Pakistan’s resuming trade ties with India

Pakistan’s resuming trade ties with India

Reason for Pakistan’s resumption of trade with India

• Pakistan’s double U-turn on resuming trade with India highlights the internal differences within Ministries, between business and political communities, and the emphasis on politics over economy and trade.
• It also signifies Pakistan cabinet’s grandstanding, linking normalisation of ties with India to Jammu and Kashmir.
• On March 31, Pakistan’s new Finance Minister Hammad Azhar, announced Pakistan’s Economic Coordination Committee (ECC)’s decision to import cotton, yarn, and 500,000 metric tons of sugar from India.
• The media dubbed it as a political breakthrough but the ECC’s decision was not on bilateral trade; it was about importing only three items — cotton, yarn and sugar.
• A day later, Pakistan’s cabinet overruled the decision which said “as long as India does not review the unilateral steps it took on August 5, 2019, normalising relations with India will not be possible.”
• Pakistan’s textile industry has not taken the cabinet’s decision kindly; for them, importing cotton yarn from India is an immediate need; else, it would impact their export potential.
• Three takeaways can be identified from the above. They are:
  • The first relates to the ECC’s decision to import only three items from India, namely cotton, yarn and sugar.
  • It was based on Pakistan’s immediate economic needs and not designed as a political confidence-building measure to normalise relations with India.

Practical and economic

• For the textile and sugar industries in Pakistan, importing from India is imperative, practical and is the most economic.
• According to the latest Pakistan Economic Survey, 2019-20, though the agriculture sector witnessed a growth of 2.67% (with an increase in rice and maize production), cotton and sugarcane production declined by 6.9% and 0.4%, respectively.
• Sugar exports came down substantially last year, by over 50% in 2019-20, when compared to 2018-19.
• Yarn, cotton cloth, knitwear, bedwear and readymade garments form the core of Pakistan’s textile basket in the export sector.
• According to State Bank of Pakistan’s latest quarterly report, the decline in cotton production is also due to fewer areas (the lowest since 1982) of cotton cultivation.
• Besides the decline in the area of cotton cultivation, there was also a decline in yield per acre.
• Pakistan is the fifth-largest exporter of cotton globally, and the cotton-related products (raw and value-added) earn close to half of the country’s foreign exchange.

Another industry in crisis

• When compared to cotton, the sugar industry’s problem stem from different issues — the availability for local consumption and the steep price increase.
• The sugar industry has prioritised exports over local distribution.
• Increased government subsidy and a few related administrative decisions resulted in the sugar industry attempting to make a considerable profit by exporting it.
• In February 2020, Mr. Imran Khan announced an investigation and constituted a commission of inquiry into Pakistan’s sugar crisis, 2019-20.
• As a result, importing sugar from India would be cheaper for the consumer market in Pakistan.
• Clearly, the crises in cotton and sugar industries played a role in the ECC’s decision to import cotton, yarn and sugar from India.
• It would not only be cheaper but also help Pakistan’s exports. This is also imperative for Pakistan to earn foreign exchange.

Politics first

• The second takeaway from the two U-turns — is the supremacy of politics over trade and economy, even if the latter is beneficial to the importing country.
• For the cabinet, the interests of its own business community and its export potential have become secondary.
• However, Pakistan need not be singled out; this is a curse in South Asia, where politics play supreme over trade and economy.
• The meagre percentage of intra-South Asian Association for Regional Cooperation (SAARC) trade and the success (or the failure) of SAARC engaging in bilateral or regional trade would underline the above.
• Trade is unlikely to triumph over politics in South Asia; especially in India-Pakistan relations.

The Kashmir link

• The third takeaway is the emphasis on Jammu and Kashmir by Pakistan to make any meaningful start in bilateral relations.
• This goes against what it has been telling the rest of the world that India should begin dialogue with Pakistan.
• Recently, both Pakistan’s Prime Minister and the Chief of Army Staff, Qamar Javed Bajwa, were on record stating the need to build peace in the region.
• Gen. Bajwa even talked about “burying the past” and moving forward.
• There were also reports that Pakistan agreeing to re-establish the ceasefire along the Line of Control (LoC) was a part of this new strategy.
• The latest statement by Pakistan’s cabinet that unless India rescinds the decision of August 5, 2019 in Jammu and Kashmir, there would be no forward movement, goes against what Mr. Imran Khan and Gen. Bajwa have been stating in public.
• This position also hints at Pakistan’s precondition (revoking the August 2019 decision on Jammu and Kashmir) to engage with India.

Conclusion

• Pakistan has been saying that the onus is on India to normalise the process.
• Perhaps, it is New Delhi’s turn to tell Islamabad that it is willing, but without any preconditions, and start with trade. It may even allow New Delhi to inform Pakistan’s stakeholders about who is willing to trade and who is reluctant.