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Shaky Pakistan-India economic relations

International economists conclude that for all countries trade is beneficial and for this reason; no country finds it feasible to be closed economy anymore. However, the mutual hostility between Pakistan and India has resulted in negligible trade. But unluckily, relations between Pakistan and India currently worsened when the Government of Pakistan planned to downgrade diplomatic ties with India, recalls its high commissioner from New Delhi, expel the Indian envoy to Islamabad and suspend bilateral trade. These decisions were taken at a high-level meeting chaired through the present Prime Minister of Pakistan in response to the Indian government’s move to scrap the special status accorded to Jammu and Kashmir under Article 370 of the Indian Constitution.

According to the recent statistics by Indian Council for Research on International Economic Relations (ICRIER), the total exports from India to Pakistan in FY2018-19 was recorded approximately $2 billion. But the latest statistics of informal exports as per the ICRIER report, which goes back to FY2012-13 was recorded at $3.9 billion, nearly twice the current value of formal exports. Similarly, the informal imports by India from its western neighbor was recorded at $721 million in FY2012-13 and the latest formal imports (2018-19), is well short of that level at $494.8 million.

Experts also showed that informal trade has continued to rise as the formal route has seen its ups and downs in the recent past. Such module of trade is not included in the national income. They have also recorded that states sometimes select informal trade route also to avoid high tariff and trade restrictions. In the case both states, India-UAE-Pakistan is the primary channel for informal trading. In this process, trade is recorded between India and UAE and between Pakistan and UAE, but is not directly recorded between India and Pakistan. The main cause for the nominal impact of the trade suspension on India’s businesses and economy is that a large part of the trade between the two states takes place by the informal route, which means that the trade takes place through a third country.

According to the different sources, worsening of diplomatic relations between both states is not something new, particularly when viewed in the immediate context of past few eras. However, what is new this time is the Government of Pakistan’s decision to totally suspend bilateral trade with India. It is also said that Pakistan’s statement comes nearly 5-month after Indian government planned to revoke the Most Favoured Nation (MFN) status that it had accorded to Pakistan in 1996. According to the FY2012-13 statistics, the products/items primary informally exported from India were jewellery, textiles, machinery and machine parts and electronic appliances among others.

 

On the other hand, India’s informal imports from Pakistan consisted of textiles, dried fruits, spices, carpets among others. The major products exported through India through the formal route include chemical products and textiles among others, and the formally imported items include mineral products and vegetable items. It is also important to note that Pakistan and India are two neighbors who not only share a 3,000-km-plus land border but also are well connected with a commercially vibrant international sea route. But despite Pakistan’s strategic location and India’s vast resources and booming market, the two countries do not share any significant trade. Further statistics also showed that the size of India economy has increased to almost $2900 billion. On the other hand, the size of Pakistan’s economy is about $273 billion.

Pakistan’s Economic Survey 2018-19, explained that the country’s GDP increased at only 3.3 percent in FY2018-19. On the other hand, India’s GDP grew at 6.8 percent during FY2018-19. However, the Indian economy is still much bigger than Pakistan. The size of Indian economy is $2,900 billion, almost nine times larger than Pakistan. In terms of foreign exchange reserves, too Pakistan is in dilapidated condition with Forex reserves of approximately $17.4 billion, as against to India $420 billion Forex reserve.

According to World Bank’s database on global trade, during 2017 India’s GDP reached at $2,600,818 million with a per capita income of $1,800. In comparison, Pakistan’s GDP was $304,952 million (i.e. 752 percent lower than India) and its per capita income was $1,580. Database also showed that Pakistan had been outperforming India in economic growth in the first three decades after independence. In the 1950s and 1960s, India’s growth hovered around 2-3 percent yearly while Pakistan increased at around 5-6 percent, with a per capita income considerably higher than India’s, states a 2019 World Bank policy note. Since 1970s, while India was able to enhance its growth rate, Pakistan’s growth slowly petered, largely because of internal political unrest.

Conclusion

Our Pakistan is geographically located at a strategic position between India and the energy-rich Gulf. It is a vital land link between South Asia and central Asia. If it is peaceful and Indo-Pak relations are friendly, the entire region stands to gain. All Pakistanis stand with the Government of Pakistan on the same page.

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