Indian stakes in Pakistan


Regular Member
May 12, 2009
ISLAMABAD’S idea to allow transit trade facilities to Afghanistan and India has caused the media to react strongly with many believing that this would prove inimical to Pakistan’s security interests and clear the way for undesirable characters to enter the country for the purpose of spreading violence.
Besides, there is apprehension that the terms of trade will not be to Pakistan’s advantage. Still others tie the trade issue – in the same way as the composite dialogue between India and Pakistan – to a solution of the Kashmir standoff.

Beginning with the tactical issue of concern for security, the reasoning in Islamabad is as valid and lame as it is in India. Surely, terrorism is one of the primary problems on both sides of the border which makes the concern valid. Security was one of the reasons why the Indian external affairs bureaucracy clamped down on issuing visas to Pakistanis arguing that greater traffic was breeding terrorism. However, restricting visas or trade is a bureaucratic measure that does not take into account the fact that greater legal interaction will develop greater understanding and, perhaps, sympathy for each other’s position.

In any case, the bulk of the terrorists don’t seek permission to enter. Also, terrorists do not necessarily have to accompany goods in transit between New Delhi and Kabul because there is already enough smuggling taking place between India and Pakistan for terrorists to make use of. Better monitoring could ensure that trade does not assist the terrorists.

As far as terms favourable to Pakistan are concerned, this is not really an issue of transit trade but about the capacity of the government to evaluate what’s good or bad for it. One really wonders what the issue is because technically speaking Islamabad has already made an offer of transit trade to India – the gas pipeline between Iran and India via Pakistan for which Islamabad hoped to receive attractive compensation. The trade between Afghanistan and India would mean compensation for Pakistan for allowing the use of its territory. Also, what is being discussed at the moment is transit facilities for Afghan goods.

But then what does one do about the Kashmir issue? More than 60 years of experience tell us that we were not able to solve it militarily and using the issue to withhold solutions for other matters is not likely to work either. At the moment, India has no stakes in solving the issue to Pakistan’s advantage especially when it is investing in its own political system to come up with a solution for the Indian state and the Kashmiri population. For instance, while some groups challenged the national elections and the turnout was low, there were others that did go and vote. The Indian state could always argue that there was a low turnout in other parts of the country as well. Eventually, participation in elections could lead to a dialogue between the centre and the territory under India’s control.

Part of the reason why India refuses to be sympathetic to Pakistan’s position is that it has no major stakes here. Transit trade and bilateral trade is one of the formulas for starting a more constructive relationship between the two countries. Allowing Indian investment to come into Pakistan for Pakistan’s benefit was reportedly recognised in a State Bank report which never saw the light of day. It was argued that opening up commercial links could help Pakistan capture some of the NRI investment coming into India.

Trade and transit trade as part of larger economic relations is a major way to change attitudes and perspectives. This is not to suggest that economic relations would automatically translate into a solution for Kashmir and here we can take the example of the US and China, that despite having huge stakes in an economic relationship, continue to confront each other on the issue of Taiwan. But Beijing has not tried to use its current financial investment in the US to the latter’s disadvantage. At present, Washington’s huge deficit financing is funded by the Chinese. Any diversion of funds at this stage would further cripple the US economy which Beijing is not doing because it also has stakes in the American economy. The softening of political positions, of course, takes time.

Pakistan and India need to learn from this example. There are many who disagree on the basis that any economic link will be to India’s advantage and not to Pakistan’s. This perception is a fallacy but will continue to be held as long as Islamabad does not reflect on its own strengths. For instance, Pakistan’s agriculture sector is fairly competitive and has much to offer if we build on its advantages.

Unfortunately, there is greater worry in the policymaking circles regarding industry, especially the automobile industry currently being subsidised by the state. While it is one of the sectors that might get affected due to trade with India, we could think about building our industrial base through negotiating offsets with our neighbour. This is an industrial process that pertains to a systematic but real transfer of technology and not what we have been used to thus far. Using offsets to build our industrial base is something we must consider with other partners as well, particularly in the defence sector.

One of the other advantages of encouraging regional trade relations is that it will enhance Pakistan’s financial capacity and the overall productivity of the economy. The country badly needs to transform itself from an aid-dependent economy to a more productive and self-sustaining one. The reason that we fail to go beyond the $12bn mark in our foreign exchange reserves is due to the limited productive capacity of the economy.

Boosting trade and transit trade in the region will give Pakistan access to its own resources, which, in turn, will reduce its dependence on other states. Trade does build its own dependence but not at the cost of independent foreign policy and larger policymaking, a problem that occurs in an aid-based economy. Interdependency build through trade, on the other hand, could help bilaterally resolve contentious issues in the future.

The writer is an independent strategic and political analyst.

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