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BUSINESS WITH INDIA

PROBLEMS & PROSPECTS

By AMANULLAH BASHAR
June 11 - 17, 2001

A sudden change in India's attitude has taken the people in Pakistan by surprise, especially in the backdrop of checkered history of strained relations between the two countries spanning 54 years.

It was surprising because the emphasis to open dialogue on Kashmir came just a day after India had said that the freedom struggle against its occupation in the Himalayan territory was a domestic issue and not one for negotiation with Pakistan.

The invitation extended by Indian Prime Minister Atal Behari Vajpayee to Pakistan's Chief Executive Gen. Pervez Musharraf to visit India to go into business to resolve disputes was an obvious contradiction to his overnight attitude towards Pakistan and the issue of Kashmir. Hence the new development which looks positive in nature gives feelings that there is something more than it meets the eye.

Pakistan has however responded accordingly. The positive response from Pakistan has kindled hopes among the peace loving people for an amicable solution of the Kashmir issue, the root cause for the strained relations between the two neighbours.

Problems and prospects

Currently, the bilateral trade between India and Pakistan is less than one per cent of the global trade. There are various factors responsible for the restricted and limited trade between the two nations. India-Pakistan trade is presently taking place through three channels.

Firstly: the illegal trade through the land borders. Secondly: the circular or "informal" trade, which is carried out through third countries and re-exported from there to Pakistan. Thirdly: the formal trade through the official means. The smugglers who exchange goods at Indo-Pakistan borders mainly do the illegal trade.

There are also suitcase traders who misuse the personal baggage through the "green channel" facilities at International airports.

As regards the informal or circular trade, it is mainly conducted through agents who are based in free ports like Dubai or Singapore. The estimated value of trade through this channel is over $ one billion. Every consumer item advertised on dish channels is available in the markets both in India and Pakistan. You just name it, whether it is a Saree or cosmetic item or any thing else, it is available in the market. In short, the total size of illegal and circular trade is much larger than the official trade between the two countries. Hence the illegal traders deprive the exchequer of huge revenues in both the countries pocketing the real benefit of this trade.

Ilyas Ahmed Bilour, recently elected co-president of India-Pakistan Chamber of Commerce and Industry, has said that the Kashmir issue, despite being unresolved, has not stopped the considerable amount of illegal trade taking place between India and Pakistan. The items which are being smuggled into Pakistan from India are industrial machinery, cement, tyres, chemicals and tea. On the other hand, commodities, which are smuggled into India from Pakistan, consist of pulses, edible oils, spices and dry fruits.

S. M. Inam, former president of SAARC Chamber of Commerce and Industry told PAGE that Pakistan's vegetable ghee is much in demand in India while about 8 ghee units are lying closed in Pakistan. This is an area where Pakistan can earn a lot by officially exporting vegetable ghee by putting the closed units into operation.

It is learnt that Pakistan-Afghanistan border is also being used for smuggling from India to Pakistan. What is happening is that the goods are exported officially from India to Afghanistan and later these are smuggled into Pakistan through Peshawar, which lie close to the Pakistan-Afghan border. This is a very serious issue and merits attention of the government of both Pakistan and India.

Given the fact that the two neighbourly countries share common border, the two countries can gain a lot by mutual trading due to low freight costs. For instance, Pakistan imports iron ore from Brazil and Australia and tea from Kenya at higher prices. These items can be purchased at much cheaper rates from India. Similarly, pharmaceutical products in India are about 30 per cent cheaper than in Pakistan and can fetch a good market here. Another Indian items, which have much potential for export to Pakistan, are tea and Coffee. These items are presently being smuggled into Pakistan.

Some business leaders feel that India will offer a vast market for Pakistan exports. Pakistan can export with advantage products such as cotton yarn and textile fabrics, leather products, surgical instruments, sports goods, electric fans, water coolers, vegetables and fruits, sugar etc. Pakistan is already exporting textile yarn and fabrics to India, which can be accelerated.

The pattern of trade between the two countries of peculiar nature and tradable items vary every year. For instance, in 1996-97, Pakistan imported sugar, onion, and potatoes in large quantities from India but in 1997-98 this trend was reversed in bulk export of these commodities to India. Similarly, Pakistan's exports to India boost up by 100 per cent in 1997-98 due mainly to bulk export of sugar to India. The balance of trade has all along remained in favour of India. During 1999-2000 exports from Pakistan stood at $53.65 million whereas exports from India were to be tune of $127.40 million.

