Nabiha Chauhdry: Microscopic view of India’s friendliness to Pakistan

There may be a lot more to the news of India allowing Pakistani investment within its borders, than meets the eye immediately. The decision has been met with mixed response from the investors in Pakistan a day after the Indian Ministry of Commerce decided to lift the investment barrier from Pakistani investors, except in the fields of atomic energy, defence and space. Pakistani investors and banks are still unclear about the conditions of such investment and the overall effects of the decision will be largely determined by the intricate conditions following such a move, as in the case of India’s grant of MFN status to Pakistan in 1996.

Earlier this year Pakistan had moved to grant India MFN status on yearly basis. On the face of it, India had taken the positive step of befriending Pakistan 16 years earlier than Pakistan had done. However, when one looks deeper into the picture it turns out that it is actually India and not Pakistan which had been reaping trade benefits during these 16 years. Applying conditions, India had given trade access to only 850 items from MFN Pakistan while Pakistan had given access to 1945 items to India, although it had not extended MFN status to India.

The balance of trade was already largely in favour of the Indian economy and the Indian industrialist (about 81 per cent of the total trade was exports from India to Pakistan) and Pakistan’s MFN to India stretched this imbalance even further. On the contrary, India’s grant of MFN status to Pakistan in 1996 was followed by a list of non-tariff barriers from India which further restricted Pakistan’s access to the Indian market.

If the above example is kept in mind, the Pakistani investor may do well to postpone celebration. The Indian announcement of the seemingly friendly barrier on FDI from Pakistan may have more price tags attached than are visible on the surface.

The other side of the coin would be an analysis of the effect of an attractive investment policy by India at this particular juncture in time when energy shortages in Pakistan have already compelled a large section of the textile industry to shift from Pakistan to Bangladesh. Should the Pakistani investor find it monetarily more rewarding to establish industries in India as compared to Pakistan, another major chunk of Pakistan’s industry can be expected to shift from Pakistan to India, further deteriorating the state of Pakistan’s current GDP. Given that India is receiving direct support from USA in the nuclear energy sector while Pakistan has had to face serious criticism both in the case of Chashma-3 and Chashma-4 nuclear energy power plants constructed with China’s help, and the Iran-Pakistan gas pipeline, the actual beneficiary of India’s FDI policy towards Pakistan is yet to be determined.

The decades to come will also reveal whether trade pacts are the way forward in building real peace and trust between two historically hostile nuclear neighbours, or if peace pacts prior to trade agreements form the cornerstone of building real regional peace and stability.


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Filed under Discussion, India, MFN, Pakistan, Trade

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