ICRIER survey: Indo-Pak trade continues despite harsh politics

 By Ajai Shukla

Business Standard, 22nd Jan 14

The Indian Council for Research on International Economic Relations (ICRIER) has released a survey on how Indian and Pakistani companies perceive trade normalization between the two countries.

The survey, which was unveiled in New Delhi today at ICRIER’s 2nd Annual Conference on Normalizing India-Pakistan Trade has found optimism amongst 400 Indian and Pakistani firms, 200 from each country, spread across several cities, and including manufacturers, traders, freight forwarders and clearing agents.

According to Nisha Taneja, who headed the survey, Indo-Pak bilateral trade, which is currently $2.7 billion dollars in the formal sector and an estimated $1.79 billion dollars in the informal sector (2012-13 figures), has the potential to grow by a multiple that ranges from 0.5 to 27.

 Most firms polled believed that unfavourable events, like firing on the Line of Control (LoC) and terrorist strikes, do not have a highly negative impact on trade. All 200 Pakistani companies surveyed believed that political events had a “very low” to “average” impact on trade. Only 65 per cent of the Indian companies surveyed held the same view, with 35 per cent perceiving a “high” or “very high” correlation between politics and trade.

On the question of market access, only 28 per cent of Pakistani companies felt that they were allowed “low” market access in India. The majority --- 56 per cent --- believed that they were allowed “average” market access, while 16 per cent felt that they enjoyed “high” market access in India.

Indian companies were noticeably happier about their access to the market in Pakistan. Only 18 per cent believed that they had “low” or “very low” access. A quarter believed that the access was “average”, while more than half perceived “high” or “very high” access. Most of the 400 companies believed that there would not be much change to the current levels of access.

Interestingly, political animosity does not deter buyers in one country from buying goods from another. Importers and exporters in both countries were almost unanimous that a “Made in India” or “Made in Pakistan” label was no deterrent. Several exhibitions in India that featured Pakistani textiles had made inroads into the Indian market. And so big is the demand in Pakistan for Indian jewellery that jewellers in that country were now selling domestic jewellery under a “Made in India” label.

Expectedly, businesspersons from both countries reported serious difficulties in getting visas for travel. Only 8 per cent of Indian and 3 per cent of Pakistani traders found getting a visa easy. Another bugbear is mobile communications, since neither country allows roaming facilities to visitors from the other.

Despite the difficulties, businesspersons from both sides remain optimistic that bilateral trade will increase. Most believe that it will grow by up to 25 per cent next year, significantly higher than the average annual growth of 9 per cent for Indian exports and 23 per cent for Pakistani exports. A high percentage believe that is will grow by up to 50 per cent.

The Indo-Pakistan trade relationship has traditionally reflected the difficult political relationship. India granted Most Favoured Nation (MFN) status to Pakistan in 1996, but Islamabad linked reciprocity to the resolution of the Kashmir dispute. After the terrorist attack on India’s parliament in December 2001, New Delhi stopped trade via air and land till 2004.

Until 2005, a restrictive maritime protocol made trade by sea difficult. There is only one rail line --- across the Wagah-Atari border --- for rail trade. And road-based trade only began in 2005.

Trade normalisation began in 2004 with talks between the two commerce secretaries. Since then, political events have had a minimal effect on trade. Bilateral trade has risen almost ten-fold from about $300 million in 2003-04. Last year, after attacks on Indian soldiers on the Line of Control, cross-border trade was stopped, but resumed within days.

In November 2011, it was agreed that Pakistan would transition from a small positive list of items that could be traded to a negative list. In March 2012, Pakistan adopted a negative list of 1,209 items. Meanwhile, India took steps to address Islamabad’s longstanding complaint of “non-tariff barriers” against Pakistani imports.

Only now has Islamabad decided to accord India MFN status. Believing that this would be political sensitive, Pakistan’s commerce minister, Khurram Dastagir, told Business Standard, “We’re now officially calling it Non Discriminatory Market Access, or NDMA.”