Why Indo-Pak trade a political casualty?

A few years ago, trade corridors in Pakistan were abuzz with a bizarre tale. The mouse, who fell in love with the majestic lioness, was nervous to open up his mind for obvious reasons. He went to gym to build his physique, but failed to produce a macho in himself and a match for the lioness. One fine day, the mouse mustered enough courage and proposed to the lioness. Piqued by his curtness, she roared furiously. “Look at yourself, what do you possess?” The mouse replied: “I have the will and the confidence.”

The affaire d’amour story has but ended brusquely, a few years ago.

Pakistan, scared of India’s roar, never showed the will and the confidence. It refused to accord Most Favoured Nation (MFN) status to India, even after two decades of India doing it to its neighbor. Pakistan claims that its sizeable trade imbalance with India meant there is a greater demand for Indian goods in Pakistan and their import could hurt the economy. The fact is that the opposition and the fluid political situation in Islamabad forced the Pak government to go slow in finalising the list of goods that it did not want to import from India (called a negative list, having around 600 tariff lines).

India too has lost its will – of building a multi-billion market just across the frayed border. The enveloping political cacophony has drowned the meek murmurs of India Inc. Big business groups from India such as Bharti, Adani, Essar and Hero, who did several recces of the Pak market in the past, have fallen silent now.

If the recent numbers published by the State Bank of Pakistan (SBP) are to be believed, India’s exports to Pakistan fell 23% to $958.3 million during the first eight months of 2016-17 (July-Feb period as Pak fiscal starts on July1), while imports from Pakistan grew 14% to $286 million. Pakistan’s trade deficit has shrunk to $672 million, a low in several years. The SBP report said India bought more and more Pakistan cement and partially offset the drop in demand from two traditional markets of South Africa and Afghanistan. As India was waylaid, China steadily increased its share of trade with Pakistan.

Pakistan is a minnow when it comes to manufacturing and trading. But for India, it is a thriving market with 19.6 crore people. Pakistan is less than one-sixth of India, but the sixth largest country by population.

Look at the Indo-Pak trade figures of 2015-16. India exported cotton, jute, coffee, pharma products and engineering goods worth $1.8 billion, while imported goods worth $400 million, creating a trade deficit of $1.4 billion. Trade deficit in favour of India meant that any unofficial ban would hurt India Inc the most.

In this context, China’s economic policy towards India makes for a curious study. Political tensions between two countries have barely impacted its growing interest towards Indian market. The India-China bilateral trade in 2016 amounted to $70.8 billion, with trade deficit mounting to a whopping $46.6 billion. During last Diwali, a social media campaign went around insisting people to boycott Chinese goods, in protest of Beijing’s tacit support to Pakistan. Chinese prime minister Xi Jinping’s visit in October, however, diffused the campaign.

It is not completely wrong to conclude that a healthy bilateral trade could slacken off even the most menacing political tensions.

The writer is editor, DNA Money.
He tweets @AntoJoseph