ASIAN POLITICS: India, Pakistan at 50

Aug 1997

Mistrust's Children
Fifty years after gaining their freedom, India and Pakistan mull free trade between themselves

By Salil Tripathi

One crisp winter morning in Islamabad, Sushandra Sen stepped out of his hotel and into his car. Within minutes, another car began following him. It stayed on his tail throughout his three-day visit. As senior director of the Confederation of Indian Industry, Sen was meeting Pakistani businessmen to explore opportunities for cross-border business. He was no spy. But the security agents who followed him were a constant reminder of the tension between India and Pakistan.

This month India and Pakistan celebrate the 50th anniversary of their independence from British rule. They share a 1,930-kilometer border, yet they trade less with each other than with almost any other country in the region - at least officially. They make visas difficult to obtain and require businessmen to report to police.

India and Pakistan have fought three wars since the traumatic Partition of 1947, which carved two nations (now three - Bangladesh separated from Pakistan in 1971) out of British India, divided countless families, killed hundreds of thousands and irrigated the lands of Punjab and Bengal with blood. Today Indian and Pakistani soldiers still stare at each other across a glacier in the Himalaya. The two governments remain highly suspicious of each other, spend vast resources on defense and stubbornly refuse to sign the Nuclear Non-Proliferation Treaty or the Comprehensive Test Ban Treaty. Pakistan aids, materially and morally, a separatist movement in the disputed northern state of Jammu and Kashmir, which India says it will never give up. The subcontinent poses, in the words of the Washington Post, “the greatest possible threat of nuclear war in the world.”

Yet this sorry state of affairs may be about to improve - through commerce. Big businesses on both sides of the border are aggressively pushing their governments to begin economic cooperation. Says Zahid Zaheer, secretary general of the Overseas Investors’ Chamber of Commerce and Industry in Pakistan: “The fear of being swamped by India is misplaced. We already have an adverse balance-of-payments situation. So what if it will favor India? If the Indian economy depends on Pakistani purchases, India will think three times before becoming unreasonable.”

Official trade between the two stands at a paltry $110 million a year. At independence, 56 percent of Pakistan’s exports were to India, and 32 percent of its imports were from India. Today, those figures stand at a meager 1.2 percent and 0.7 percent, respectively. The numbers don’t add up if one walks through the bazaars of Pakistan, which are stocked with Indian garments, tools, industrial products, audio tapes, food and auto components.

Indeed, despite crippling restrictions, actual bilateral trade is estimated at up to $2 billion annually. Typically, this trade is routed in a convoluted way. Goods leave Bombay for Dubai, Mauritius or Colombo, where certificates of origin are replaced, then are shipped to Karachi. Or chartered flights leave Dubai for Jalalabad, Afghanistan, from where Indian-made goods cross by road into Peshawar, Pakistan, through the historic Khyber Pass.

Fifty summers ago, the train to Pakistan was packed with desperate people who felt partition had placed them on the wrong side of the fence. Often it carried dead bodies. Today the train between Indian Punjab and Pakistani Punjab, revived in 1975 as the Samjhauta (Agreement) Express, is likely to carry briefcase-wielding small-town traders making a quick buck by providing products in short supply across the Radcliffe Line, which divides the two countries. Take Ishtiaque Husain of Lahore, who regularly visits Delhi on the train. He spends a week at cheap hotels in the Jama Masjid area of old Delhi, and stuffs his luggage with Indian ball-bearings, jewelry, spark plugs and occasionally motorbike helmets from the crowded streets of Karol Bagh. The profit he makes in Lahore more than pays for the costs of his trip, the hotel and the bribes at the border. Munching succulent kabobs with Indian friends one night in old Delhi, Husain says with a laugh: “This business has thrill. Sitting in Karachi and processing documents is so boring.”

If economists and businesspeople on both sides of the border get their way, Husain’s life will become less adventurous. They advocate that the two countries create a customs union or a free trade area to unleash the potential of the subcontinent’s 1.2 billion people. Then, as Indian Prime Minister Inder Kumar Gujral puts it: “The sleeping giant will have woken.”

