Research Analyst
Sep 17 - 23, 2012

Openness to trade has been considered as an important determinant of economic growth. Initially, the developing nations of the world followed restrictive trade policies but with passage of time and emergence of globalization, all the nations realized the need to liberalize to their economies in terms of trade openness. Trade of a country is a key determinant for the improvement of a country's industrialization. Moreover, development experienced by a country brings some changes in trade structure on the basis of endowments and comparative advantage. After establishment of WTO, countries are looking for the business opportunities abroad. Free trade and investment agreements have become almost the need of the hour. Industrialization, ICT revolution, advanced transportation, globalization, growth of MNCs' and outsourcing etc had major impact on it.

Presently, the government of India has allowed Pakistani investors to invest in their country and also permission to buy shares in their stock market, including opening of bank branches by the respective countries, were a significant development.

India has also allowed Pakistani business community to invest in India has the potential to drastically reshape the Pakistani economy which for decades has been blocked from a vast potential market of like-minded consumers in India by simmering political tensions.

Although, all the products that are expected to start flowing eastwards across the border it is a Pakistani specialty known as lawn that could be the first through the gates. For decades the traditional cotton cloth has been bought by women who have used it to make elegant outfits that are particularly well-suited to the steamy south Asian summer.

India approved reduction of 30 per cent (264 tariff lines) from the SAFTA Sensitive list for Non Least Developed Countries (NLDCs) allowing the peak tariff rates to reduce to 5 per cent within three years, as per agreed SAFTA process of tariff liberalization in August, 2012.

The bilateral trade dialogue with Pakistan resumed in April 2011. Sustained discussions at various levels resulted in the drawing of a roadmap for an uninterruptible and irreversible trade liberalization process. India has also agreed upon a liberalized visa regime and opened integrated check post to encourage two-way trade. Both countries have held huge exhibitions in each others countries in a bid to boost trade. In recent years the country's fashion designers have revamped the staid designs produced by textile mills, creating a hugely popular branded product. Advertising hoardings in cities are now plastered with giant images of Pakistan's top models showing off the latest lawn collections. Indian consumers showed enthusiasm for Pakistani design at a trade show in Delhi earlier in the year where many of the lawn retailers were mobbed by crowds. Pakistan's only beer manufacturer has already announced a tie-up plan that will see its brew made under license in India. But it is expected that India would have to make even more concessions if cross-border trade is to really pick up.

Official bilateral trade between India and Pakistan is just $2.7 billion annually and heavily tilted in New Delhi's favour. But Indian and Pakistani business community have estimated that up to $10 billion worth of goods are routed illicitly, carried by donkeys through Afghanistan or shipped by container from Singapore and Dubai.

More recently, the Reserve Bank of India decided in August, 2012 that a Pakistani citizen may, with the prior approval of the Foreign Investment Promotion Board of India, purchase shares and convertible debentures of an Indian company, under FDI scheme.

The two sides are currently negotiating a new trade regime and what items should be on a negative list of goods that will not be tradable across the border. India has already ruled that Pakistani businesses will not be allowed to invest in defence, space and atomic energy companies.

After years of tensions and three wars, the amount of trade between the enormous south Asian countries is negligible. There is a consensus among Pakistan's mainstream political parties in favour of normalizing trade relations with India, both to boost the country's failing economy and in the hope that stronger business ties may lead to progress towards peace.

However, huge disagreements remain, including the status of Kashmir, the Muslim-majority mountainous state that Pakistan claims for itself.


Of course, this is a very good sign from the Indian side but they really have to lower duties on imports, not just for Pakistan but for the whole world. India for a long time has been too nationalistic about protecting its market. The problem with this scenario is a dangerous mismatch in expectations between India and Pakistan. India sees improved trade ties as a useful end in themselves; Pakistan, in contrast, is looking for rapid progress on territorial disputes.



1980-81 8.7 1991-92 4.8 2002-03 1.3
1981-82 10.3 1992-93 6.1 2003-04 3.3
1982-83 9.3 1993-94 3.4 2004-05 5.5
1983-84 9.4 1994-95 3.7 2005-06 9.5
1984-85 11.0 1995-96 4.9 2006-07 9.4
1985-86 8.0 1996-97 5.7 2007-08 12.8
1986-87 5.1 1997-98 2.4 2008-09 10.6
1987-88 5.0 1998-99 2.8 2009-10 8.7
1988-89 5.9 1999-00 2.4 2010-11 7.4
1989-90 4.9 2000-01 2.1 Jul-Mar .
1990-91 3.3 2001-02 1.8 2011-12 P 6.9