Trade with India

There has been some thawing of relations with Pakistan’s big bad neighbour. News of joint military drills, and the Indian High Commissioner to Pakistan advocating small positive steps to improve the environment, has come against a back drop of exchanges of fire along LoC and Pakistan’s higher defence budget for the coming fiscal year.

What, if anything, does it mean for trade between the two countries? Can the debate of offering India Non Discriminatory Market Access (NDMA) be resumed?

It may be a bit premature in the day to consider the potential of $30 billion bilateral trade indicated by the Indian High Commissioner. However, it should be kept in mind that hostility between the two countries has not prevented Pakistan’s imports from India to rise by an average of 10 percent every year since FY07 to nearly $2 billion in FY16. India is among Pakistan’s top 10 trading partners in terms of imports, without accounting for products that get routed through UAE and other countries.

A 2016 paper by ICRIER on Pakistan and India’s informal trade puts a figure of $4 billion for Pakistan’s imports routed through other countries while Pakistan’s formal imports in FY17 were 1.7 billion. This indicates that at imports upwards of $5.7 billion, India is in actuality Pakistan’s top trading partner after China. Informal exports to India are estimated at $0.7 billion and formal exports were $0.4 billion, resulting in a trade deficit of about $4.6 billion.

The last time India was gearing up for elections, the NDMA was on the cards. Back channel talks with the Modi’s party conveyed the message that if this was resolved during Congress’s tenure, BJP would not be willing to continue to play ball. Hence, it was shelved to be revisited at some future point, which may have turned out to be a blessing in disguise.

With Pakistan and India eyeing olive branches as the country prepares for election, normalising trade relations might become a battle cry all over again. In that case, liberalizing trade with India warrants a look the impact on the current account deficit and local manufacturing.

A confidential document by the Ministry of Commerce from last year states that most stakeholders support granting of NDMA and allowing import of all goods through Wagah. However, four sectors, namely agriculture, automobiles, pharmaceuticals, and yarn manufacturers expressed some concerns. These concerns were allayed by including these industries’ products on the Sensitive List, or in the case of the agri sector protected through Sanitary and Phyto-Sanitary measures as well. Otherwise, NTC, through anti-dumping and countervailing duties, was thought to be competent enough to provide adequate protection.

Pakistan’s current trade deficit with India and lack of diversified value added exports would bear witness that MoC’s view is overly optimistic. PBC, at one point a staunch proponent of liberalizing Pakistan India trade did so with the caveat of a level playing field. Now it sings a more nationalistic tune and opts for a “Make in Pakistan” thrust.

This is not to say that trade liberalization would not benefit Pakistan’s exports. It may. However, Pakistan’s potential imports from India are about 4 times the size of Pakistan’s potential exports, not to mention that India uses NTBs extensively. If the exchange of olive branches and shifting into a friendlier gear results in Pakistan allowing India further market access, it may have a trade imbalance of China proportions on its hands.