The giant has been snoring because economic policies are dictated by political compulsions. “Unless there is a serious change of approach, the prospect of trade will remain a distant dream,” says Akram Zaki, the chairman of Pakistan’s Senate Foreign Affairs Committee. “There is a lobby which wants more trade, but there is a stronger lobby which wants no trade until Kashmir is settled. Parallel progress is needed on all fronts.” One result of the mutual mistrust: An Indo-Iranian proposal to build a $1.1 billion gas pipeline from Iran to India through Afghanistan and Pakistan remains in limbo.

For the most part, Pakistan’s politicians and generals are not yet ready to open doors. Asif Ali Zardari, the controversial husband of former Pakistani Prime Minister Benazir Bhutto, has told his business buddies to beware of the Indians: “They are wily banias [a Hindu caste known for its business acumen]. They will always take us for a ride.” A businessman once asked Pakistan’s late president, General Zia-ul Haq, why he was not liberalizing trade relations with India. Zia replied: “I do not want to see the emergence of an Indian lobby in Pakistan.”

The cost of such posturing has drained Pakistan. In a study for the Henry L. Stimson Center in Washington, Delhi-based economist Poonam Barua points out that Pakistan buys iron ore for its steel mills from Australia, Canada and Brazil, even though India has vast supplies and can deliver it quicker. Similarly, Pakistan imports 70,000 to 90,000 metric tons of tea each year, largely from Kenya and China, even though at $2.42 per kilo Indian tea is much cheaper. Yet India supplies only about 5,000 metric tons.

India, too, chooses to ignore economic logic. Pakistan has a surplus of short- and medium-staple cotton, which India needs. India has extra-staple cotton, which Pakistan needs. And while Indian imports of pig iron have shot up, the country has declined to tap Pakistan’s abundant stocks.

Pakistan will need to act soon. Defense expenditure and interest payments, by one informed estimate, account for 69 percent of Pakistan’s annual budget, leaving precious little for development or infrastructure. (India’s defense and interest costs are estimated at no more than 40 percent.)

While India has offered Pakistan Most-Favored Nation (MFN) status, which means Pakistani goods could be imported into India without any discriminatory tariff, Pakistan has not yet reciprocated, and Islamabad restricts bilateral trade to 574 items. Complains H.S. Tandon, secretary general of the Punjab, Haryana and Delhi Chamber of Commerce and Industries, the only Indian business group with an active Pakistan desk: “India has one trade policy, Pakistan has two.” That hasn’t prevented trade; it has only made Indian imports costlier and denied customs revenue to Pakistan’s government.
As a member of the World Trade Organization, Pakistan is required to offer India MFN status soon. And with the South Asian Preferential Trade Area set to begin in 2001, the deadline looms. But Pakistanis are debating the costs and benefits. “India granting Pakistan MFN is not good enough because India has a restrictive trade regime,” cautions former Pakistani Commerce Minister Mohammad Zubair Khan. “Open trade with India will lead to large Indian exports to Pakistan, not the other way around. Under MFN regimes India gets a free ride, and Indian generosity is based on this knowledge.”

“People are worried India will dominate,” says leading manufacturer Rashid Soorty in Karachi. “I say let them dominate. If we don’t import from India, we will import from China or Australia, and they will dominate us. This is not a tug-of-war - if we continue to pull too hard, the rope will break.”

Some businesses are not waiting. Indian tractor manufacturer Eicher Goodearth Ltd. has proposed an assembly unit for small-horsepower tractors in Pakistan. If cleared by the Pakistani authorities, it’s believed the $7 million project would be the first-ever investment by an Indian business in Pakistan. Pakistan needs 30,000 tractors a year, and Eicher plans to make 6,000 annually, selling at $4,300 each, 30 percent of what competing foreign brands cost. “We have the same alluvial soil, the same size of small holdings and the same farming methods,” says Eicher Vice Chairman Subodh Bhargava. “I can’t think of a more appropriate project.” Today, Eicher’s exports to Pakistan are less than $1 million.

