[Editorial Analysis] The market across the border

Mains Paper: 2 | International Relations

Prelims level: India’s relation with Pakistan

Mains level: India and Pakistan will both gain immensely by encouraging bilateral trade

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Context

• In his speech on July 26, after his electoral victory, Pakistan Prime Minister-elect and Pakistan Tehreek-i-Insaf (PTI) chief Imran Khan conveyed a sense of hope when he spoke of the need for harmonious relations with neighboring countries, including India.

• He also laid emphasis on better bilateral trade relations.

• Over the last five years, the bilateral trade trajectory has been volatile.

• From a high of $2.70 billion in 2013-14, it fell to $2.40 billion in 2017-18.

• During this time, while Pakistan’s exports to India were (and have been) fairly consistent, India’s exports decreased.

• Overall, India still manages to have a significant trade surplus with Pakistan (about $1.4 billion in 2017-18).

How can Developing a value chain?

• In a highly integrated and interdependent global economy, regional value chains provide opportunities for India and Pakistan to diversify their exports and imports and intensify their integration into the global economy.

• In an attempt to explore potential areas of increasing trade between India and Pakistan.

• This included sectors such as textile and clothing, sports goods and surgical equipment.

• In textiles, while there is an existing bilateral engagement, there is potential for raw materials (raw cotton, fabric dye), grey fabric (polyester, chiffon, nylon), blended fabric (cotton-polyester-viscose blend for denim) and stitched clothes (tracksuits and sportswear) from Indian hubs such as Surat (Gujarat) and Tiruppur (Tamil Nadu) to Pakistan’s major production centre at Faisalabad and its Lahore and Karachi markets.

• Similarly, from Pakistan, there is a huge demand for salwar-kameez-dupatta made of lawn fabric and wedding attire (shararas).

• The demand in India for Pakistani fabric and designs as well as the cost benefits attached with trading between India and Pakistan, there is significant scope for collaboration.

• The market opportunity for these few high-demand products alone is about $2.3 billion.

• Sialkot is a global manufacturing hub for professional-level goods such as footballs, hockey sticks, quality leather goods, and weightlifting and cycling gloves, some of which is imported by India.

• Also, footballs manufactured here were used in the FIFA World Cup.

• However, manufacturers in Sialkot require quality raw materials or semi-finished products to produce these goods.

• India can play a key role here in exporting raw material and semi-finished goods such as latex, rubber, and football bladders, which would work out to be more economical for Sialkot than sourcing them from other countries such as Thailand.

• In terms of finished goods, sportswear made of lycra is in demand in Pakistan. The market opportunity here is $1.1 billion.

Improving relations can benefitted in health sector

• Pakistan’s surgical instruments manufacturing industry, again based in Sialkot, is noted for its expertise.

• Pakistan is a major supplier of these instruments to the U.S., Germany, France, and Belgium.

• India, on the other hand, is a large medical market which imports these instruments from these developed countries at high rates.

• Direct imports from Pakistan to India in this area would ensure considerable cost benefits in terms of economics and logistics.

• To strengthen value chain linkages, India can potentially increase the supply of stainless steel to Pakistan, a major raw material used in instrument manufacturing, or even import semi-finished products.

• In India, dispensaries and clinics in Tier 2 and 3 cities, which are often unable to afford even re-usable surgical instruments, will benefit from the availability of cheaper and new instruments from Pakistan.

• The market opportunity in this sector is about $804 million.

Need to improve business-level dialogue

• Incremental steps towards bridging the gap between actual and potential trade is a must.

• It is important to alleviate fears, misconceptions and the trust deficit in the trading community.

• Business-to-business linkages need to be formed and strengthened between actual traders.

• While this can be initiated at the level of product-specific industry associations (for example at Jalandhar and Sialkot), this must also be taken up by national chamber associations.

• South Asian Association for Regional Cooperation (SAARC) business traveler visas must be implemented in practice.

• Though announced by Prime Minister Narendra Modi at the SAARC summit in 2014, there has been a delay in its implementation.

Conclusion

• There also needs to be the focus on other issues such as key items in the textiles and clothing sector, border infrastructure and security, improved connectivity by sea and air, enhanced people-to-people contact and educational exchanges.

• It is important to recognize that economics and politics are not completely disconnected from each other.

• Engagements at the political level will be an important factor to reinforce economic ties between the two countries. Mr. Khan’s speech makes us optimistic about the future.

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