Springtime in Delhi
By Babar Ayaz
The 600-strong Pakistani businessmen delegation visiting Delhi got a very pleasant surprise when the Indian commerce and industries minister Anand Sharma announced India's decision to allow Pakistani investment. Most participants of the four-day Lifestyle Pakistan exhibition were excited about the normalization of trade relations between the Siamese twins but Sharma's announcement was still unexpected.
Historically, both countries have kept their borders closed to Foreign Direct Investment (FDI) originating in the other country. India's current investment policy allows FDI in sectors not deemed sensitive enough for government oversight through the 'automatic route' and through the 'government route' in all other sectors. Even within the automatic sectors, however, certain areas are inaccessible to foreigners unless the government gives its nod. A study released by the Associated Chamber of Commerce & Industry India uses the telecom sector to explain this. While the sector allows for 74 percent FDI - "subject to certain specific conditions as specified by the Consolidated FDI Policy 2011" - only 49 percent of this is allowed through the automatic route. As such, Sharma's commitment before his Pakistani counterpart Makhdoom Amin Fahim that "procedural requirements are underway and will be notified soon" is very welcome.
Further, the statement will also bring pressure to bear on Pakistani policy-makers who have been reluctant to allow Indian FDI although Pakistan has a liberal foreign investment policy. As FDI from elsewhere drops, opening doors to Indian investors will help the Pakistani economy. Many large Indian conglomerates have been investing in China in spite of the fact that both countries have border disputes. In 2008, President Asif Zardari had proposed following this 'China-India model' with a view to normalising relations. But the establishment which wields real authority in Pakistan was then allergic to India and so, Zardari was pushed back by the re-opening of old corruption cases against him and by setting an ultra-nationalist media at him. Now, it appears, Rawalpindi has changed its mind.
But the real issue for many Pakistani business magnates keen to do business across the border is that India has not allowed FDI in retail trading so far. (The most recent case is that of the powerful world retail giant Walmart which was not allowed to open outlets in India in spite of American diplomatic pressure.) Most textile manufacturers and fashion designers from Pakistan were overwhelmed by the response they got in Delhi and claimed that almost 95 percent of their goods were sold in the first two days as retail sales were allowed. Now, leading textile businessmen say that they intend to grant franchises to Indian partners in order to overcome this restriction.
There were also unexpected winners at the expo. "Lifestyle Pakistan has given us a good market testing opportunity," said a service industry manager who was hoping to find a market for tyres for two- and three-wheelers.
But not everyone was hankering to open shop in India and nor was everyone ecstatic. Some participants complained that there wasn't enough pre-event advertising; other resented the Indian media's focus on lawn. Still others insisted that such trade exhibitions are meant to help secure export orders and to develop business-to-business relations. While the big boys already have good contacts and were seen having meetings at five-star hotels with their Indian counterparts, medium-sized exporters of furniture, marble and onyx felt that the expo organizer TDAP and the Pakistan commercial consul should made efforts to set up Pakistani and Indian businessmen and should not have left them to fend for themselves. But TDAP chairman Tariq Puri reacted strongly to the criticism: "Ask the cribbing furniture exhibitors if they managed to sell their products or not," he challenged. "The fact that over 100,000 visitors attended the fair at the Pragati Maidan exhibition center proves that the event was successful."
Even so, the consensus among Pakistani businessmen was that 'normalisation' will require the crossing of many hurdles, especially that of travel restrictions. The strict visa regime has not stopped terrorists or intelligence agents; they only keep well-meaning peace-loving people away from each other. As such, many advocated the easing of restrictions and for both sides to provide multiple-entry, multiple-state visas for those who've gotten security clearance. The requirement for visitors to enter and leave India from the same port was also criticized as was the lack of roaming facility for Pakistani cell phones.
Pakistani textile exporters also voiced a demand for India to reduce import duty on Pakistani textiles to the levels available to Bangladesh and Sri Lanka - an issue that is easiest resolved if both countries follow the SAFTA tariff regime. The other common concern was that the testing of products should be made easier and third-party certificates of internationally reputed companies should be accepted. Further, most businessmen wanted for more land routes to be opened quickly and upgraded on the pattern of Wagah-Attari Integrated Check-post, which has now the capacity of handling 600 trucks a day.
Streamlining the system, experts believe, will see Pakistan-India trade jumping up from the present US$2.6 billion to around $6 billion within two years since at least $5 billion worth of trade is being routed through Dubai and Singapore. Direct trade, they say, will also bring down the cost for the end consumers.
While some critics of trade with India point out the severity of the trade imbalance - even under the restricted regime, Indian exports were $2.23 billion in 2010 as against Pakistan's exports of only $248 million - the pro-trade lobby in Pakistan shoots back that the negative trade balance is a feature of all of Pakistan's major trade relationships, be they with China, the US or Europe. The key factor the critics gloss over, says the pro-trade lobby, is the fact that Pakistan will only import from India what it is already importing from other countries - just at a cheaper rate because of lower transportation costs. Further, they argue, since Indian machinery is cheaper than that available from other countries, Pakistan will also stand to save a considerable amount of foreign exchange. Similarly, with the removal of non-tariff barriers, Pakistan can get a competitive advantage on a number of items for export to India.
Even so, there are still plenty of Indian and Pakistani hawks who want to derail the process. In Pakistan, religious extremists stubbornly insist no peace initiative should be taken till the Kashmir issue is resolved. On the Indian side, ultra-nationalists want Pakistan to prove its sincerity by sentencing Mumbai attack masterminds and arresting Jamatud Dawa chief Hafiz Saeed. But the response of the Indian public and media during Lifestyle Pakistan and Zardari's one-day 'shrine diplomacy' clearly show that the forces of peace are getting stronger. Tariq Puri aptly responded to the Indian concern about terrorism in an interview to the Times of India: "Business is a phenomenon which has its own contours and dynamics - it finds its way, no matter what is happening in the country. That's the message we want to convey: terrorism should not be allowed to take business hostage. Both countries should not allow this."
There are also the skeptics: people who think that trade and economic relations will not help build peace between the two countries as long as there are unresolved border issues. But the fact remains that businessmen of both countries are the ruling classes in their respective countries. They may be pushing for peace with an eye to making more money but the by-product of their greed is that they are pushing their establishment towards peace. It is now up to the peaceniks of Pakistan and India to take advantage of the favourable situation and out-manoeuvre the hawks.
The writer is a communications expert.
Monday, April 23, 2012
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