Mistrust out, trade in
By Shashi Tharoor
"The Hindu", Online edition of India's National Newspaper
November 21, 2004

FOR years, India seemed perversely proud of its declining foreign trade. During the first four decades of our independence, our exports of manufactured goods grew at an annual rate of 0.1 per cent until 1985; as a result, India's share of world trade fell by four-fifths, or 80 per cent, from 1947 to 1987. This was perhaps understandable in the post-colonial context, because India's closed and statist economic policies were principally a political and cultural reaction to British imperialism. After all, the East India Company had come to trade and stayed on to rule. So our idea of self-reliance combined a Nehruvian concern for distributive social justice with a profound mistrust of the international economic forces that had enslaved the country for 200 years. Economic self-reliance was seen as synonymous with independence itself. So who needed trade when we were going to make everything we needed ourselves?

`Exaggerated' fears

The attitude sank deep roots in the national consciousness. We saw it as recently as the mid-1990s, in the hue and cry that erupted over the "Uruguay round" negotiations of the General Agreement on Tariffs and Trade (GATT), which culminated in the establishment of the World Trade Organisation (WTO). Ideologues fearful that free trade would involve surrender to foreign imperialist interests made common cause with protected industries anxious about new patent rules; both were supported by idealists dreading the effects of free trade on the common man (for instance, the end of affordable medication for the Indian poor). Of course many of the fears were exaggerated, but agitators called for India to pull out of GATT/WTO altogether, even if this would have been calamitous for the country.

How different things have been with India's leading role in the WTO on the current "Doha round" of trade negotiations. The most significant proof of India's maturity as an independent country has been the willingness of our leadership to accept, at long last, that economic interdependence is not incompatible with political independence. Around the world, leaders have realised that the main reason developing countries have not caught up more rapidly with developed ones is that they were closed to the world economy and therefore to the benefits of increased trade and foreign investment. Whereas not very long ago, 90 per cent of the developing nations — members of the "Group of 77", which actually comprises over a hundred countries — ran closed economies, today only Myanmar (and that too not entirely) resists the siren call of the global marketplace. In every country, trade barriers are being lowered, imports and exports increased, foreign capital avidly sought; legal systems are being brought into line with the needs of international business, tax and property laws are being re-examined against foreign standards, and restrictive rules and regulations are being scrapped. More and more economies are being "plugged in" to the global system in what is a self-reinforcing process.

Indo-Pakistan trade

What is true at the global level is not, however, what is practised next door to home. India-Pakistan trade is negligible. The two countries, which shared the same economic and political space before Partition, and which should logically be each other's major trading partner (as Canada is the U.S.', or Belgium is the Netherlands') hardly buy from each other. Only 0.2 per cent to 0.4 per cent of our exports go to Pakistan, and only 0.2 to 0.6 per cent of our imports come from there. (Of course there is a great deal of illegal trade being conducted by smugglers on both sides, but one can scarcely count that.) The general assumption is that the tensions and the history of conflict between the two countries condemns us to a continuation of this pattern; indeed, given that for nine years (1965-74) there was no trade at all between us, the attitude is that the modest level of trade we have is better than nothing.

Indians also point out that much of the reluctance to open up trading relations comes from the Pakistani side, both out of a fear of being swamped by Indian products and from a policy posture that normal economic relations cannot be established until Kashmir is solved to Islamabad's satisfaction. That being the case, the conventional wisdom is that any Indian argument for free trade across the border is essentially self-interested. So I was all the more intrigued to read an essay by a Karachi-based social scientist, S. Akbar Zaidi, in the latest issue of the quarterly South Asian Journal, arguing that not only do both countries stand to gain from freer trade between them, but that in fact Pakistan stands to gain the more.

The case is clear enough. Pakistani consumers are still buying Indian goods — but they are buying them at double or triple the price, by importing them from countries like the United Arab Emirates, which repackage Indian-made products for profitable resale to Pakistan. Yet, even at times of political tension, India remains the only obvious source of immediate essential food supplies whenever shortages arise in Pakistan. In 1990, Zaidi writes, India "helped Pakistan tide over a potato and onion crisis", and during a sugar shortage in 1997, it imported 50,000 tons of Indian sugar. Where else could Pakistan have acquired food supplies on an emergency basis but from its biggest neighbour?

What a Pakistani study shows

Zaidi cites a study from Pakistan's Ministry of Commerce pointing to various practical advantages — lower transportation costs, cultural affinities, similar tastes — which point to complementarities between India and Pakistan as trading partners. The Ministry concluded that "the economic benefits of liberalising trade with India outweigh the costs". Not only would Pakistanis pay lower prices for Indian goods, thereby increasing their purchasing power, but smuggling would decrease, leading to improved revenue for the Government of Pakistan from legal trade. The Karachi Chamber of Commerce and Industry has conducted a sector-by-sector survey of the impact of greater trade with India on the Pakistan economy and argued that even the obvious negatives had positive implications. For instance, while cheaper iron and steel from India would impact on those industries in Pakistan, they would also reduce high inventory costs in Pakistan's engineering sector. Cheaper Indian raw materials could revive ailing Pakistani businesses and help generate more employment. And of course, a vast Indian market would open up for Pakistani manufacturers. No wonder Zaidi concludes that, from a Pakistani point of view, trade with India is "a win-win situation".

And it's not just about the exchange of rupees. As Zaidi points out, "trade normalisation is likely to improve the overall atmosphere in which India and Pakistan address all contentious issues". It is hard to disagree.

The old cliché used to be "if you want peace, prepare for war". In today's world, it is time for a new formula: if you want peace, prepare to trade.