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A Brief Over View of Pakistan India Trade: 
Free trade to benefit both countries

The founder president of the Saarc Chamber of Commerce and Industry, S M Inam, brushing aside a notion that free trade with India would eliminate our industry said it would rather be beneficial for both the countries and their people. 

"Already a lot many achievements have been made under the Saarc chamber, which was set up in 1988, on the demand of business community of the member countries after getting the approval in the summit meeting of the seven nations held in Dhaka in the same year," he said. 

As a result of this, S M Inam said, Saarc Preferential Trade Agreement (SAPTA) came into being and was implemented on Nov 8, 1995. Under this arrangement, India being a big country agreed to allow concessional duties on import of 106 items from other member countries and Pakistan on 35 items. 

Another breakthrough was Saarc Free Trade Agreement (SAFTA) concluded in the year 1998, and was to be implemented this year. However, Saarc has reached an understanding at Kathmandu summit that SAFTA would be implemented in 2005. 

Despite the fact that the volume of informal trade is still by far larger than formal trade between all the member countries of Saarc, but it is equally encouraging to see that there is a persistent growth in the formal trade as well. 

Presently around three to four billion dollars informal trade is still going on between all the seven member states of Saarc. Out of this Pakistan and India exchange goods to the tune of $1 billion per annum through traditional sources like cross border smuggling and personal baggage. 

Besides, a sizeable quantity of capital goods, dyes and chemicals, iron and ore, spices and fruits find their way to Pakistan through third country. 

According to official figures both the countries during 2000-2001, had exchanged goods worth $293.74 million through official channels. Out of this Pakistan exported goods having a value of $55.41 million and imported goods worth $238.33 million from India. 

Though the theory of free trade is being globally propagated but equally the world is witnessing the coming up of a number of trade blocs such as NAFTA, EU, ASEAN, etc. Besides the advantage of geographical proximity the primary objective of these blocs is to give preferential tariffs to the member states. 

If the South Asian states manage to promote their trade under SAARC this would mean that a huge market of around 1.3 billion people only next to China could be created. The member states will have a number of advantages based on specific factors of extreme convenience. 

Besides the short distance there would be lesser freight cost which will ensure quick deliveries and short inventories. The member states will have no language barrier and would be abreast with each others trade practices and fashion needs. All this will result in complementing each others economy. 

However, all this is possible if India and Pakistan resolve their political disputes through dialogue or any other means but should immediately move forward for ensuring better life to their masses who had so far only witnessed poverty and illiteracy and non-existence of medical and health facilities. 

Pakistan having annual import bill of around $12bn is importing goods worth around $600 million or around 2 per cent only from the Saarc member countries. 

S M Inam who is presently the president of South Asia Association of Small and Medium Enterprises having its offices in all the seven member countries of Saarc is of the view that a great opportunity lies ahead for the South Asian counties once they move forward to develop trade relations. 

He further said it was ironic that despite the fact that a lot of achievements as well as progress had been made from the platform of SAARC chamber but still both the countries kept their horns locked on political front. 

Pakistan's balance of trade with India

(In million US$) 
Year Imports Exports Balance 
1996-97 204.70 36.23 -168.47 
1997-98 154.53 90.57 -63.98 
1998-99 145.85 173.66 28.81 
1999-90 127.38 53.84 -73.74 
2000-01 238.33 55.41 -182.92 
Source: Foreign Trade Pattern of Pakistan, KCCI 

Cross`Border Listing to Open up New Avenues

The corporate sector, notably the listed companies on the country's three stock exchanges could benefit in more than one ways after the normalization of relations with India, of course, after the settlement of disputes. 

The cross-border listing of financially viable shares could be on the top of the agenda of the KSE high-ups after the official green signals, KSE sources said. 

"The cross-border listing could well be an efficient tool to expand the exposure of the local equities on the international platform eventually leading to a bigger client base", hopes a leading stock analyst at the W.E. Financial Services. 

The PTCL GDR, for instance, which are being sold on the foreign markets in dollars through agents may not need marketing mechanism as they will be open for any prospective investor the world over, they added. 

In addition to formalization of the informal trade of about $3 billion, the exchange of surplus industrial productions where one of the trading partners is deficient on barter basis could open a new vista of two-way trade between the close neighbours. 

