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India, Pakistan Work Toward Normalizing Trade

India's Trade Minister Anand Sharma and Pakistani counterpart Makhdoom Amin Fahim (R) shake hands as they attend India-Pakistan Business Conclave organized by Federation of Indian Chambers of Commerce and Industry (FICCI) in New Delhi (file photo)

Efforts by South Asian rivals India and Pakistan to normalize trade ties have received further momentum, with Pakistan agreeing to open most commerce with India. The thaw in India-Pakistan trade ties is expected to bolster economic integration of the South Asian region.

At a meeting in New Delhi this week, Pakistan pledged to open its market to 7,000 goods from India over the next three months - up from the fewer than 2,000 items allowed at present. Top commerce officials from both countries also decided to open more trading posts and ease visa rules that restrict travel.

The steps follow Pakistan’s decision last month to grant “most favored nation” status to India. That means the two countries are on track to trade on equal terms by removing tariffs that restricted commerce for decades.

Trade analyst Nita Taneja at the Indian Council for Research on International Economic Relations warns that favorable trade accords alone are insufficient to boost commerce. She says infrastructure improvements are needed to overcome the two countries’ limited transportation links.

“Look at rail movement. You don’t get wagons to transport goods across the border. There could be a wait of 45 days," Taneja said. "For instance, a lot of iron ore is getting exported from India from the eastern side and that is all going via Colombo, and then to Karachi and then coming back to Lahore.”

Some steps are being taken. A new freight handling facility will be opened in the coming months at Wagah - the main land crossing between the two countries.

The business potential between India and Pakistan is underscored by the flourishing illegal trade that goes via the Middle East and is estimated at $3 billion - higher than the official bilateral trade of about $2.5 billion.

Economists say the benefits of normalizing trade ties between the two rivals will also help boost trade in all of South Asia - one of the world’s least economically integrated regions. Regional trade is $5 billion or just five percent of South Asia's total trade.

The head of the Federation of Indian Chambers of Commerce and Industry, Rajiv Kumar, says the potential to increase regional trade is huge.

“One of the major impediments in the greater trade relations within the region was [the] India-Pakistan standoff," Kumar said. "Now that is beginning to get resolved, I think you will see a burst of trading activity and commercial activity all across the region.”

At a regional conference last week, India made another push to engage in commerce with its neighbors. Kumar says this is important because India accounts for a large part of the region’s economy.

“India has also taken an amazing step by announcing that all imports from less developed neighbors - Nepal, Bhutan, Bangladesh - will have zero tariff duty treatment," Kumar said. "That measure also will allow greater access to the Indian market…. India is the 1,000 pound gorilla in the room.”

The World Bank estimates that trade within South Asia could rise to $20 billion if restrictions are removed. Indian leaders say boosting trade ties will also make the region more politically stable.