Self-reliant vs trade based economy
The PML-N government ever since its inception has been vociferously advocating normalisation of relations with India and use the liberalisation of trade between the two countries as a vehicle to promote the desired bonhomie between the two countries. However there is also a strong anti-India lobby which is persistently spurning the philosophy being pursued by the PML-N regime in this regard. Well, in a democracy where media is independent, every citizen has a right to criticise and hurl opprobrium at the policies of the incumbent government, provided it is constructive and based on irrefutable supporting facts. But criticising the policies merely for the sake of criticism reflects cynicism on the part of the critics. Cynicism is a state of mind when all the mental faculties to distinguish between good and bad are obscured and the individuals and groups suffering from it exhibit an irresistible propensity to invariably focus their attention on dark side of every thing and consciously or unconsciously spread despondency among the masses.
The opponents of trade with India prefer the argument that imports from India would only benefit India and a certain section of business community in Pakistan at the cost of industry and agriculture sector. This argument is based on the assumption that Pakistan will only be importing from India, which is a flawed perception. Trade is always a two-way traffic and what a country imports or exports to another country on bilateral basis is determined by the ‘comparative advantage’ which means that a country will import only those things from the other country which are available at a lower cost than the cost it would have incurred on its production domestically and exports the goods to another country in which it enjoys the comparative cost advantage. It is a very simple economic principle.
Trade with India has multiple advantages in addition to the economic benefits that would accrue to both the countries in the shape of expanded markets. The economic dependence on each other would ultimately pave the way for resolution of the disputes between the two countries through diplomatic and political channels. This idea also fits well into the emerging concept of shared regional economic prosperity and security being pursued by member states of Shanghai Cooperation Organisation (SCO) and other countries of the region including Pakistan. Economic, political and security interests of Pakistan are inextricably linked to our own region. They can be best served by improving relations with our neighbours, especially India by resorting to out of the box solutions to the disputes that have marred relations between the two nations for the last more than six decades. It is a lesson from the history also. The detractors of improving relations with India represent the old guard who are obsessed with the anti-India phobia and refuse to burry the hatchet in complete denial of the new realities.
The idea that instead of trade with India Pakistan should focus on reviving the economy and making it self-reliant, relying solely on increasing tax-GDP ratio by making the rich pay their due taxes, fails to recognise the role that other economic variables play in ensuring self-sustained growth. A critic also relied on an OCED report for 2014 to reinforce this argument. The report said, “Foreign direct investment, remittances and trade have their shortcomings as sources of development. Finance and domestic revenue are the most sustainable resources for development and a way out of aid dependency. By mobilising its own revenue, a government not only reduces external dependence but also strengthens the state and intra-social relationships.”
Here again the critics are trying to give a wrong interpretation to the contents of the report. The report only points to some shortcomings in relying on FDI, trade and remittances but does not reject their contribution to the process of development. Domestic revenue generation is only one of the ingredients of an economic strategy designed to nudge the country towards a stage of self-sustained growth. Development models all over the world invariably consist of a combination of economic variables. Foreign direct investment and foreign borrowing is considered to be a major source of funding the development projects in the resource-starved nations and sometimes even the developed countries. Export-led growth is invariably a preferred economic strategy in earning foreign exchange and the creation of employment avenues within a country. The remittances by the overseas Pakistanis are arguably the biggest sources of foreign exchange for Pakistan. So no growth model or economic strategy can deliver without reliance on a combination of the foregoing variable.
The government of the PML-N has already evolved a strategy to expand the tax net by bringing more and more sectors of the economy into it. A move is also in the offing to do away with the culture of exemptions and SROs which is estimated to yield Rs500 billion. Structural reforms on the macro level and gradual phasing out of subsidies and privatisation of state owned enterprises are also an integral part of the economic agenda of the government for generating direly needed resources to fund development projects. The government has successfully negotiated with the IMF for a fresh loan of US$5.3 billion besides winning GSP Plus status for Pakistan. The economists are unanimous that it would give a big boost to the economy of the country.
These are surely healthy and encouraging signs in regards to the revival of the economy, deserving due appreciation. Merely relying on domestic revenues seems a nightmarish approach in view of the prevailing condition of our economy and might take centuries to materialise with all the other variables remaining constant.