Najam Sethi, chief executive of Lahore-based Vanguard Books Ltd., saw the folly of Pakistani consumers paying 400 Pakistani rupees for textbooks that were available for just 60 Indian rupees across the border. So in 1978 he began importing Indian books through Singapore. “I was performing a public service,” he argues. “Books were expensive, and the ban was on books from India, not books published in India.” That loophole was plugged three years later. But in 1986 General Zia allowed the import of professional, religious and scientific and technical books, and now ingenious importers like Sethi interpret that liberally enough to say: “We can import any book so long as it doesn’t deal with current affairs, Pakistan, politics or Kashmir.” Today Indian books account for nearly 10 percent of Pakistan’s $5 million market.

But trade anomalies persist. Half the truck tires available in Pakistan are smuggled from India. They are shipped via Hong Kong to Vladivostok, from where they go by road to Termez, a town near the Afghan-Uzbek border. Then, in a mode reminiscent of the Silk Route, donkeys carry the tires through the warlord territory of the Khyber Pass, to Peshawar. Despite the elaborate route, a smuggled Indian truck tire costs $150, just $5 more than a locally produced one, thanks to lower labor and raw-material costs in India.

Binay Kumar, chairman of leading Indian import-export group Banaras House Ltd., procures textiles and garments from Pakistan through his office in Germany for export to the West. (India supplies the raw material to Pakistan through Sri Lanka.) Banaras’s annual business with Pakistan is a modest $6 million, about 5 percent of his total sales. “If we remove these barriers,” he asserts, “the business can easily grow fivefold.”

The significance of a wasted half-century is not lost on the two countries’ leaders. At a summit in May in the Maldives, India’s Gujral and Pakistani Prime Minister Nawaz Sharif displayed rare bonhomie. Turning to the septuagenarian Gujral, the younger Sharif exclaimed: “I like this man very much.” Gujral has said India, being the bigger power, should offer unilateral concessions to smaller neighbors without expecting reciprocity, and not retaliate every time a neighbor criticizes India. India recently sealed water-sharing agreements with Nepal and Bangladesh, and now Gujral has focused his energies on Pakistan, his birthplace. For his part, Sharif “wants to move ahead on the economic front with India,” says bookseller Sethi, who’s also editor of Friday Times, an influential Lahore-based newspaper. In a significant vote of confidence, India said in late May it would buy 3,000 megawatts of power from Pakistan.

Magsaysay Award-winning Indian journalist B.G. Verghese notes: “The abusive language has gone, but exit from any strong position can only be gradual.” Verghese adds that Pakistan is slowly acknowledging India’s pre-eminent trade status in the subcontinent. “There is grudging acceptance of the Indian position,” he says, “because trade liberalization would otherwise move without Pakistan.” Unlike Pakistan, India is an ASEAN dialogue partner, part of the ASEAN Regional Forum and an active member of the Indian Ocean regional cooperation group. It may one day join APEC.

If the two countries’ leaders are moving away from confrontation, they appear to be in step with large portions of their populations. In May, 45,000 Indians in Madras lustily cheered Saeed Anwar, a left-handed Pakistani batsman who demolished Indian bowling and eclipsed a world record in one-day cricket. Across the border, college kids from Karachi to Quetta are mesmerized by the seductive gyrations of buxom Hindi film siren Madhuri Dixit. And the generation growing up on India’s Zee TV (a satellite broadcaster enormously popular in the subcontinent) appears to have more in common with each other than was imaginable during that bloody summer of 1947. Some 60 percent of Pakistanis and Indians were born after independence. And a magazine poll published earlier this year found that 59 percent of Pakistanis want friendship with India.

Gujral’s favorite Urdu poet, Faiz Ahmed Faiz of Pakistan, once wrote: “It is the same river and the same boat. Now you tell me what we shall do, how we shall cross the river.” Businessmen want to move on. Despite having his car followed in Pakistan, Sushandra Sen bears no grudges. “I have told the Pakistanis we want to supply only that which you don’t manufacture,” he says. “Why must you buy from distant countries? If we can cooperate and compete with the world, why not with our neighbors?”


