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Ishrat Hussain, former governor of Pakistans central bank, the State Bank of Pakistan, tells
Nayanima Basu that for the first time in Pakistans
history, all political parties want to establish
normal bilateral trading relations with India You recently said the foregone benefits to the people inhabiting India and Pakistan are substantial owing to an absence of a proper trading regime between the two countries. How much of a loss are we talking about? The potential is that of $10 billion, although some
say it is $15-20 billion. I take a very conservative
estimate; if all trade barriers were removed and
trading was normalised, India-Pakistan trade
should be $10 billion. A lot of employment could
have been generated and industries could have been expanded. Most empirical studies calculate
that riding on the back of low transport costs,
dismantling of tariff and non-tariff barriers, grant
of the Most Favoured Nation (MFN) status to India
by Pakistan, and improvement of logistical
arrangements, the total volume of bilateral trade should be able to rise to approximately $8-10
billion annually. Pakistan and India together
shipped more than $300 billion worth of goods
to all parts of the world in 2011. This increased
volume would still account for three per cent of
the two counties trade volume, and will not cause any major dislocation to the existing
channels of trade followed by the two countries. What intangible benefits are in sight if bilateral trading relations between India and Pakistan are normalised? Investments will take place and production will
increase. As a result of this, employment will be
generated. Simultaneously, as what is known as
the multiplier effect, industries providing services
to these export bodies will make further
investments to reap benefits. So, trade is a very powerful multiplier for economic expansion,
employment and growth. The full-scale realisation
of trade potential will take some time. Like a
newly planted sapling, it will require tender care. Pakistan is heading for an election in March. Names of several new parties are doing rounds, including Imran Khans Tehreek-e-Insaf. Then, there are the usual ones, such as the Pakistan Peoples Party and the Pakistan Muslim League. If there is a change of government, will normalising trade relations with India still be on the agenda? All political parties unanimously support that
relations with India on trade and investment
should be normalised. That is unprecedented, and has never happened before in Pakistans history. What is the reason for this sudden change of mind? Pakistan now feels it is being left behind in the
race. India is a big economy eight times bigger
than Pakistan. Smaller economies must try to
benefit from the growth in bigger economies. For
example, Canada is a small country but the
standard of living of its people is quite high because of the benefits it availed from the US.
Similarly, after the North American Free Trade
Agreement, Mexico has done extremely well
because of its trade relations with the US. So, if
Pakistan tries to benefit from its neighbours
China and India, we can do well. But given the mindsets on both sides and the vested interests in play, do you actually feel trade normalisation will take place between India and Pakistan, and the MFN trading status will be given to India? Yes, it will be a reality. Right now, it is only a
matter of timing. Pakistans commerce minister is
trying to convince agriculturists making noise
against the fact that India subsidising its
agriculture will damage Pakistans agriculture.
This has caused an unexpected delay. Finally, policy-makers, for a variety of internal and
exogenous circumstances, seem to have
overcome their reservations, and a momentum
has been built in the last several months to move
the process forward. But time and again, we have seen just the reverse taking place. That is largely owing to the historical legacy that both neighbours had and share. In such a scenario, will geopolitics and trade go hand-in-hand? I think mindsets are changing now. The middle
class of Pakistan today is assertive, and so it is in
India. India has Anna Hazare creating noise.
Similarly, we have Tahir-ul-Qadri making noise.
Such movements are attracting the educated,
upper-middle class who are not captive to old way of thinking. Their mindsets are different.
Besides, we have more youth in the country.
More than 50 per cent of the population is below
the age of 25. They have no baggage of a bad
history. They are global citizens; they are always
on the internet, or Facebook or any other social networking site, and they are constantly learning
from the rest of the world. The two main issues that confront Pakistani businessmen today in doing business with India are the absence of a level-playing field and the trade surplus that India enjoys with Pakistan. Trade surplus is not wrong in my view. Bilateral
trade balance with any particular country does
not have to be positive. There would be no trade
in that case. Pakistan would run a trade deficit
with India just as it does with China, and
surpluses with other countries. With the signing of the free trade agreement with China, Pakistani
markets and producers have already adjusted to
relatively cheaper imports from China. They no
longer consider that there is any substantial
threat from Indian products flooding Pakistani
markets and displacing domestic industries. Their working hypothesis is that with cheaper
substitutes as inputs, raw materials, components
and parts from India, Pakistan would be able to
do much better, reduce the unit cost of
production and penetrate a much larger market. What steps should be taken immediately? Agreements that have been signed between
both the governments need to be implemented.
This is a bureaucratic problem. We make good
policies but we are poor at implementation. We
need to involve private sectors in the process.