"The idea of cross-border listing of viable shares on the KSE and the Mumbai stocks is not that bad as it has already won the required votes from their respective high-ups some years back", stock exchange sources said. This could well be a major cementing factor as the revival of a plan mooted a couple of years back between the presidents of the Karachi Stock Exchange and his counterpart in Mumbai of the stock exchanges will give the needed depth to the both. 

The plan drawn on the pattern of cross-border listing in some of the European countries, which results a massive two-way inflow and outflow from one country to the other provides enough manoeuvring leverage to employ the heavy cash amount for expansion and modernization programmes. "And after goings get smooth, it opens the floodgate for technology transfers most suited to local typical conditions, workforce and environments", says an industrialist. 

Most of the leading MNCs, notably Lever Brothers, Siemens, auto and pharmaceutical shares sponsored by their overseas principal companies are listed on both the stock exchanges and their respective roles could be supplementary to each other, he says. However, the chances of speculative price manipulation by the "big bulls or bears" are always there despite the presence of regulatory rules and circuit breakers. But they too are the part of the game as and add to real value of the share in trade after the speculative run is defused, brokers said. 

Major items of exports to India

(In million US$) 
Commodity Description 1997-98 1998-99 1999-00 
Vegetables and fruits 22.33 17.13 22.14 
Textile yarn and fabrics 0.78 2.04 2.90 
Leather & leather manufacture 0.95 0.55 0.18 
Petroleum crude - 5.16 4.17 
Plants for perfum, pharm. etc. 1.21 1.30 2.24 
Rice - 0.01 12.70 
Sugar, cane, refined 62.08 142.18 - 
Others 3.22 5.29 9.31 
TOTAL 90.57 173.66 53.64 
Source: Foreign Trade Pattern of Pakistan, KCCI 

Consumer Goods Trade a Win to Win Situation 

Free flow of consumer goods between Pakistan and India, analysts say, could be slightly negative for Pakistan in the short run, but over the long haul, it definitely is a win-win situation for both. 

Such assessment, Muhammad Sohail, head of research at InvestCap Securities says, holds true for all commodities such as cement, paper, pharmaceuticals, auto, consumer items, electronics, synthetic fibre and possibly even the textiles. 

He reasons that in the manufacturing of all commodities, the rule of 'economy of scale' applies. Pakistan's entire demand of cement at around 10 to 11 million tons, is currently met by over two dozen cement plants in the country. But just one or two giant cement plants in the neighbouring country could fulfil all that demand for they have such large installed production capacities. Cheaper labour is another plus for Indian industries. 

"Whether Pakistan's cement companies are able to make inroads into India or vice-versa, would also depend on the freight economies of scale", say analysts. Freight costing is an essential ingredient of bulk commodities, which is why if Pakistani producers are able to deliver the product at cheaper delivery costs at destinations nearer the border, they may be able to wrest market share from Indian producers, analysts say. 

Analysts say that Pakistan has strong gas reserves and a telecom infrastructure which is one of the best in the region. If the country can exploit the two advantageously, it could earn market share in the neighbouring country as well. 

As regards the pharmaceutical and consumer goods, in which multinationals are active players in both the countries, it would be the parent company that would devise strategy that suits best its own interests, say analysts. "Drugs are low priced in India, but would it suit those multinationals, who are manufacturing and selling same drugs at different prices in both countries to equalize prices?", doubts one analyst. If they do, perhaps, they would want to close down all production in high-cost country and instead only package and sell fully-manufactured product there. But over the long term, analysts say, excess of supply of all consumer products on both sides, would reduce prices and as economic theory says, it could go to boost demand. 

Trade Continues Despite Snapping of Rail Link 

It is for the first time that the bilateral trade between Pakistan and India through rail has been suspended for an indefinite period. The rail link was first suspended in 1965 war, but it resumed in 1976. 

The Indian government decided to snap road, rail and air links with Pakistan from January 1 this year in order to build pressure on it to take action against the jehadi organizations involved in armed struggle against India in Kashmir. 

Though the volume of bilateral trade between the two countries has never been much, the number of wagons, bringing in goods from India and transporting merchandise from here, was on the increase in the recent years. 

