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Modi visit may revive India, Pakistan trade ties

Bilateral trade with Pakistan plummeted 12.84% to $2.35 bn in FY15 compared to $2.7 bn in FY14

Nayanima Basu  |  New Delhi 

Prime Minister Narendra Modi with Pakistani Prime Minister Nawaz Sharif at the Shanghai Cooperation Organization (SCO) summit in Ufa, Russia

With Prime Minister accepting Pakistan’s Prime Minister Nawaz Sharif’s invitation to visit Islamabad next year, trade and investment ties are finally expected to get the much-needed fillip, which has been in limbo for a long time.

India and Pakistan had made an attempt to normalize trading relationship between both countries in 2010. Since then both sides had taken substantial strides in the easing movement of goods across the borders.


The transition towards full normalisation of trade relations with India was initiated in March 2012 when Pakistan agreed to move from a ‘positive list’ regime to a ‘negative list’ regime that simply allowed India to export larger number of goods to its neighbour. However, since then, Pakistan missed a couple of deadlines in granting India full access to its markets or, in other words, the controversial ‘most favoured nation’ status under the global trading norms due to stiff opposition from its domestic industry, especially the agriculture, textile and pharmaceutical lobbies.

In an effort to allow seamless movement of goods across the land border, India even constructed a new integrated check post (ICP) in Attari with state-of-the-art trade infrastructure with better warehousing, and testing laboratories.

India had also proposed increasing the number of goods traded through the from 137 items allowed presently.

However, during the commerce secretary level talks in 2012, it was decided that more trading points across the border would be opened up. Therefore, it was decided that the Hussaniwala -Firozpur route will be operationalised. But the proposal never moved further.

“Trade is one of the powerful channels to have a stable bilateral relationship. Although trade had been happening, it has been extremely volatile. We should simply put back all the pending issues on the table and bring it on for discourse. I think Pakistan should give us the now but I think it will happen soon now that PM is going there and relations might see a turnaround,” said Rajat Kathuria, director and chief executive, ICRIER.

Talks between both sides were also initiated to open rail link for cargo across Munabao-Khokrapar region, which also reached a dead end.

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INDIA-PAKISTAN: OUTSTANDING ISSUES, TREATIES, AGREEMENTS AND TALKS
Contentious issues between the two neighbours - the Jammu and Kashmir dispute, Pakistan exporting terrorism into India, New Delhi accusing Pakistan of harbouring terrorists like Dawood Ibrahim, drug trafficking into India, Siachen, Sir Creek,  India objecting to Chinese presence in Pakistan-occupied Kashmir while Pakistan suspecting Indian help to rebels in Balochistan. In recent years, Pakistan has resented New Delhi’s role in Afghanistan and its political parties have tried to make sharing of cross-border rivers an electoral issue
Important agreements/negotiations
  • 1949: The Karachi Agreement between military representatives to agree to a ceasefire line in Kashmir
  • 1950: Liaquat-Nehru pact to allow refugees to return to their homes safely, looted property and women abducted during the partition riots were to be returned
  • 1960: Indus Water Treaty which remains the bedrock of the water sharing agreement   
  • 1966: Tashkent agreement after the 1965 war where both agreed to return captured territory
  • 1972: Simla Agreement under which India returned over 90,000 Pakistani prisoners of war and territory captured in the 1971 war, both agreed to settle their differences peacefully and bilaterally
  • 1988: Non-nuclear aggression pact
  • 1997: Foreign secretaries identified ‘outstanding’ issues but talks broke down. This was for the first time the two put on paper eight issues they needed to address. These were: peace and security, including confidence —building measures to reduce tension on borders, Jammu and Kashmir, terrorism and drug trafficking, Wullar Barrage-Tulbul Navigation Project, Sir Creek dispute, Siachen, economic and commercial cooperation and promotion of friendly exchanges
  • 1999: Talks revived with the Lahore declaration but suffered the Kargil setback months later
  • 2001: Agra Summit failed to resolve outstanding issues
  • 2004 to 2008: Composite dialogue on 'outstanding' issues, made significant progress but severed after the 26/11 Mumbai terror attacks of 2008
  • February, 2011: Dialogue revived, involved meeting of foreign secretaries once a year. New Delhi cancelled the August, 2014 meeting when Pakistan High Commissioner to India hosted Hurriyat leaders on the eve of the talks

This was mainly because, in May 2013, Pakistan witnessed change of government that brought Prime Minister back to power while in India the UPA government was on its way out and hence, talks eventually failed to gather momentum.

The much-awaited talks of easing the visa regime, especially for the businessmen, also got stuck and so was the plan to increase air links. There were talks to increase the frequency of flights between Delhi and Islamabad. Presently, the only air links are Lahore-Delhi, Karachi-Delhi, and Karachi– Mumbai.

As part of the track II diplomacy, the private sectors of both countries were also roped in that created the India Pakistan Joint Business Forum (IPJBF), which worked out a 10-point action plan.

Besides, India had also vowed to ease Pakistani investments coming to India and removed it from the list of barred countries. However, Pakistani investments are still subjected to massive scrutiny.

“This is a shame. If we do not let investments to come in and businessmen to travel, how will that work? This is not how trade and business ties can be normalised. We need to allow them to open a consulate in Mumbai so that business to business with Karachi can take place. These are practical requirements. We need to put business first and then only can other things progress,” said Manjeet Kripalani, director, Gateway House.

India's sensitive list of Pakistani imports has 878 items, mostly textiles and chemicals products, which attract high import duties. India was planning to remove 260 items from its sensitive list, which will increase the number of items Pakistan can export to India. But just as the MFN issue got stuck, so did this proposal.

India had also decided to export 500 MW of power for which a committee was set up. The committee had met only a few times. There were plans to set up an integrated grid from India that will supply electricity to power-starved Pakistan.

Bilateral trade with Pakistan plummeted 12.84 per cent to $2.35 billion in 2014-15 compared to $2.70 billion in 2013-2014. This is due to the fact that exports from Pakistan from India witnessed a decline of 18.34 per cent reaching $1.85 billion over $2.27 billion in 2013-2014, while imports from Pakistan rose by 16.50 per cent to $0.49 billion from $0.42 billion in the previous fiscal, according to official data.

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