Reservations

Despite all possibilities of trade expansion between the two countries, some of Pakistani businessmen have genuine reservations to open free trade with India. They feel that India has a very stringent import policy and is more inclined to increase exports at a greater pace rather than to increase imports. Although this policy has helped India to bring down the trade deficit but at the same time it has declared her imports. The Indian economists say that decreasing imports reflect slowdown in growth of national economy. Needless to say that India offers natural outlet for Pakistan's consumer goods provided India relaxes its import policy.

Cheap labour charges in India are another important point, which needs to be considered. Cheap labour charges in India eventually leads to lower product costs having direct bearing on the export competitiveness in the international markets. According to an estimates the labour wages in Indian manufacturing sector are two third those in Pakistan with better productivity and superior technology. Hence the Indian engineering goods are 30-35 per cent cheaper than in Pakistan. The resources in Pakistan and India have many similarities. Consequently, in world markets, the two countries are competing rather than being able to supplement each other's deficits in resources.

The All Pakistan Textile Mills Association (APTMA) feels that India is producing good quality of Textile Machinery and Spares in technical collaboration with world renowned textile machinery producers. The price of Indian Textile Machinery is also lower than its competitors' prices. Since Pakistan is presently not producing Textile Machinery it will save considerable foreign exchange if textile machinery and spares are allowed to be imported from India.

It is a general feeling amongst the Pakistani businessmen that trade between the two countries should be liberalized in phases so that the domestic industries which are likely to be affected due to Indian exports get some breathing time to be able to compete with Indian goods. They are also feeling that the liberalization of trade between the two countries should be linked with the liberalization of import policy of India.

Traders in Pakistan believe that unnecessary barriers in the bilateral trade be removed so as to enhance the two-way trade.

Zubair Motiwala, President, Karachi Chamber of Commerce and Industry (KCCI) said those leaders of the two countries when meet will certainly talk about the trade relations and trade cooperation between India and Pakistan. Motiwala said that easing the complexities in visa procedure is the area, which should be taken into consideration by the two countries. Business community in Pakistan feels that by removing the trade barriers, the two countries can enhance bilateral trade to their mutual benefit. Isolating the trade from political issues can only do this. It is high time that the two countries should look towards the problems in a forward looking and optimistic way. Development of mutual trust and understanding is of vital importance to create an enabling environment for expanding the bilateral trade.

Bilateral Trade Present Scenario
(In Rs. Crores)

Year

Export to

Import from
Pakistan

Total trade
Pakistan

1990-91

73.60

84.49

168.01

1994-95

179.70

165.61

345.31

1999-00

405.35

296.74

702.09

Although there has been substantial increase in total trade in the last decade, the total volume remains insignificant. Bilateral trade is constrained by the existence of Pakistan's tradable list of 600 items which alone qualify for import from India. Barring these 600 items all other items are banned for import from India.

India's Principal Exports to Pakistan

Oil meals
Spices
Drugs, pharmaceuticals
Chemicals, dyes/ intermediates
Coaltar chemicals
Rubber manufactured products except footwear
Paints/ enamel/ varnishes, plastic and linoleum products
Inorganic/ organic, agro-chemicals

Pakistan's Principal Exports to India

Rice
Fruits and nuts (excluding cashew nuts)
Sugar
Textile Yarn, fabrics, made up articles
Leather
Cotton
Electronic goods
Crude minerals
Spices

Unofficial Trade

Estimated to be over $ one billion which is five times of the official trade.

UNOFFICIAL TRADE

Third country channels
Unauthorized/smuggled

Indian made goods imported into Pakistan through third country channels:

Textile machinery
Tannery equipments
Machine tools and equipment/ spares
Cotton fabrics
Tyres
Chemicals goods
Viscose fiber
Indian made goods smuggled into Pakistan
Cosmetics
Alcoholic beverages
Stainless steel utensils
Ayurvadeic medicines
Video tapes
Cassettes
Confectioneries
Cashew nuts

Reasons: Restrictions by Pakistan for importing these goods from India in spite of their being huge domestic demand to do so and improper trade infrastructure.