Pakistan Railways officials told Dawn on Saturday that the number of wagons sent by India during the fiscal 1999-00 was 5,500 compared to 3,000 wagons sent from Pakistan. The number of Indian wagons coming into Pakistan rose to 14,000 during 2000- 01 as against 4,000 going there from Pakistan. 

In the first half of the current fiscal year (July-Dec) before the termination of the rail link between the two countries, India had sent 3,500 wagons while Pakistan 2,500. 

"The volume of trade between the states has traditionally been quite low. The increase in the goods traffic between them is more because of import/export of sugar than anything else," a railways official asserted. He said railways was usually used by Pakistani exporters to send salt (rock) and dry dates to India. The Indians normally export soybean waste (used in chicken feed). 

In spite of suspension of the rail traffic, the traders from both sides continue to trade these items via Dubai. It is another thing that they are costing the consumers higher prices these days as the traders continue to rig profit. 

The railways officials claim that now the "Indians want to use the rail route with Pakistan to send their goods to Afghanistan." But, the officials add, "India would not be allowed this facility unless India decides to revoke its earlier decision of snapping rail, road, and air links with Pakistan." 

Balochistan Favours Trade with India 

Business people love trading as it generates revenue and profits. It is mutually beneficial for trading partners. 

People of Balochistan are more interested in trade with India. Large number of Balochistan's traders, importers and exporters were already doing business with India. People want to import more, cheaper and better goods (from textbooks to medicines), taking advantage from low cost of production in India. 

On the contrary, traders can export dry fruits, herbs and fine quality cotton, presently produced in central and southern parts of Balochistan, and other products. They were exporting dry fruits and herbs to India for the last many years. 

Zaheer Ahmed, secretary, Balochistan Chamber of Commerce and Industry, said the volume of dry fruits and herbs export to India stood around $400 million annually. After December 13, the trade between Balochistan and India had stopped and exporters of dry fruits and herbs were facing serious problems, Zaheer Ali said. 

"We want to trade with India," said a leading bullion traders, adding trade and business with India can play vital role in providing necessary items on cheap rates because of less transport charges. 

He was of the view that restoring trade activities between India and Pakistan would be in favour of both the countries and would also help in boosting their economies. 

He dispelled the impression trade with India would affect the Pakistani industry, saying: "We would import only those items which Pakistani industry was not producing. It would also create a healthy competition between industries of both the countries and discourage smuggling and illegal trade. It may be mentioned that precious stones were smuggled to India as they were not included in the export list. 

Former BCCI president Fazalul Kadir Sherrani said: "We want bilateral trade with India that would help improve economy of both the poor countries." 

A senior member of BCCI and leading trader of timber said with the restoration of peace trade activities would increase. 

Traders of Balochistan, involved in dry fruits and herbs exports to India, were facing financial crisis as their billions of rupees were stuck-up. They had purchased dry fruits and herbs on the orders they received from India and now with the closure of borders their trucks were standing in different areas of the country. 

Trade Hinges on De-Escalation 

Pakistan foresees a formidable opportunity for a massive trade with India as soon as the de-escalation takes place and normalcy restores in the region. 

Senior officials of the ministries of finance, commerce, industries and production, petroleum, privatization, Board of Investment (BoI) and the Central Board of Revenue (CBR) were currently busy working out various details to take up what is being termed "their new important assignment" to not only cover up the losses that were experienced in the wake of September 11 events but also greatly benefit from the reconstruction of Afghanistan. 

When approached the senior officials of the ministries of finance, commerce and the Economic Affairs Division (EAD) said that since funding was not a problem unlike the past, things should move in the right direction to improve the economy specially by having the much sought after foreign investment in the country. 

Pakistan, according to concerned officials, has managed over 3 billion dollar for the year 2002, beside it was expecting new market access in USA, European Union, Japan as well as the Middle East. 

The possibility of having increased trade and economic relations with India was not being ruled out after getting the relations normalized between the two countries in the coming weeks. 

"The situation has relatively improved, though not completely to our satisfaction but still stock market has started improving and other business activities have started picking up," said Minister for Finance Shaukat Aziz. 

