Trade between India and Pakistan can grow up to $37 billion from the existing $2 billion if both countries set aside their differences and barriers to trade, says the World Bank (WB). The WB in its report titled ''A glass half full, the promise of regional trade in South Asia'', states that trade between India and Pakistan is a paltry $2 billion. Without artificial barriers, this should be $37 billion, he projects, adding that such interaction will go beyond economic gains and help promoting trust and peace.
Formal trade between India and Pakistan could be 15-fold more than current levels. Complex relations between the two largest countries in South Asia, India and Pakistan have adversely affected India-Pakistan bilateral trade as well as trade within the region.
The two countries account for 88 percent of South Asia''s GDP and 86 percent of its population. The lack of normal bilateral trade relations between the two countries also affects the formation or deepening of regional value chains, such as in textiles and clothing, and automobiles and automobile parts.
A key factor leading to suboptimal trade between India and Pakistan is the long list of product restrictions in bilateral trade; this bilateral trade relationship is the most restrictive in South Asia. Under SAFTA, both countries have reduced tariffs to a maximum of 5 percent, and India has reduced them to zero on imports from the least developed countries. However, India and Pakistan continue to maintain long sensitive lists including items (at the 6-digit level) on which no tariff concessions are granted.
The visa regime between India and Pakistan is particularly cumbersome, despite the liberalized bilateral visa agreement the two countries signed in 2012 to boost trade and people-to-people contacts.
The report urged South Asian rivals to cooperate instead of remaining in conflict, as it is the world''s least economically integrated region. It is the region that contains 40 percent of the world''s stunted children and 33% of world''s impoverished populace.
The World Bank report further states total "intra-regional" trade in goods can jump up to $67 billion from $23 billion if the South Asian nations remove the tariffs and non-tariff barriers related to trade and people-to-people contact.
The report also maintains that "trade liberalization in South Asia has not been smooth". In fact, many countries have increased the tariffs and restricted inter-regional trade further.
The trade between Bangladesh and Pakistan, which is $0.8 billion currently, can be upwards of $1.4 billion in the absence of trade barriers. Pakistan allows only 138 items to be imported from India over the Attari-Wagah land route, the only land port between the two countries, despite the long, shared land border. This means that bilateral trade is dominated by trade along the sea route, which is not necessarily the most cost-effective avenue of trade for two contiguous countries with a long common border. Bangladesh and India also impose some restrictions on imports from each other at certain ports.
India and Pakistan have merely scratched the surface of their bilateral trade potential. Only a fraction of the hydropower potential of the region has been tapped. Landlocked Afghanistan, Bhutan, and Nepal, as well as Northeast India and Khyber-Pakhtunkhwa and the Federally Administered Tribal Areas in Pakistan, could gain much more from better transit and connectivity.
The large gaps between actual and potential trade arise because countries in the region have erected barriers against each other. These barriers include high tariffs and para-tariffs, despite a regional free trade agreement that came into force in 2006; disproportionately high costs of trading within the region that derive from poor transportation and logistics infrastructure and inefficient trade facilitation; complicated and non-transparent non-tariff measures (NTMs), that is, policy measures other than tariffs that affect the free flow of goods and services across borders in the region; additional barriers to trade between the two largest economies in the region, India and Pakistan; constraints on trade in services, particularly in trade and visa regimes; and below-potential FDI, which also affects the deepening of regional value chains, the report states.
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