Unofficial trade

Flow of goods into India through unauthorized channels from Pakistan:

Plastic goods
Synthetic fabrics
Melamine dinner sets
Textiles and clothing
Woollens
Food items such as wheat, sugar, edible oil and vegetable ghee.

Potential

India has granted Most Favored Nation (MFN) status to Pakistan but Pakistan did not utilize that status because it has not reciprocated till now.

Pakistan business to be given the option for trading with India at least in items which are open for the rest of the world.

Pakistan can export to India with advantage products such as:

Cotton yarn and textiles
Sugar
Leather Products
Hazelmills
Surgical instruments
Iron Ore
Machinery and steel products
Chemicals dyes
Paper
Vegetables and fruits
Asafetida
Apricots

Engineering industry

Pakistan imports iron ore from Brazil and Australia: These items can be imported from India at much cheaper cost and freight charges.

Textile machinery

High demand in Pakistan
Banned items for import from India

Pakistan imports from Switzerland and Germany at high cost: These items with comparable quality are available from India at lower cost.

Automobile Industry

Pakistan presently imports automotive components and spare parts from Far East: These items can be imported from India at a lower price.

Tyres

Huge import of automotive tyres through clandestine routes leading to loss of directs revenue to Pakistan. This item has been placed on the open import list. High duty of 46.6 per cent on Indian tyres goes officially to Pakistan making them uncompetitive. Hence same Indian tyres are imported through the third country channel costs cheaper in Pakistan.

Chemical industry

Import of chemicals and dyes from India at cheaper rate can enhance competitiveness of Pakistan leading export sector i.e. textile and leather.

India-Pakistan Chamber of Commerce & Industry (IPCCI)

President of newly formed India-Pakistan Chamber of Commerce and Industry (IPCCI) Chirayu Amin, who recently visited Pakistan as the leader of Indian delegation, has said that IPCCI targets to double the volume of India-Pakistan trade from $200 million to $400 million. He said that this target would be achieved in two ways: this chamber in which the trade between the two countries can take place shall identify trade creation and trade diversion new commodities. He said that IPCCI intends to work with both governments to open trade completely for each other and also lower the tariffs.

Amin said that the commodities which both India and Pakistan are acquiring from rest of the world even though there is a potential of sourcing them from each other should be identified for trading.

Regularizing the unofficial trade by improving trade infrastructure and bring the items which are being traded unofficially into the official tradable list, especially of Pakistan. This shall also involve lowering tariffs in specific commodities, which have a high bilateral trade potential.

Unrestricted movement of goods and people is the pre-requisite of all trade and commerce. Efforts have to be made to put in place an adequate trade infrastructure for movement of cargo and easing the Visa regulations for businessmen.

To achieve these targets the Federal trade bodies of the two countries will have to work out a planned strategy, involve more and more businessmen in both countries.

Vajpayee

Indian Prime Minister Atal Behari Vajpayee has expressed the hope that upcoming visit by Chief Executive Pervez Musharraf to New Delhi would help resolve the Kashmir dispute. "I am hopeful that we will find a solution to the Kashmir dispute," Vajpayee said at a televised public gathering in Gujrat. "We are ready for discussion on any subject, including Kashmir, he said. We want peace in our country, in our neighbourhood and the world. I invited Gen. Musharraf to achieve this goal." I am happy Gen. Musharraf has accepted my invitation and we will talk on all issues. "I am sure some concrete way will emerge out of the talks", Vajpayee added.

Indian Prime Minister also welcomed Chief Executive's speech he made on June 5 asking religious hard-liners to stop making statements against India. He claimed that India has always been asking for an end to the propaganda war between the two countries. This is the first step in the direction of lasting friendship between the two countries, Vajpayee said.

Pervez Musharraf

Chief Executive Gen. Pervez Musharraf, who would naturally like to have a congenial atmosphere at home while visiting India, has warned the publicity mongers to refrain from making irresponsible statements.

The Chief Executive has invited the attention of the people that Pakistan was being regarded a terrorism-sponsoring country due to irresponsible statements and actions by irresponsible leaders.

Gen. Musharraf has asked religious scholars to look deep into the damages caused by irresponsible statements and actions.

