If
connectivity improves, India can become the leading trading partner of Pakistan
because of proximity and centuries-old business networks that had lived, worked
and shared the gains together, Dr Vaqar Ahmed and Muhammad Adnan
In
2008-09, when Pakistani firms started to invest in Bangladesh for taking
advantage of latter’s duty-free access to European Union and North America,
several analysts termed it capital flight and denounced the government for not
regulating such capital outflows. However, we know from actual data now that
the investment that has actually gone in Bangladesh’s textile sector from
Pakistan is around USD29 million, hence this has in turn implied an increase in
Pakistan’s exports to Bangladesh which is over 33 per cent.
When
Pakistani firms operate in places such as Chittagong, they tend to take textile
raw material from their source in Pakistan. Given that this material is being
imported from the country of origin, therefore Pakistani firms do not have to
pay customs duty at Chittagong. Such trade creation impacts of investment
outflows are not often explained in our popular media. There are several other
examples such as the one explained above and include trade-creating investments
in Sri Lanka, Malaysia and Jordan.
In
August 2012, India through an executive order allowed FDI from Pakistan. While
this has only been allowed through the government route, however, we already
see that some research work has already started on the preparedness of
Pakistani investors wishing to undertake ventures in India.
In
the recent research conducted by Sustainable Development Policy Institute on
this subject, there seems to be two different views on this subject. One is the
high-end business community in Pakistan that is already an established investor
in various parts of the world. For such businessmen, India is just another
destination where they will go if, in economic terms, they see long-term
expansion of their conglomerate. The other, however, is medium scale production
or trading concerns who feel that with India there still remains high risk in
return for payoffs which they can certainly get from operations in other
countries (most cited example was UAE).
In
the rest of this piece, we focus on the latter group and their concerns
regarding investment in India. A leading leather industrialist in Sialkot
reported that he first wanted to ensure that he will get the same skill set to
produce quality products in India as the one he currently has in Sialkot.
According to him, the hand stitching is a niche that is not always available in
large numbers and given the visa restrictions between both countries, labour
mobility is hardly possible.
A
textile firm owner in Lahore is thinking to start business in India, but he
will start homework only after it is ensured through a framework of sovereign
guarantees on both sides that his venture will not be affected by political
upheavals between the two neighbours.
In
services sector, an eminent private school’s chain has indicated its interest.
They are already operating in countries like China and UAE. However, their key
concern is that there are still restrictions in India on petty things like
opening up of a corporate bank account by a Pakistani firm. It was also
reported that the South Asia University in New Delhi, under its mandate, allows
admission applications from the eight Saarc countries. However, Pakistani
students face difficulty given the lack of bank account. Their visa is also
specific to New Delhi and they cannot move to any other city in India.
In
case of surgical industry, several businessmen were afraid of investing given
the weak intellectual property framework and its implementation in India. They
were of the view that surgical equipment has global demand and they have faced
violation of intellectual property when such ventures were initiated in China.
Some also cited the sour experience of Mittal in steel sector and the way
state-specific red-tape hindered them from bringing such mega investment in
India.
Pakistan
is bound to have more trade creation if connectivity between India and Pakistan
improves through all channels. Currently, even cellular communication is not
possible as roaming is not allowed in either of the countries. The land routes
are subject to heavy political interference. Currently, only Wagah-Attari is
open for tradable goods. However, the demand for trade on both sides is so
colossal that check posts on both sides have reached their full capacity. The
solution now is to think towards containerization via railways. This is the
only land option that can allow movement of mass cargo on both sides.
In
the pre-1965 era, Pakistani investors were involved in direct and portfolio
investments in India despite some capital controls. India, at that point, was
the leading trading partner of Pakistan because of proximity and centuries old
business networks that had lived, worked and shared the gains together. Today,
South Asia remains far more disconnected than sub-Saharan Africa and both India
and Pakistan must share the blame for this.
The
authors are economists at Sustainable Development Policy Institute. Islamabad:
vaqar@sdpi.org & madnan@sdpi.org
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