Pak-India: Misplaced focus

Needless belligerence compounding economic strife

As the Indian government, media and its extremist political parties needlessly up the ante in their rhetoric against Pakistan, tempers on both sides have been running high. Accusations relating to the line of control violations are being freely tossed at Pakistan by India and more dangerously, the threat of war now being hurled (both countries are equipped with nuclear arsenal) simply borders on the insane.

With the Indian elections fast approaching, in first half of 2014, one can somewhat understand the high pitch of the anti-Pakistan record being played by the Indian politicians – for strangely a negative fixation with Pakistan still finds traction with the Indian public.

But with no such compulsions or complexes at home the Pakistani leadership has to avoid the bait by showing more maturity. So far, it has done well by displaying a good deal of restraint. Ironically, the standoff could not have come at a worse time for India and Pakistan. Both countries are struggling economically and in order to serve the ‘real’ interests of their people should instead be focusing on enhancing economic linkages and bilateral trade and not war hysteria.

Pakistan’s economy as we know has been consistently slowing down since the last six years, presenting some serious challenges relating to high inflation, low investment, rising current account deficit, declining reserves, an eroding Pak Rupee, high unemployment and persistent energy and security issues that continue to hold ‘economic growth’ hostage.

In order to spur the economy what the country needs is investment and trade, and for this its natural priority should be its neighbourhood.

India on the other hand also seems to be going through one of its lowest economic periods since the early 1990s. For the past 10 years, India seemed poised to take off, for a place alongside China as one of the dominant economic powerhouses of Asia. Its economy was strengthening and its corporate leadership was striding across the world stage. The last eight months however have not only dented India’s confidence in itself, but a growing chorus by critics (outside of India) is also starting to ask whether India’s quick rise was merely an illusion without any sound or a sustainable footing. Last week India’s rupee completed its biggest monthly loss since 1992 – the world’s worst currency performance – on concerns of its further deepening economic slowdown and exiting of investors from India, amidst a global recessionary backdrop where the USA is making its intentions clear to pare its stimulus at home.

This weakness of the Indian dupee largely stems from its large current account deficit, caused by its huge imports of gold and higher costs of its crude oil and coal imports. Further, the Indian stock market has dropped value by more than 10 per cent in the past quarter alone and its economy has expanded just 4.4 percent compared with the same period in the previous year (and from 4.8 percent in the preceding three months).

These figures are well below expectations, making it India’s worst performance since 2009. Even more alarmingly, BNP Paribas Asia’s department of equity strategy is viewing India’s growth problems to in fact escalate in the coming months ( growth at only 3.7 percent, which would be its weakest since 1992) unless of course it quickly takes some bold initiatives.

Recent economic history is full of examples where countries have achieved higher growth through enhanced economic and trade linkages. In fact the world economy itself over the last decade has mostly grown on the back of enhanced global trade. In stark contrast, the eight member countries of the South Asian Association for Regional Cooperation (SAARC) though account for around a quarter of humanity (a total population of nearly 1.7 billion), its combined share of the world’s GDP is a meager 3 per cent, followed by a tiny 2 per cent of world exports and a lowly 1.7 per cent of the total global FDI.

Sadly, this poor showing of SAARC is mostly due to the fact that its two largest members, India and Pakistan, tend to stifle each other’s economic potential instead of complementing it. In a setting where India represents 75 per cent of the population of the region, 63 per cent of its land area and 81 per cent of its combined GDP, intra-regional trade as a percentage of GDP was recorded at only 30 per cent in 2010. Compare this with other regions, East Asia (58 per cent) and Europe (66 per cent) and one can easily understand why both India and Pakistan suffer from such a high and unhealthy dependence on global economic developments cum shocks.

The region also exhibits a similar tepid performance when it comes to investment integration within the region. According to an Asian Development Bank study conducted in 2010, SAARC is the least integrated region in the world.

If Pakistan and India have to achieve meaningful and sustained economic growth and development this negativity has to change. And which two leaders better suited to this than Nawaz Sharif and Manmohan Singh – Sharif was the architect of the first real economic reforms in Pakistan (and perhaps also the first within the SAARC region) back in the early 1990s and Manmohan Singh took a leaf from his book by emulating similar measures in India when he was the Indian finance minister around the same period in time.

What these leaders need to remember is that economic dynamism through mutual economic reliance creates its own peace dynamics. In an entirely different setting altogether the second round of talks between China, Japan and South Korea for a trilateral free trade agreement (FTA) ended on August 16, 2013, in Shanghai. As expected, the three nations made virtually no progress worth reporting during these talks, but it does not mean that the talks achieved nothing. The three nations are scheduled to hold a third round of talks in Japan by the end of this year, which in itself indicates the strong willingness to connect the three nations by cementing their mutual trade and economic inter-linkages.

The post talks joint communiqué simply stated: “China-Japan-South Korea Free Trade Agreement is irreversible”. Pakistan and India ought to learn from their resolve!

The writer can be reached at: e-mail: [email protected]