He urged the Ulema to help create religious harmony, which, he said was necessary, both for attracting foreign investment and stability of this country.

The foreign and domestic investors were not ready to invest in Pakistan because of the law and order situation, the Chief Executive regretted.

The law and order situation is the first thing to be corrected to lure foreign investment in Pakistan. It was not easy to attract foreign investment once the image of the state was marred. Because of the law and order situation there was talk of even declaring Pakistan a "terrorist state" while others referred to it as "a failed state". He urged the Ulema to avoid making irresponsible statement and ponder over the impact of such actions. Such statements could have a damaging spillover effect upon their brothers in faith both inside and outside the country.

Pakistan is a nuclear power but its economic power was not in consonance with it. He quoted the example of former Soviet Union, which disintegrated due to its economic weaknesses.

Despite being one fourth of the world population with 70 per cent of the globe's energy resources, the GDP of the Muslims Ummah is about $1200-1300 billion while the GDP of Japan alone was $5500 billion.

There are 380 universities in the Muslim world while there were 1000 universities in Tokyo alone, he added.

The Ummah produced 500 phDs in a year while United Kingdom alone produced 3000 phDs and India was producing 5000 phDs. He urged Ulema to make Pakistan strong first before giving vent to their feelings.

Indian Delegation

Mr. G.T. Dembla, leader of Indian Textile Engineering Exporters' Council, recently visited Pakistan has said that being neighbours, India and Pakistan have many things in common: both the nations have predominantly agro-based economies and rapid industrialization has taken place over the last few decades. Cotton has been the traditional cash crop for both the countries.

In the realm of liberalization, we have been watching with keen interest the steps taken by your country in boosting the textile industry. He said that he believes that at the cessation of MFA in 2004, the Government of Pakistan has formulated a new policy "Textile Vision 2005" under which an investment of Rs333 billion over the next 4 years in Balancing, Modernization and Replacement (BMR) of the textile industry has been envisaged which is quite encouraging.

Pakistan, is one of the very important and large markets for the Indian textile machinery manufacturers. No doubt we are not new to the Pakistan textile industry as suppliers of textile machinery and accessories of international standards and at highly competitive prices as most of you would have observed at the time of the India-International Textile Machinery Exhibitions held in Mumbai and also at the ITMAs.

Indian industry has been upgrading its products continuously to stay in line with the latest and most sophisticated technology, he said. Indian delegation is here to specifically assess the current and future BMR needs of Pakistan textile industry and the role that Indian textile industry can play in this regard.

The present import policy of Pakistan does not permit export of Indian products directly, but the trade between the two countries is continuing. It is our earnest request that the present embargo on import of Indian textile machinery directly by Pakistan textile industry is lifted soon so that the Indian textile engineering industry will be able to meet your requirements at very competitive prices with expeditious and effective after-sale-service.

Bangladesh, Indonesia, Korea, Japan, Philippines, Malaysia, Sri Lanka, Thailand, Vietnam, Egypt, Kenya, Nigeria, Sudan, Tanzania, Uganda, Zambia, Canada and USA, Brazil and Venezuela, Iran, Syria, Turkey etc are already importing textile machines from India.

Outlook

The manufacturing sector in Pakistan has its own ups and downs. While it has to experience the bitter taste of nationalization and then denationalization on one hand. The poor infrastructure, high product cost due to ever-increasing cost of inputs, taxation and utility charges never allowed it to grow on a massive scale. On the other hand it enjoyed an easy going under the umbrella of protection, quotas, exemptions, incentives and political favouritism. Consequently, it developed complexes with weaker confidence. It is not the question of opening trade with India, our trade and industry has to be prepared in terms of quality and effective marketing to face the global challenges in the face of WTO.

Major Items of Exports to India from Pakistan

.

1997-98

98-99

1999-2000

Vegetables and fruits

22.33

17.13

22.14

Textile Yarn and fabrics

0.78

2.04

2.90

Leather/leather products

0.95

0.55

0.10

Petroleum crude

5.10

4.17

 

Plants for Pharmaceutical.

1.21

1.30

2.24

Rice

0.01

12.70

 

Sugar, cane, refined

62.00

142.18

 

Others

3.22

5.29

9.31

Total

90.57

173.00

53.84