He told Dawn that the global economy which had slowed down after September 11 had slightly improved, which was also helping other developing countries like Pakistan. "There is a tremendous goodwill for Pakistan today which was never there in the history of Pakistan before, and now is the time to do some thing," he said. 

He warned that Pakistan will be a big loser if it did not benefit from this goodwill and unprecedented flow of foreign funds in the country. He said stock market is likely to improve further in coming weeks and then "our credit rating is improving and being appreciated by the international credit rating agencies." 

"But I am glad to tell you that we will have a great opportunity to excel in all economic and trade fields once the tension with India is removed," the finance minister said. 

Responding to a question, Aziz said that trade and economic relations with India could be established once the deescalation takes place on borders and irritants are removed. "We would try to develop an overall package with India which should also settle the core issue of Kashmir to have our trade relations resumed", he added. 

To another question he said that Pakistan has a complete infrastructure of ports & shipping and other necessary equipment, which can be used for the reconstruction of Afghanistan. "Hopefully, every thing will be channalized through us in the development and reconstruction of Afghanistan," Aziz said confidently. "I can assure you that we will have our good share there," he said adding that a high level contact with the business community has been established over the issue, with President General Pervez Musharraf assuring the entrepreneurs to have all government's support for undertaking business activities in that war ravaged country. 

He said that for the first time North West Frontier Province (NWFP) and Balochistan will greatly benefit due to the reconstruction process of Afghanistan as things would be channelized through both the provinces. He said foreign countries specially the US and those of the European Union (EU) were showing a lot of interest to remove the ongoing tension with India. "And at the same time they are providing us all necessary financial support to improve our economy in a big way." 

He termed the opening of the USAID offices in Pakistan a big success, and said that Washington was providing all necessary financial support and market access besides using its influence with the international donor agencies in favour of Pakistan. 

"If we show a credible management, things will further improve," the finance minister said adding that Pakistan has still to go a long way to resolve its major economic problems satisfactorily. 

"We are very pleased with the current situation but I do not want to sound as if all is well," he said. Aziz pointed out that a solid base was being provided by the present government to make Pakistan both politically and economically strong and that various actions in the right direction were being taken. 

Minister for Commerce, Industries and Production Abdul Razak Dawood told this correspondent that foreign investment and business activities were not picking up due to ongoing tension with India. "Our major projects and the much needed foreign investment have delayed due to tension on borders," he said. 

Moreover, he said, the investment from China was expected to be expedited once the deescalation was achieved. He said the EU has already provided additional market access to Pakistan and the United States was expected to offer the same to help improve the economy specially for building foreign exchange reserves. 

"Trade relations with India are also likely to be established," Razak said adding that both India and Pakistan could greatly benefit from each other by having their trade relations resumed. "I am hopeful of trade with India," he added. 

The secretary, Economic Affairs Division (EAD), Naveed Ahsan told Dawn that foreign aid was being offered to Pakistan on relatively low interest rate and in some cases high concessional soft loans had also been approved for Pakistan. "Then we have been extended cash grants by US and other countries, which is very good for our economy," he said adding that budgetary support was being offered both by the bilateral and multilateral agencies to Pakistan. 

"I imagine that things will improve and improve rapidly once the ongoing tension with India is no longer there," Ahsan said. 

He said there was a consensus at all levels that Pakistan should exploit the full potential of the current situation specially with regard to Afghanistan. 

Additional Secretary and the Spokesman of the ministry of finance Dr Waqar Masood Khan said that Pakistan would be in a position to further improve its economy once the situation on borders was normalised. He said necessary spade work has been done to take up the challenge of improving things. 

He said that small and medium enterprises will be playing a big role during the next few years in Pakistan. He said interest rate of the commercial banks was being reduced to help achieve the objectives of getting more and more new industries established in Pakistan. 

President of the Pakistan Institutes of Development Economics (PIDE) Dr. Kamal said that after a long time things looked moving in some clear direction to revive the country's economy. The issue of 38 billion foreign debt was being addressed by seeking soft loans and by cutting unnecessary expenditure. He was of the view that economic activity will further pick up once relations with India were improved specially by removing current tension between the two countries. 

Courtesy Dawn;

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