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India and Pakistan face economic
reality
By Arun Bhattacharjee
NEW DELHI - Away from the spotlight on their
political differences, India and Pakistan appear closer
for economic survival through joint initiatives in the
energy, trade and health sectors while putting on track
the derailed 1999 Trade and Economic Cooperation
Agreement signed at Lahore.
After years of
indecision, Pakistan says it is now willing to join the
US$5 billion India-Iran gas pipeline project, make the
2,670-kilometer pipeline a reality and meet part of its
energy demand from the pipeline, meant to download 20
million cubic meters of gas per day in India. Held up
for nearly three decades by Pakistan's lack of response
and India's demands for assurances of an uninterrupted
flow of gas through Pakistan from Iran, the pipeline
remained a dream until Pakistan's own depleted gas
resources led to positive overtures recently.
If
it is a truism that trade diminishes tensions, there is
probably no better place on the planet for a soupcon of
detente. Mortal enemies since the British Raj was
partitioned into two countries in 1947, the
nuclear-tipped antagonists have fought several wars and
remained on various stages of alert for decades. Today,
however, having signed a preliminary agreement that
hopefully would bring an armistice to the troubled
Kashmir area, they are also quietly working on a
framework that would reduce smuggling along the 675-mile
border along India's Rajasthan state and generate
revenue for the two governments.
Official
estimates place the black trade across the border at $1
billion to $1-1.5 billion, a full 10 times more than
formal trade between the two. In addition, another
estimated $1 billion is cycled in what is officially
referred to as "circular trade" through third countries
- mostly through Singapore and Dubai. Pakistan continues
to pay higher prices for importing iron ore from
Australia and Brazil and tea from Kenya instead of
getting it from India.
While India has blamed
political uncertainty in Pakistan and Pakistan's
concerns over India's products dominating Pakistan's
market, most feel that Indian goods and infrastructure
projects will arrive in Pakistan even before 2006, when
the South Asian Free Trade Association (SAFTA) goes into
effect. It happens that energy has become the first
priority for both India and Pakistan.
India and
Iran sought alternate options for a gas pipeline under
the sea but the cost of laying the pipe and maintaining
it was found to be prohibitive. Pakistani and Iranian
sources in New Delhi say the project has every chance to
succeed in the present environment as the pipeline,
starting from Bandar Abbas, in Iran will cross
Baluchistan in Northwest Pakistan and join Pakistan's
gas pipeline system, finally connecting to India's
Italian-built Hazira gas pipeline system in North India.
India is already using piped gas from Hazira for
industries such as automobile and petrochemicals to run
their captive power plants. Maruti-Suzuki, India's
premier automobile unit, is selling surplus power
generated from its use to the country's national power
grid.
On the trade front, Pakistani traders have
requested that India join hands to beat the European
Union's effort to offer preferential access to cultured
sub-Basmati rice against real Basmati, indigenous to
India and Pakistan and for which both the countries
recently jointly fought for patent rights. Sayed Nazaf
Hussain, the president of the Rice Exporters Association
of Pakistan, has requested that India not compete with
Pakistan in the EU market, where India and Pakistan
together can export about a million tonnes of Basmati
rice.
The Commodity Exporters Association points
out that Pakistan's proposal is worth considering
although they say the quality of Indian Basmati is
better and that it commands a higher price in most
markets. The association believes that Pakistan can
export around 50,000 tonnes of basmati whereas India was
keen to export around 90,000 tonnes. The Association
says both countries have lost market share because of
earlier competition, and that an agreement, however
loose, would benefit both, at least on this "heritage"
product from the sub-continent.
Indian traders
acknowledge that the decision will be largely political
as Indian producers also believe India's super Basmati
is better than the Pakistani variety, although Pakistan
considers the super-Basmati more mythical than real,
since DNA tests proved that both the same. Pakistan
acknowledges that quality depends more on the soil where
this variety is grown for its aroma and aging quality.
Indian and Pakistani traders signed a number of
agreements for trade promotion at chamber of commerce
levels, including five from India and two from Pakistan,
but little of concrete value has been achieved so far.
Pakistan needs industrial machinery, cement, tires, tea
and coffee but a duty of 46.6 percent on Indian tires
makes it unprofitable for Indian exporters, although
Pakistan produces a little more than 250,000 units
against demand for more than 2 million units. While the
Pakistani Army is the major consumer of truck tires, the
civilian requirement is generally met by smuggled
products from India.
Pakistan is also willing to
allow Indian drugs and pharmaceutical products, which
are some 30 percent cheaper than those imported from the
US and Europe. Pakistan would accept the most favored
nation (MFN) status that India offered earlier,
according to diplomatic sources. More than 600 items are
covered under the MFN being offered by India, which is
more keen now to push it forward.
India's tea
industry is particularly interested, as the industry in
the country's northeast is in trouble. Over-production
has led to the suspension of tea production in Assam and
West Bengal. With an agreement in place India could meet
a large part of Pakistan's demand for 130-150 million
kilograms of tea imported annually.
Pakistan's
olive branch is its decision to allow overflight over
its territory by Indian national carriers Air India and
Indian Airlines, both of which are losing money, and
which would reduce their losses by $10-13 million in
operational costs annually.
Indian Foreign
Office sources admit that the latest peace initiative
offer by Prime Minister Atal Bihari Vajpayee is
identical to the agreement he signed with the deposed
and exiled prime minister of Pakistan, Nawaz Sharif, at
Lahore in 1999.
Tarun Das, director general of
the Confederation of Indian Industry and Amit Mitra of
the Indian Federation of Chambers of Commerce and
Industry are on record as saying that economic
cooperation between the two countries, as being stressed
by India is the only solution to their political
differences, is likely to take a backseat when the
markets become free in another two years. They feel that
with more than a dozen Indian companies enjoying
transnational status they could build Pakistan's
infrastructure and help its economy faster and at a
lower cost.
This view is supported by Ejaz Ahmad
Naik, a Pakistani economist who feels that Pakistan
needs its domestic market thrown open to regional
competition first if it wants to survive global
competition. This openness would help Pakistan to build
its own expertise and competitiveness, he wrote recently
to an Indian peer in the Delhi School of Economics.
A senior official of India's oil behemoth, Oil
and natural Gas Commission Videsh (overseas) says that
India's insistence on Pakistan providing assurance for
the safety of the pipeline was more political as no
country under the current global environment would dare
disrupt the pipelines of two other countries permitted
through its territory. He points out that despite the
continuing conflict between Russia and Chechnya, the
rebels did not disrupt the oil supply from the
northeastern seaboard of the former Soviet Union.
He says Pakistan did not foresee the benefit
from the pipeline both as a revenue earner as well as an
energy supplier for the country, as Pakistan's own gas
resources have depleted seriously. He points out that
Pakistan will charge a heavy fee for the use of its
territory and have natural gas at a lower price than
India.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
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