Pakistan’s double U-turn on resuming trade with India highlights the internal differences within Ministries, between business and political communities.
All these hint at the reality that the shadow of politics looms over trade and economy.
What is the recent trade decision that was reversed?
Pakistan’s Economic Coordination Committee (ECC) recently decided to import cotton, yarn, and 500,000 metric tons of sugar from India.
Pakistan’s new Finance Minister Hammad Azhar announced this decision.
The media dubbed it as a political breakthrough.
But the ECC’s decision was based on Pakistan’s immediate economic needs and not on bilateral trade.
It was only about importing three items - cotton, yarn and sugar.
It was not designed as a political confidence-building measure to normalise relations with India.
Despite this, a day later, Pakistan’s cabinet overruled the decision.
It was also made clear that as long as India did not review the unilateral steps it took on August 5, 2019, normalising relations with India would not be possible.
The Finance Minister accepted the cabinet’s decision as the working of “economic and political interface in a democracy.”
It was left with the Prime Minister and the cabinet to “endorse, reject or modify” the ECC’s proposals.
Why was the ECC’s decision inevitable?
For the textile and sugar industries in Pakistan, importing from India is imperative, practical and is the most economic.
Textile industry - Yarn, cotton cloth, knitwear, bedwear and readymade garments form the core of Pakistan’s textile basket in the export sector.
In 2020, there was a steep decline in the textile sector due to disruptions in supply and domestic production, as well as a sharp decline in cotton production.
Notably, Pakistan is the fifth-largest exporter of cotton globally.
The cotton-related products (raw and value-added) earn close to half of the country’s foreign exchange.
The projected decline means Pakistan’s cotton export would reduce, creating a domino effect on what goes into Pakistan’s garment industry.
So, for the textile industry, importing cotton yarn from India is an immediate need; otherwise, it would impact their export potential.
Pakistan’s textile industry has thus not taken the cabinet’s decision kindly.
Sugar Industry -For the sugar industry, the problem stems from different issues - the availability for local consumption and the steep price increase.
The sugar industry has prioritised exports over local distribution.
But there was increased government subsidy.
Also, a few related administrative decisions resulted in the sugar industry attempting to make a considerable profit by exporting it.
However, by early 2019, the sugar prices started increasing, and in 2020, there was a crisis due to shortage and cost.
The subsidies, cheap bank loans, a few administrative decisions, manipulation and greed, especially by the sugar mill owners, meant high cost paid by the consumers.
As a result, importing sugar from India would be cheaper for the consumer market in Pakistan.
Clearly, the crises in cotton and sugar industries played a role in the ECC’s decision to import cotton, yarn and sugar from India.
It would not only be cheaper but also help Pakistan’s exports. This is also imperative for Pakistan to earn foreign exchange.
What does the cabinet’s decision imply?
Politics - For the cabinet, the interests of its own business community and its export potential have become secondary.
This implies the supremacy of politics over trade and economy, even if the latter is beneficial to the importing country.
However, Pakistan need not be singled out; this is a curse in South Asia, where politics play supreme over trade and economy.
The meagre percentage of intra-South Asian Association for Regional Cooperation (SAARC) trade would underline the above.
Trade is unlikely to triumph over politics in South Asia; especially in India-Pakistan relations.
Kashmir link - Another aspect is the emphasis on Jammu and Kashmir by Pakistan to make any meaningful start in bilateral relations.
The latest statement by Pakistan’s cabinet is that unless India rescinds the decision of August 5, 2019 in J&K, there would be no forward movement.
This position hints at Pakistan’s precondition (revoking the August 2019 decision) to engage with India.
Pakistan has been saying that the onus is on India to normalise the process.
It is perhaps New Delhi’s turn now to tell Islamabad that it was willing, but without any preconditions, and start with trade.
