The geopolitical situation in the subcontinent is conducive for newer trade ties to open up between Indian and Pakistan.
There are immense benefits involved in this for both the countries.
What are the trends in Indo-Pak bilateral trade?
Bilateral trade has been volatile lately and it dropped to $2.4 billion in 2017-18, from the high of $2.7 billion in 2013-14.
This was largely the fallout of drop in Indian exports, although India continues to enjoy a big trade surplus of $1.4 billion with Pakistan.
But these figures reflect only the direct trade between the two countries and indirect trade routed through a third country like UAE is massive.
Some estimates hold that indirect trade could account to as much as 10 times the overall value traded directly – indicative of the potential of bilateral trade.
To capitalise on this potential, tariff and non-tariff barriers are to be eased, and awareness and confidence building exercises need to be taken up.
Why is there been a renewed hope in this regard?
Pakistan’s PM-elect Imran Khan recently spoke of the need for harmonious relations with all neighbouring countries, including India.
He also laid emphasis on better bilateral trade relations, given the immense potential and the peace dividend that comes with it.
This was largely welcomed on both sides of the border and even China (which is usually an irritant to Indo-Pak ties) has received this positively.
As politics and economics are not completely disconnected from each other, engagements at the political level is hoped to reinforce better economic ties.
What are the ways to enhance trade relations?
Value chain - In a highly integrated and interdependent global economy, regional value chains provide big opportunities for India and Pakistan.
They could diversify their exports and imports and intensify their integration into the global economy for the greater benefit of all.
Developing bilateral, product-specific, regional value chains in sectors such as “textile, clothing, sports goods and surgical equipment” hold the key.
Textiles - while there is an existing bilateral engagement here, there is more potential for raw materials, grey fabric, blended fabric and stitched clothes.
Indian hubs such as Surat (Gujarat) and Tiruppur (Tamil Nadu) can feed Pakistan’s major production centre at Faisalabad and markets in Lahore.
Similarly, there is a huge demand in India, for “salwar-kameez-dupatta” made of lawn fabric and wedding attire (shararas) produced in Pakistan.
Given Pakistan’s expertise in these areas, and the cost benefits attached with this trade, there is a significant market potential valued at $2.3 billion here.
Sports Goods - Pakistan’s sports goods manufacturing sector is emerging as an original equipment manufacturer for major global brands.
Sialkot is a global manufacturing hub for professional-level goods such as footballs, hockey sticks, leather goods, sports gloves etc...
Notably, footballs manufactured here were used in the FIFA World Cup and India is already importing some of these equipments.
However, manufacturers in Sialkot require quality raw materials or semi-finished products to produce these goods, which is a potential area for India.
India can play a key role here in exporting raw material and semi-finished goods such as latex, rubber, and football bladders.
This would work out to be more economical for Sialkot than its current major sourcing zones like Thailand and other Southeast Asian countries.
In terms of finished goods, India made “lycra fibre sportswear” is in demand in Pakistan and this presents a market opportunity of about $1.1 billion.
Health Care - Pakistan’s surgical instruments manufacturing industry is noted for its expertise, and it is a major supplier for U.S. and Europe.
India, on the other hand, is a large medical market which imports these instruments from these developed countries at high rates.
Direct import from Pakistan to India in this area has a market potential of $804 million and would make these instruments cheaper domestically.
Notably, in India, many dispensaries and clinics in Tier 2 and 3 cities, currently struggle to afford even re-useable surgical instruments.
Further, India can also potentially increase the supply of stainless steel to Pakistan, a major raw material used in instrument manufacturing.