ASIAN POLITICS: India, Pakistan at 50

Aug 1997

Mistrust's Children
Fifty years after gaining their freedom, India and Pakistan mull free trade between themselves

By Salil Tripathi

One crisp winter morning in Islamabad, Sushandra Sen stepped out of his hotel and into his car. Within minutes, another car began following him. It stayed on his tail throughout his three-day visit. As senior director of the Confederation of Indian Industry, Sen was meeting Pakistani businessmen to explore opportunities for cross-border business. He was no spy. But the security agents who followed him were a constant reminder of the tension between India and Pakistan.

This month India and Pakistan celebrate the 50th anniversary of their independence from British rule. They share a 1,930-kilometer border, yet they trade less with each other than with almost any other country in the region - at least officially. They make visas difficult to obtain and require businessmen to report to police.

India and Pakistan have fought three wars since the traumatic Partition of 1947, which carved two nations (now three - Bangladesh separated from Pakistan in 1971) out of British India, divided countless families, killed hundreds of thousands and irrigated the lands of Punjab and Bengal with blood. Today Indian and Pakistani soldiers still stare at each other across a glacier in the Himalaya. The two governments remain highly suspicious of each other, spend vast resources on defense and stubbornly refuse to sign the Nuclear Non-Proliferation Treaty or the Comprehensive Test Ban Treaty. Pakistan aids, materially and morally, a separatist movement in the disputed northern state of Jammu and Kashmir, which India says it will never give up. The subcontinent poses, in the words of the Washington Post, “the greatest possible threat of nuclear war in the world.”

Yet this sorry state of affairs may be about to improve - through commerce. Big businesses on both sides of the border are aggressively pushing their governments to begin economic cooperation. Says Zahid Zaheer, secretary general of the Overseas Investors’ Chamber of Commerce and Industry in Pakistan: “The fear of being swamped by India is misplaced. We already have an adverse balance-of-payments situation. So what if it will favor India? If the Indian economy depends on Pakistani purchases, India will think three times before becoming unreasonable.”

Official trade between the two stands at a paltry $110 million a year. At independence, 56 percent of Pakistan’s exports were to India, and 32 percent of its imports were from India. Today, those figures stand at a meager 1.2 percent and 0.7 percent, respectively. The numbers don’t add up if one walks through the bazaars of Pakistan, which are stocked with Indian garments, tools, industrial products, audio tapes, food and auto components.

Indeed, despite crippling restrictions, actual bilateral trade is estimated at up to $2 billion annually. Typically, this trade is routed in a convoluted way. Goods leave Bombay for Dubai, Mauritius or Colombo, where certificates of origin are replaced, then are shipped to Karachi. Or chartered flights leave Dubai for Jalalabad, Afghanistan, from where Indian-made goods cross by road into Peshawar, Pakistan, through the historic Khyber Pass.

Fifty summers ago, the train to Pakistan was packed with desperate people who felt partition had placed them on the wrong side of the fence. Often it carried dead bodies. Today the train between Indian Punjab and Pakistani Punjab, revived in 1975 as the Samjhauta (Agreement) Express, is likely to carry briefcase-wielding small-town traders making a quick buck by providing products in short supply across the Radcliffe Line, which divides the two countries. Take Ishtiaque Husain of Lahore, who regularly visits Delhi on the train. He spends a week at cheap hotels in the Jama Masjid area of old Delhi, and stuffs his luggage with Indian ball-bearings, jewelry, spark plugs and occasionally motorbike helmets from the crowded streets of Karol Bagh. The profit he makes in Lahore more than pays for the costs of his trip, the hotel and the bribes at the border. Munching succulent kabobs with Indian friends one night in old Delhi, Husain says with a laugh: “This business has thrill. Sitting in Karachi and processing documents is so boring.”

If economists and businesspeople on both sides of the border get their way, Husain’s life will become less adventurous. They advocate that the two countries create a customs union or a free trade area to unleash the potential of the subcontinent’s 1.2 billion people. Then, as Indian Prime Minister Inder Kumar Gujral puts it: “The sleeping giant will have woken.”

