China. The economic slowdown in the US and the European Union has also driven this change in India’s export destinations.
To capitalise on the opening-up, industry from the two nations will need to draw up an agenda for cooperation. The cooperation could be based on three main pillars.
Th first would be to capitalise on the bilateral free trade agreements in the two countries by looking to develop markets jointly for third country markets. Given the fact that India now has a free trade agreement with several trade partners, Pakistani industry could look at how their intermediate products could be sold in India for exports to third countries after meeting value-addition criteria.
Second, there is a need for greater investment by industry on both sides. Though this would take time, there is a need for greater interaction between large industries on both the sides to help achieve this objective at the earliest.
Third, the governments may have to look at other initiatives including the creation of free trade zones for industry in both countries to invest and export to third country markets.
The ball is in the court of Pakistani and Indian industry to capitalise on this emerging opportunity that deeper political engagement between New Delhi and Islamabad has produced.
The author is Principal Adviser with APJ-SLG Law Offices
