Policy recommendations: As the relationship is likely to remain fragile due to past historical experience a proactive management of the policies and processes and a vigilant eye on their implementation would be required for some time on both sides. It is therefore proposed that the following policy recommendations should be put in place, monitored regularly and remedial actions taken to move the process forward.
---- Managing transition from the positive to negative list is quite critical to the future evolution of the relationship. If too abrupt large scale visible and one sided changes take place then the lobbying efforts of those adversely affected will intensify. India being the large economy has to pay particular attention that their export expansion is mainly substituting more expensive machinery, equipment, raw material, components and intermediate goods from third countries which will help Pakistani manufacturers in lowering their cost of production. Export of technology from India will be highly welcomed. The phasing, sequencing, timing, quantum and composition will have to be monitored carefully to avoid disruptive forces to surface. Although it is realised that the transaction will take place mostly between the private sector parties the Ministries of Commerce in the two countries will have to use some moral suasion in the transition phase. Voluntary Export Restraints by India for limited period may also be considered as a policy option if it is found that certain imports are exceeding their threshold value and are hurting the Pakistani industries particularly Small and Medium Enterprises.. After all, the volume of Indian exports to Pakistan will remain miniscule - 2 percent of the total at best. Any news stories that Indian goods have risen by 100 percent in one year would prove disastrous. Large bilateral trade imbalance should be kept to the minimum and promotional activities to allow Pakistani exporters access to Indian market would help a great deal.
---- Rationalise and simplify the technical barriers to trade and sanitary and phyto-sanitary measures which are, in fact, acting as powerful deterrents to the exchange of goods. These are, in effect, NTBs that hinder the flow of goods.
---- Visa restrictions on businessmen should be eased so that they can have long duration multiple entry visas that allow them visits to any number of cities without reporting to the Police. Businessmen have to travel frequently to different places at short notice. The present visa regime is cumbersome, time consuming and discourages exchange. India and Pakistan have been negotiating a more simple and streamlined process of visa application and approval for quite some time. No discrimination should be allowed in grant of visas between the large and small businessmen. This new visa regime should be put into effect immediately otherwise the other efforts to liberalise trade would prove ineffective.
---- Both countries should reactivate SAFTA and agree on a phasing out of the sensitive list (of items that each country deems important for its economy) over the next few years. A restrictive list would nullify all the potential gains of preferential trade access.
---- Financial and banking services play a catalyst role in promoting international trade. In 2005, Governor Y. Venugopal Reddy of Reserve Bank of India and the author then the Governor State Bank of Pakistan had signed an agreement to open branches of two Indian banks in Pakistan, and two Pakistani banks in India. This agreement has not yet been implemented, as procedural difficulties have been allowed to overwhelm the substance of the agreement. Without banking services, the opening of letters of credit and cross border fund transactions, trade cannot flourish.
---- One of the major problems impeding larger India-Pakistan trade flows is the poor state of logistics. The World Bank Logistics Performance Index that measures the efficiency of the Customs Clearance process, Quality of trade and transport-related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments and frequency with which shipments reach the consignee within the scheduled or expected time and places both the countries quite low. Although the new Integrated Border Check at Wagah-Attari would allow ten times more trucks to cross other logistics snags would have to be dealt with quickly. Special task forces with adequate powers should be formed for at least the first year to solve the problems and facilitate flows of goods and people.
---- India, as the largest economy in the region, has to pursue a more vigorous process of dismantling "behind the border barriers" for realising its potential. The maze of byzantine regulations and rules and the business processes for cross border-exchange have to be simplified and streamlined. For a country that has some of the most progressive entrepreneurs, eminent intellectuals, scientists and innovators, globally competitive human resources, it is not comprehensible as to why it cannot carry out these needed reforms that will help to realise its potential.
---- Businessmen on both sides have outlined the requirement for opening new border points for trade with spacious loading zones for ease of truck and rail movement, modernisation of rail transportation, a new shipping protocol and deregulation of air services. While both countries have very high mobile phone penetration they are not allowed to avail the roaming facility when visiting the other country. The 2006 Composite Dialogue between India and Pakistan had on its agenda the resumption of rail services between Khokhrapar and Monabao, bus service between Srinagar and Muzaffarabad; religious visits to Lahore and Nankana Sahib; a new shipping protocol; the deregulation of air services; and joint registration of basmati rice. This agenda should be revived and agreements reached to implement these measures.
CONCLUSION To conclude, the future growth, disruption or slow death of India-Pakistan Trade will depend whether a proactive, sensible system is put in place to manage the relations. It is in the mutual interest of the two countries to strive for an enduring uninterruptible long-term relationship that is not prone to sudden disruptions, abrupt retaliations and knee jerk reactions. There is no guarantee that this would be an easy or smooth process but at least there is one change that can make some difference. The usual South Asian bureaucracy driven approach that is reactive, slow and ponderous can sooner or later act as the kiss of death. A more private sector led, problem solving and getting on with the job approach has better chance of avoiding some of the pitfalls and producing the expected results.
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Annex - I
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SECTORAL COMPOSITION OF NEGATIVE LIST
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Automobile 385
Iron and Steel 137
Paper and Board 92
Plastic 83
Textile 74
Electric Appliances and Machinery 57
Pharmaceuticals 49
Machinery 37
Chemicals 33
Sports Goods 32
Ceramics 28
Cutlery 22
Glass 22
Miscellaneous Manufacturing 22
Leather goods 19
Rubber goods 19
Agriculture 16
Furniture 16
Aluminium products 12
Surgical goods 10
Footwear 7
Soap and Toiletry 7
Meters 6
Metal Products 5
Prefab Building 5
Stone and Marble 5
Wood 4
Gems and Jewellery 3
Optical Fibre 2
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1209
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