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Harsh V Pant: Indo-Pak ties - can economics trump politics?

The commitment to a meaningful trade partnership is a refreshing change from previous efforts at detente

Harsh V Pant 

Indo-Pak ties

The summit meetings of the South Asian Association for Regional Cooperation or Saarc are not the most exciting of gatherings, and for years Saarc has been known to not deliver. But its latest summit, held in the Maldives, will be remembered not for any substantive achievement of Saarc but because India-Pakistan ties achieved a level of stability not seen in recent years. Though the meeting between the prime ministers of the two countries has been overshadowed by the controversy over Manmohan Singh calling his Pakistani counterpart, Yousuf Raza Gilani, a “man of peace”, the two leaders did take a number of steps that bode well for Indo-Pak bilateral ties.

Declaring that the time has come to write a “new chapter” in the history of the two countries, New Delhi has decided to move towards a preferential trade agreement with Pakistan, under the South Asian Free Trade Area (Safta) regime, that will lead to zero customs duty on all traded goods by 2016. India and Pakistan have also decided to put in place a liberalised visa regime at the earliest and revive the Indo-Pak Joint Commission that has not been in operation since 2005.

Bad news from South Asia seems to be a regular occurrence these days; so it takes a while for good news to sink in. Amid a failing war in Afghanistan, growing Islamist extremism, doddering institutional fabric in Pakistan, a surprise has sprung up: India-Pakistan ties have taken a turn for the better in recent weeks. Last month, Pakistan’s military speedily acted with remarkable restraint to return to the Indian military a helicopter that had inadvertently crossed the Line of Control. India, meanwhile, supported Pakistan’s bid for a non-permanent seat on the United Nations Security Council. Pakistan responded by supporting India’s nominee for the post of Commonwealth Secretary-General. More importantly, Pakistan has finally decided to grant India the Most Favoured Nation (MFN) status after years of reluctance to reciprocate India’s decision on the same in 1996.

Granting MFN status is clearly not a radical decision. Under the terms and conditions of the World Trade Organisation, member states are supposed to bestow MFN status on each other so that there is no discrimination and all states can benefit equally from the lowest possible tariffs. Yet, Pakistan’s move is politically significant in that it is a signal from the Pakistani government that it is serious about the dialogue process resumed after a gap of three years. India had ceased all dialogue with Pakistan after the 2008 Mumbai terror attack, which had vitiated the bilateral atmosphere to an unprecedented degree.

Both New Delhi and Islamabad have realised that lack of dialogue between the two neighbours is proving counterproductive. So Pakistan’s latest move should be seen as symbolically important. For the last 15 years, Pakistan has linked the MFN issue with the contentious issue of Kashmir. In the absence of MFN status for India, around 20,000 Indian export items to Pakistan have had to be routed through a third nation. With MFN status to India, the bilateral trade is estimated to jump to $8 billion from the paltry $2.6 billion at present over the next five years. This makes the MFN move an important confidence-building measure that will allow the two sides to take their dialogue forward on other more contentious issues. Islamabad announced its decision suggesting that “all stakeholders, including our [Pakistan’s] military and defence institutions, were on board”. India welcomed the decision saying that “economic engagements, trade, removing barriers to trade and facilitating land transportation would help the region”.

For some time now, there has been growing support in Pakistan for normalising trade ties with India. When Asif Ali Zardari became Pakistan’s president in 2008, he articulated the need for greater economic cooperation with India, but the suggestion was rebuffed by Pakistan’s all-powerful military. The ground realities in South Asia have evolved rapidly in the last few years. Pakistan is under tremendous pressure to prove its credentials as a responsible regional player in the light of the crisis in Afghanistan and its rapidly deteriorating internal security situation. Its economy is in a parlous state with growth down to 2.4 per cent in the last financial year. After Islamabad declined to pursue the advice of the International Monetary Fund to expand its tax base in March 2010, the Fund decided to suspend disbursement of its $11-billion facility.

Moreover, Pakistan’s ties with the United States have deteriorated sharply since May this year, when the US Navy’s SEAL team killed Osama bin Laden in Abbottabad. Pakistan had then hoped that China would fill the void, but the latter has been reluctant to take on the mantle of a saviour. The Obama Administration’s decision to suspend a portion of the US aid to the Pakistani military has led many in Islamabad to become more forceful in underlining Beijing’s importance for Pakistan. But Chinese involvement in Pakistan is unlikely to match the US profile in the country in the short to medium term, nor is it readily evident if China even wants to match the US in this regard. This has led Pakistan to explore new foreign policy options, hence a more pragmatic approach towards India. Normalising trade relations with India allows Pakistan to not only garner economic benefits from one of the world’s fastest-growing economies but also alter the impression of being the perpetual troublemaker.

All the same, the decision to grant MFN status to India has provoked objections in Pakistan from some business groups, especially the pharmaceutical industry, raising the spectre of Indian goods flooding the Pakistani markets. India should now open up its market to goods from Pakistan. India-Pakistan ties, which have caused most of these summits to fail, suddenly appear to be on a firmer footing than many might have anticipated. The latest moves, though unlikely to resolve the fundamental conflict between the two nations, are a start. The two sides should build on this initiative to take South Asia out of the morass of long-standing conflict.

The author is Reader in International Relations, Department of Defence Studies, King’s College London

First Published: Sat, November 12 2011. 00:14 IST