'Whenever tension mounts between India and Pakistan, the neighbour loses its credibility as a reliable supplier of industrial raw material putting an effective break in the bilateral trade between the two countries,' former President, Multan Chamber of Commerce and Industry (MCCI), Khawaja Muhammad Jalaluddin Roomi said.
Pakistan and India have a history of erratic trade relationship. India, in fact, was Pakistan's main raw material supplier till 1965. But, the Indians suspended all supplies immediately after the start of 1965 war between the two countries.
'Sudden trade blockade by India severely impacts Pakistan's industries dependent on Indian raw material and Pakistan's industries take a few months to find alternative and reliable sources of raw material from other parts of the world.,' he said in a statement issued on Saturday.
The unilateral action by India in 1965 almost eliminated any meaningful trade between the two countries for almost three decades, though successive governments from both sides tried to revive trade links.
Trade ties started improving gradually in the mid-90s when Pakistan and India supplied sugar to each other in times of shortage. Pakistan also imported cement from India in the 90s to overcome the domestic shortage.
However, the progress in trade faced another setback during the Kargil episode, when Indian suppliers stopped exporting certain raw materials citing war-like situation between the two sides.
Reliance Industries of India, for instance, stopped supply of plastic granules despite a written long-term commitment, though the actual reason was a sudden increase in prices of all petroleum-based products in the global market.
Other supplies, where the Indians had an advantage, continued unabated creating more doubts in the minds of Pakistani buyers about the reliability of Indian suppliers.
Roomi pointed out that India, due to its developed industrial base and proximity to Pakistan, was its most suitable and competitive supplier of industrial raw materials, which its western neighbour imported from Europe, America and the Far East.
The situation suits both countries but is more advantageous for India, which could increase its exports 10-fold, if its government and entrepreneurs succeed in creating confidence among Pakistani importers about their ability to continue supplies irrespective of political tensions.
Further, he pointed out that the trade link between the two countries picked up sharply after 2003-04 as Pakistan gradually enlarged the list of items that could be imported from India. However, Roomi added, the actual potential of trade could not be exploited because, the two countries were in the process of formulating an agreement to allow free conduct of trade through land route, which would have reduced the transportation cost drastically.
Pakistan is currently not benefiting much from these imports, because most of the raw material produced in central India is imported through sea route and has to be transported from Karachi to the upcountry at an unnecessary additional cost, instead of direct delivery through road link between the two sides.
After 1999, local entrepreneurs have avoided depending completely on Indian raw materials. Former MCCI president said, 'Industries now do not depend solely on Indian raw materials,' adding that they kept standby non-Indian suppliers as well to be able to revert back in case of any disruption of supplies from India. However, when trade between India and Pakistan started picking up, local industrialists gradually increased imports of raw material from India and if the situation would have remained smooth, they would have completely stopped import of raw materials from other countries in the next three years, he said.
Furthermore, 'Unpredictability of relations between the two countries has now forced them to keep other options open,' Roomi said.
Out of total bilateral trade of $2,225.4 million between India and Pakistan in 2007-08, Pakistan's exports amounted to $287.80 million with a decline of 10 percent over previous year. Indian exports totalled $1,999.17 million, a surge of over 44 percent over previous year. Indian exports are expected to jump by $1,500-2,000 million in the current fiscal year after further openings provided to them in the budget, however the tension following the recent Mumbai attack will largely impact the expected jump in Indian exports, he stated.
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