The long history of animosity between India and Pakistan has spelled the end of virtually anything that is normal between any two countries. Probably there are no two countries that are more “remote” that share a border. This may change in the days ahead. On Wednesday, Pakistan announced the most-favoured nation status for India. India had taken that step in 1996.
Rs.There is ample scope for trade between the two countries. Historically, before partition, what is now Pakistan was India’s cotton yard. This trade, along with those in other items, tapered off after relations cooled in the decades since 1947.
In 2009-10, India imported $276 million worth of goods from Pakistan. In the same year, it imported 111 times more from China. Today, Pakistan is in a position to supply cotton, cement and other much-needed raw materials to India at a fraction of the cost at which they’re imported from other countries. Various trading points—Wagah in Punjab and various ports in western India, linked from Karachi—make this an easy option.
So far, Pakistan has held back on two counts. One, political factors have always played spoilsport. Earlier, it was governments, today it is radical groups that are opposed to trade. The other factor was the fear of the Pakistani industrial and commercial class that feared Indian goods swamping the local market. This is no longer an issue, in Islamabad or in New Delhi.
This change in Pakistan’s position comes at a time when that country’s economy is in dire straits. Islamabad’s $7.6 billion standby agreement with the International Monetary Fund (IMF) is probably a dead-letter. Given serious domestic political constraints, it is no position to execute the fiscal reforms that IMF wanted. Disbursements have been suspended since December last year. Since 2009, Pakistan has regularly missed meeting its fiscal deficit targets. In 2011-12, it is expected to miss this target by a full two percentage points. Its external sector position is no better. If anything, the drying of capital flows and difficulties in securing multilateral aid is exacerbating its economic problems.
This is the background against which one should see its efforts at normalizing trade ties with India. At an earlier date, this conclusion would have been considered facile and disputed. But not today. Getting multilateral aid requires US cooperation, something that is now in very short supply. Bilateral help—from China in the form of loans or outright grants—too has limits. It makes sense to trade with India now.
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