The giant has been snoring because economic policies are dictated by political compulsions. “Unless there is a serious change of approach, the prospect of trade will remain a distant dream,” says Akram Zaki, the chairman of Pakistan’s Senate Foreign Affairs Committee. “There is a lobby which wants more trade, but there is a stronger lobby which wants no trade until Kashmir is settled. Parallel progress is needed on all fronts.” One result of the mutual mistrust: An Indo-Iranian proposal to build a $1.1 billion gas pipeline from Iran to India through Afghanistan and Pakistan remains in limbo.

For the most part, Pakistan’s politicians and generals are not yet ready to open doors. Asif Ali Zardari, the controversial husband of former Pakistani Prime Minister Benazir Bhutto, has told his business buddies to beware of the Indians: “They are wily banias [a Hindu caste known for its business acumen]. They will always take us for a ride.” A businessman once asked Pakistan’s late president, General Zia-ul Haq, why he was not liberalizing trade relations with India. Zia replied: “I do not want to see the emergence of an Indian lobby in Pakistan.”

The cost of such posturing has drained Pakistan. In a study for the Henry L. Stimson Center in Washington, Delhi-based economist Poonam Barua points out that Pakistan buys iron ore for its steel mills from Australia, Canada and Brazil, even though India has vast supplies and can deliver it quicker. Similarly, Pakistan imports 70,000 to 90,000 metric tons of tea each year, largely from Kenya and China, even though at $2.42 per kilo Indian tea is much cheaper. Yet India supplies only about 5,000 metric tons.

India, too, chooses to ignore economic logic. Pakistan has a surplus of short- and medium-staple cotton, which India needs. India has extra-staple cotton, which Pakistan needs. And while Indian imports of pig iron have shot up, the country has declined to tap Pakistan’s abundant stocks.

Pakistan will need to act soon. Defense expenditure and interest payments, by one informed estimate, account for 69 percent of Pakistan’s annual budget, leaving precious little for development or infrastructure. (India’s defense and interest costs are estimated at no more than 40 percent.)

While India has offered Pakistan Most-Favored Nation (MFN) status, which means Pakistani goods could be imported into India without any discriminatory tariff, Pakistan has not yet reciprocated, and Islamabad restricts bilateral trade to 574 items. Complains H.S. Tandon, secretary general of the Punjab, Haryana and Delhi Chamber of Commerce and Industries, the only Indian business group with an active Pakistan desk: “India has one trade policy, Pakistan has two.” That hasn’t prevented trade; it has only made Indian imports costlier and denied customs revenue to Pakistan’s government.
As a member of the World Trade Organization, Pakistan is required to offer India MFN status soon. And with the South Asian Preferential Trade Area set to begin in 2001, the deadline looms. But Pakistanis are debating the costs and benefits. “India granting Pakistan MFN is not good enough because India has a restrictive trade regime,” cautions former Pakistani Commerce Minister Mohammad Zubair Khan. “Open trade with India will lead to large Indian exports to Pakistan, not the other way around. Under MFN regimes India gets a free ride, and Indian generosity is based on this knowledge.”

“People are worried India will dominate,” says leading manufacturer Rashid Soorty in Karachi. “I say let them dominate. If we don’t import from India, we will import from China or Australia, and they will dominate us. This is not a tug-of-war - if we continue to pull too hard, the rope will break.”

Some businesses are not waiting. Indian tractor manufacturer Eicher Goodearth Ltd. has proposed an assembly unit for small-horsepower tractors in Pakistan. If cleared by the Pakistani authorities, it’s believed the $7 million project would be the first-ever investment by an Indian business in Pakistan. Pakistan needs 30,000 tractors a year, and Eicher plans to make 6,000 annually, selling at $4,300 each, 30 percent of what competing foreign brands cost. “We have the same alluvial soil, the same size of small holdings and the same farming methods,” says Eicher Vice Chairman Subodh Bhargava. “I can’t think of a more appropriate project.” Today, Eicher’s exports to Pakistan are less than $1 million.