More bank branches need to be opened, too. You are not enthused with the Indian governments recent decision to allow investments from Pakistan. I think the government should simplify the rules,
and an investment category for visa should be
set up. For example, a Pakistani businessman
today can come to India multiple times, but if he
is setting up an investment in India, there is no
category, and he has to come frequently. There should be no restrictions on the cities he can visit,
and the visa should allow multiple entries for an
unlimited period. How do you view Bilawal Bhutto Zardaris entry in Pakistans politics? We have Rahul Gandhi occupying centre stage in India. Do you foresee a transformational change in both countries? Well, I hope so. Younger people are smarter than
us. They will see that it is better to have good
and cordial relations with neighbours.
http://www.business-standard.com/ar...p-catch-up-ishrat-hussain-113020901001_1.html
Nayanima Basu that for the first time in Pakistans
history, all political parties want to establish
normal bilateral trading relations with India You recently said the foregone benefits to the people inhabiting India and Pakistan are substantial owing to an absence of a proper trading regime between the two countries. How much of a loss are we talking about? The potential is that of $10 billion, although some
say it is $15-20 billion. I take a very conservative
estimate; if all trade barriers were removed and
trading was normalised, India-Pakistan trade
should be $10 billion. A lot of employment could
have been generated and industries could have been expanded. Most empirical studies calculate
that riding on the back of low transport costs,
dismantling of tariff and non-tariff barriers, grant
of the Most Favoured Nation (MFN) status to India
by Pakistan, and improvement of logistical
arrangements, the total volume of bilateral trade should be able to rise to approximately $8-10
billion annually. Pakistan and India together
shipped more than $300 billion worth of goods
to all parts of the world in 2011. This increased
volume would still account for three per cent of
the two counties trade volume, and will not cause any major dislocation to the existing
channels of trade followed by the two countries. What intangible benefits are in sight if bilateral trading relations between India and Pakistan are normalised? Investments will take place and production will
increase. As a result of this, employment will be
generated. Simultaneously, as what is known as
the multiplier effect, industries providing services
to these export bodies will make further
investments to reap benefits. So, trade is a very powerful multiplier for economic expansion,
employment and growth. The full-scale realisation
of trade potential will take some time. Like a
newly planted sapling, it will require tender care. Pakistan is heading for an election in March. Names of several new parties are doing rounds, including Imran Khans Tehreek-e-Insaf. Then, there are the usual ones, such as the Pakistan Peoples Party and the Pakistan Muslim League. If there is a change of government, will normalising trade relations with India still be on the agenda? All political parties unanimously support that
relations with India on trade and investment
should be normalised. That is unprecedented, and has never happened before in Pakistans history. What is the reason for this sudden change of mind? Pakistan now feels it is being left behind in the
race. India is a big economy eight times bigger
than Pakistan. Smaller economies must try to
benefit from the growth in bigger economies. For
example, Canada is a small country but the
standard of living of its people is quite high because of the benefits it availed from the US.
Similarly, after the North American Free Trade
Agreement, Mexico has done extremely well
because of its trade relations with the US. So, if
Pakistan tries to benefit from its neighbours
China and India, we can do well. But given the mindsets on both sides and the vested interests in play, do you actually feel trade normalisation will take place between India and Pakistan, and the MFN trading status will be given to India? Yes, it will be a reality. Right now, it is only a
matter of timing. Pakistans commerce minister is
trying to convince agriculturists making noise
against the fact that India subsidising its
agriculture will damage Pakistans agriculture.
This has caused an unexpected delay. Finally, policy-makers, for a variety of internal and
exogenous circumstances, seem to have
overcome their reservations, and a momentum
has been built in the last several months to move
the process forward. But time and again, we have seen just the reverse taking place. That is largely owing to the historical legacy that both neighbours had and share. In such a scenario, will geopolitics and trade go hand-in-hand? I think mindsets are changing now. The middle
class of Pakistan today is assertive, and so it is in
India. India has Anna Hazare creating noise.
Similarly, we have Tahir-ul-Qadri making noise.
Such movements are attracting the educated,
upper-middle class who are not captive to old way of thinking. Their mindsets are different.
Besides, we have more youth in the country.
More than 50 per cent of the population is below
the age of 25. They have no baggage of a bad
history. They are global citizens; they are always
on the internet, or Facebook or any other social networking site, and they are constantly learning
from the rest of the world. The two main issues that confront Pakistani businessmen today in doing business with India are the absence of a level-playing field and the trade surplus that India enjoys with Pakistan. Trade surplus is not wrong in my view. Bilateral
trade balance with any particular country does
not have to be positive. There would be no trade
in that case. Pakistan would run a trade deficit
with India just as it does with China, and
surpluses with other countries. With the signing of the free trade agreement with China, Pakistani
markets and producers have already adjusted to
relatively cheaper imports from China. They no
longer consider that there is any substantial
threat from Indian products flooding Pakistani
markets and displacing domestic industries. Their working hypothesis is that with cheaper
substitutes as inputs, raw materials, components
and parts from India, Pakistan would be able to
do much better, reduce the unit cost of
production and penetrate a much larger market. What steps should be taken immediately? Agreements that have been signed between
both the governments need to be implemented.
This is a bureaucratic problem. We make good
policies but we are poor at implementation. We
need to involve private sectors in the process.
More bank branches need to be opened, too. You are not enthused with the Indian governments recent decision to allow investments from Pakistan. I think the government should simplify the rules,
and an investment category for visa should be
set up. For example, a Pakistani businessman
today can come to India multiple times, but if he
is setting up an investment in India, there is no
category, and he has to come frequently. There should be no restrictions on the cities he can visit,
and the visa should allow multiple entries for an
unlimited period. How do you view Bilawal Bhutto Zardaris entry in Pakistans politics? We have Rahul Gandhi occupying centre stage in India. Do you foresee a transformational change in both countries? Well, I hope so. Younger people are smarter than
us. They will see that it is better to have good
and cordial relations with neighbours.
http://www.business-standard.com/ar...p-catch-up-ishrat-hussain-113020901001_1.html
