India and Pakistan
Clever steps at the border
With little fanfare, two old rivals are mending trade relations. They must do more
May 12th 2012 | from the print edition
A STUPENDOUS display of military nonsense erupts each sunset at the Wagah crossing between India and Pakistan. Thousands cheer rival guards in silly hats who strut with mock aggression, lower their flags and slam shut the border gates. The display is choreographed fun. But underlying it are deeper mutual antagonisms generated by a history of border wars, terrorism and the original sin in 1947 of partition itself. Nowhere are the costs of these antagonisms so apparent as in the pathetic levels of trade between these two populous nations.
For years direct exchange was all but blocked. Apart from barter by Kashmiris and the odd trainload of cargo at Wagah, goods went via third-country ports, notably Dubai and Colombo. Once-thriving border towns, such as Amritsar, slid into relative gloom. Pakistan’s cocooned economy grew weak and uncompetitive. Even after Wagah’s road crossing reopened in 2005, when bilateral trade was little more than $600m, commerce has been stymied. Barmy visa rules keep away traders. Delays at dilapidated customs posts ruin perishable goods. Last year trade between India and Pakistan was just $2.6 billion. Unofficial trade boosts the figure, but it is still pathetic for countries with populations of 1.2 billion and 180m respectively, and combined economies of over $2 trillion. By way of comparison, India’s trade with China, another ancestral enemy, may soon pass $100 billion.
The same economic pragmatism is beginning to appear between India and Pakistan. Both governments are daring to break with history. It is a difficult and brave thing to do, especially in Pakistan, where civilian politicians normally kowtow to the army. Yet they seem to have persuaded the soldiers that not all exchange with the arch-enemy is disastrous; and that more trade will mean greater prosperity, which will in the long run reduce the dependency on the American handouts that Pakistan’s armed forces loathe (see article).
And so a thaw is taking place. Last year Pakistan said it would match India’s old offer of most-favoured-nation trading status. To little fanfare, Pakistan is now scrapping restrictions: adopting a “negative list” of specified banned goods, rather than, as previously, stipulating only what may be imported. Meanwhile, India is allowing more to arrive by road. Imports of Pakistani cement are now soaring. A smart new customs post at Wagah is speeding the flow of goods. Other crossings may open. Pakistanis may now invest directly in India’s economy. Indian petrol may next be sent westwards, with electricity to follow. This month home ministries of both countries will probably scrap the worst visa rules (see article).
Dreaming of silk
It all adds up to a profound and welcome shift. Businesspeople are excited, as delegations start making mutual visits. Yet the progress is vulnerable to many things, not least to another strike in India by Pakistan-based terrorists.
While the going is good, both governments must be much more ambitious. Pakistan needs to focus on improving customs posts and quickly scrapping the remaining negative list on trade. But India, which stands to gain disproportionately from burgeoning trade, must make most of the running. Stable relations with Pakistan are a prize in itself for the Indians. Immense hurdles remain, not least the quest for peace in Afghanistan; but the longer-term dream is of land trade through Pakistan to Central Asia, with its oil and gas, and even to European markets. Given all that, India should dare to be generous, removing non-tariff barriers, cutting duties on Pakistani imports and making it easier to invest in India. Clever steps at the border today will bring great rewards in future.
from the print edition | Leaders