Najam Sethi, chief executive of Lahore-based Vanguard Books Ltd., saw the folly of Pakistani consumers paying 400 Pakistani rupees for textbooks that were available for just 60 Indian rupees across the border. So in 1978 he began importing Indian books through Singapore. “I was performing a public service,” he argues. “Books were expensive, and the ban was on books from India, not books published in India.” That loophole was plugged three years later. But in 1986 General Zia allowed the import of professional, religious and scientific and technical books, and now ingenious importers like Sethi interpret that liberally enough to say: “We can import any book so long as it doesn’t deal with current affairs, Pakistan, politics or Kashmir.” Today Indian books account for nearly 10 percent of Pakistan’s $5 million market.

But trade anomalies persist. Half the truck tires available in Pakistan are smuggled from India. They are shipped via Hong Kong to Vladivostok, from where they go by road to Termez, a town near the Afghan-Uzbek border. Then, in a mode reminiscent of the Silk Route, donkeys carry the tires through the warlord territory of the Khyber Pass, to Peshawar. Despite the elaborate route, a smuggled Indian truck tire costs $150, just $5 more than a locally produced one, thanks to lower labor and raw-material costs in India.

Binay Kumar, chairman of leading Indian import-export group Banaras House Ltd., procures textiles and garments from Pakistan through his office in Germany for export to the West. (India supplies the raw material to Pakistan through Sri Lanka.) Banaras’s annual business with Pakistan is a modest $6 million, about 5 percent of his total sales. “If we remove these barriers,” he asserts, “the business can easily grow fivefold.”

The significance of a wasted half-century is not lost on the two countries’ leaders. At a summit in May in the Maldives, India’s Gujral and Pakistani Prime Minister Nawaz Sharif displayed rare bonhomie. Turning to the septuagenarian Gujral, the younger Sharif exclaimed: “I like this man very much.” Gujral has said India, being the bigger power, should offer unilateral concessions to smaller neighbors without expecting reciprocity, and not retaliate every time a neighbor criticizes India. India recently sealed water-sharing agreements with Nepal and Bangladesh, and now Gujral has focused his energies on Pakistan, his birthplace. For his part, Sharif “wants to move ahead on the economic front with India,” says bookseller Sethi, who’s also editor of Friday Times, an influential Lahore-based newspaper. In a significant vote of confidence, India said in late May it would buy 3,000 megawatts of power from Pakistan.

Magsaysay Award-winning Indian journalist B.G. Verghese notes: “The abusive language has gone, but exit from any strong position can only be gradual.” Verghese adds that Pakistan is slowly acknowledging India’s pre-eminent trade status in the subcontinent. “There is grudging acceptance of the Indian position,” he says, “because trade liberalization would otherwise move without Pakistan.” Unlike Pakistan, India is an ASEAN dialogue partner, part of the ASEAN Regional Forum and an active member of the Indian Ocean regional cooperation group. It may one day join APEC.

If the two countries’ leaders are moving away from confrontation, they appear to be in step with large portions of their populations. In May, 45,000 Indians in Madras lustily cheered Saeed Anwar, a left-handed Pakistani batsman who demolished Indian bowling and eclipsed a world record in one-day cricket. Across the border, college kids from Karachi to Quetta are mesmerized by the seductive gyrations of buxom Hindi film siren Madhuri Dixit. And the generation growing up on India’s Zee TV (a satellite broadcaster enormously popular in the subcontinent) appears to have more in common with each other than was imaginable during that bloody summer of 1947. Some 60 percent of Pakistanis and Indians were born after independence. And a magazine poll published earlier this year found that 59 percent of Pakistanis want friendship with India.

Gujral’s favorite Urdu poet, Faiz Ahmed Faiz of Pakistan, once wrote: “It is the same river and the same boat. Now you tell me what we shall do, how we shall cross the river.” Businessmen want to move on. Despite having his car followed in Pakistan, Sushandra Sen bears no grudges. “I have told the Pakistanis we want to supply only that which you don’t manufacture,” he says. “Why must you buy from distant countries? If we can cooperate and compete with the world, why not with our neighbors?”