Trade with thy warring neighbour

In political science, the essence of peace between two nations in conflict builds up once steady trade relations develop between them. In the Indo-Pak context the gains are much larger than just peace in a static equilibrium. Recently, efforts were launched to raise trade numbers to $2 billion from an existing $1.7 billion in FY11; exports amounting to $287 million and imports $1.45 billion. The main reasons cited included lower transportation costs and lead-time with respect to imports from elsewhere around the globe.
In the current economic context, it may seem that Pakistan needs to learn many lessons from the Indian success story where growth has been registering at about eight per cent in the last three years versus the staggering 2-3 per cent in Pakistan. Exploring the list of benefits brings lower opportunity costs to the forefront. Establishing trade resulting in ‘peace’ would imply that a lower amount needs to be spent on defense, which currently consumes (exclusive of pensions) more than one fifth of the budget and around three per cent of GDP. Supposedly, if this amount were to be cut by 50pc in future, the net savings would amount to Rs248 billion annually.
Moreover, while Pakistan stands as a net importer, foreign exchange losses can be reduced if efforts are made towards expanding exports. India currently faces an acute food inflation exceeding 20 per cent, which has induced several policy rate increases in the last 18-24 months. The main drivers are prices of wheat and rice despite food grain production expanding to about 250 million metric tonnes. Nevertheless, gains are to be reaped in expanding and heating Indian economy on account of demand pressures unlikely to slowdown if the current pace of growth continues. In monetary terms, the international prices are hovering around Rs800/kg, whereas the local farmer is offered Rs950 for 40kgs. Simple math would reveal the benefit of increasing efficiency in domestic agriculture for the economy to reap the fruits of exporting grains to neighboring and regional economies.
Moving on to the tertiary sector, several studies indicate that a skills deficit may exist in the outperforming finance and BPO segments in India as agriculture continues to be the prime employer in the economy. This may imply that a window of opportunity exists for professionals in Pakistan if Indian investors channel outsourcing services through Pakistan. Currently 70 per cent of the country has fiber optic connectivity while genuine efforts are being made towards expanding broadband penetration through the Universal Services Fund. Thus, synergies can be derived through collaboration on the services front, which will also increase FDI levels in the country.
In addition to trade, technological and knowledge spillovers will also accrue as India can easily boast of high-ranking universities that outnumber those in Pakistan. Other evidence of home grown technology in India is evident through their auto industry amongst others. Access to this technology, would infinitely aid the reserve holdings as auto parts start getting produced locally.
Furthermore, the issue that lies central to Indo-Pak relations is the Kashmir problem. With the establishment of greater trade, some easing of stance may be expected from both sides. According to reports, the Siachin fiasco cost Pakistan Rs18-25 billion, an amount that the economy cannot afford to spend in the near future given pending infrastructure, rehabilitation and reconstruction expenses that gape all over the country.
Thus, the crux comes down to the restatement that the establishment of trust is essential for especially the Pakistan economy to go forward. The reduction pressure of ‘formal’ and informal militancy will not only save lives today but also ensure sustenance tommorow.

The writer is an economic researcher
and freelance journalist