Indo-Pak relations: Hopes and fears

Indo-Pak relations: Hopes and fears

Mohammad Jamil

India has lifted the ban on foreign investment from Pakistan showcasing goodwill to achieve ultimate goal of establishing good neighbourly relations with Pakistan. The decision, on its face value appears to have its merits as Pakistani citizens or any entity incorporated in Pakistan will be able to make investments in India in fields other than defence, space and atomic energy.

India claims to have taken a positive initiative to build trust and confidence between the two states with a view to finding a way forward to address conflicting issues and resolve disputes such as Kashmir, Siachen, Sir Creek and water disputes. Pakistani business community has welcomed the move with the hope that trade diplomacy may result not only in benefits to both the countries in economic terms but also lead to resolution of disputes festering the two countries. The signs and symbols seem encouraging with optimistic tone and tenor. But given the past history of India’s ruses, there will remain a question mark on India’s credibility.

President Asif Ali Zardari’s invitation to Indian Prime Minister Manmohan Singh to visit Pakistan has already been accepted, creating fresh hopes in improving relations between the two countries. Both India and Pakistan are attaching more symbolism with the impending visit of Indian Premier’s visit to Pakistan rather than its predictable outcome given the strategic impediments preventing both Indo-Pak leaders to make independent decisions to resolve the real outstanding issues. However, Indian media under the influence of hardliner politicians and extremist religious groups has not been able to build public opinion favouring PM Manmohan Singh’s decision to accept President Zardari’s invitation to visit Pakistan. Crux of the matter is that Indians are very prudent in their moves to promote the peace process with Pakistan. On one hand they oppose Indian PM’s visit to Pakistan and on the other they want Pakistani money to be invested in India.

In March 2012, the Commerce Ministry had issued the SRO, stating that India could import everything from Pakistan except 1,209 items placed on the Negative List by Islamabad after granting MFN status to New Delhi in February 2012. In Pakistan, a section of business community believes that Pakistan stands to lose not only because of high tariff on imports from Pakistan but also due to non-tariff barriers. The other group radiates an aura of optimism, as Pakistan will have access to the market consisting of 1.2 billion people.

Indian government and businessmen have all along wished to enhance bilateral trade, which will in turn create an environment and climate conducive to peace in the region. But some defence analysts in India have been raising the question of security implications vis-à-vis economic relations with Pakistan. Former Additional Secretary in cabinet secretariat of the Government of India and former head of the counter-terrorism division of India’s external intelligence agency Research and Analysis Wing (RAW) B. Raman is one of them.

He had cautioned the Indian government that “increased flow of Pakistan intelligence personnel and jihadi leaders to India under the cover of businessmen for establishing contacts with leaders of organisations like Indian mujahideen, which would enable the Pakistani intelligence to acquire a key presence in sensitive sectors of our economy such as banking, telecommunications, information technology etc. They could use the presence to disrupt our economy and collect strategic intelligence regarding our economic deficiencies that could be exploited by them”. He categorized the Foreign Institutional Investments (FIIs) in Indian stock markets under high security implications and stated: “Allowing either China or Pakistan to invest in our stocks will give them a capability to disrupt our economy through manipulation of their stock holdings”, suggesting that it should not be allowed. It was perhaps his reaction to India’s trade minister Anand Sharma’s statement in April 2012 that India had decided to allow foreign direct investment from Pakistan.

There is a widespread perception that India stands to gain more from trade with Pakistan because of former’s sound industrial base. In fact, India’s real objective is to reach out to the Central Asian republics, as Pakistan is the most convenient and inexpensive route. Looking at the comparative figures of India and Pakistan’s economy, one could conclude that Pakistan will be vulnerable, as India has three large stock exchanges and at least 19 regional stock exchanges, whereas Pakistan has only three stock exchanges - Karachi, Lahore and Islamabad. In 2010, Foreign Institutional Investors (FIIs) invested $30 billion in India as compared with $588 million foreign direct investment in Pakistan. With over 20 million shareholders, India has the third largest investor base in the world after the US and Japan. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth potential. There is a large presence of FIIs in the Indian capital market that have pumped in billions of dollars into Indian markets in the financial year 2010-11.

The moot question is whether Pakistan will benefit from bestowing on India status of the most favoured nation and by boosting trade with India? There are two areas where Pakistan can benefit: Substitution of expensive imports with cheaper Indian goods; and cheaper raw material imports from India that can help boost Pakistani industrial competitiveness. But the problem is that cost of production of Pakistani products is higher because of high electricity charges, and also because of lost production hours due to excessive load shedding. Because of these reasons Pakistan cannot compete in the world market and for that matter India as well. Pakistani officials who are talking of ‘trade not aid’ perhaps do not understand that no country in the world, be it from Islamic fraternity or non-NATO ally, will import from Pakistan unless Pakistani products are competitive. Keeping in view India’s financial position, sound industrial base and its global outreach, India has the capability to destabilize Pakistan’s economy; therefore it can’t be the other way round as suggested by the Indian analysts.