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
There are also suitcase traders who misuse the
personal baggage through the "green channel" facilities at
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
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
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
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.
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
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
Trade — Present Scenario
(In Rs. Crores)
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
Chemicals, dyes/ intermediates
Rubber manufactured products except footwear
Paints/ enamel/ varnishes, plastic and linoleum products
Inorganic/ organic, agro-chemicals
Pakistan's Principal Exports to India
Fruits and nuts (excluding cashew nuts)
Textile Yarn, fabrics, made up articles
Estimated to be over $ one billion which is five
times of the official trade.
Third country channels
Indian made goods imported into Pakistan through
third country channels:
Machine tools and equipment/ spares
Indian made goods smuggled into Pakistan
Stainless steel utensils
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.
Flow of goods into India through unauthorized
channels from Pakistan:
Melamine dinner sets
Textiles and clothing
Food items such as wheat, sugar, edible oil and vegetable ghee.
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
Pakistan can export to India with advantage
products such as:
Cotton yarn and textiles
Machinery and steel products
Vegetables and fruits
Pakistan imports iron ore from Brazil and
Australia: These items can be imported from India at much cheaper cost
and freight charges.
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.
Pakistan presently imports automotive components
and spare parts from Far East: These items can be imported from India
at a lower price.
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.
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
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.
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",
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.
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
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
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
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
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.
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
Vegetables and fruits
Textile Yarn and fabrics
Plants for Pharmaceutical.
Sugar, cane, refined