Ties based on economics
By Shahid Javed Burki
Tuesday, 02 Mar, 2010
DURING my recent visit to Pakistan and in discussions with senior political leaders, civil servants and prominent business people I emphasised that it was important to use economics as the basis of renewed relations between Afghanistan, India and Pakistan. This was also the subject of an earlier article in this space.
With January’s London conference on Afghanistan and the recommencement of talks with India, we have an opportunity to construct the structure of South Asian ties on economics. Most of what has made it so difficult for Afghanistan, India and Pakistan to work together is rooted in the circumstances that led to the partition of British India.
As is documented, Jawaharlal Nehru, India’s first prime minister, attempted to undo the act of partition by economically crippling Pakistan. In this effort he had Afghanistan on his side. Afghanistan refused to recognise Pakistan’s independence. Kabul was the only capital to vote against Pakistan’s admission to the United Nations. The reason for recalling that bit of history is not to endorse the current tension that continues to define ties among these three South Asian nations. It is simply to stress that this historical baggage has been difficult to cast off.
One way of moving forward is to estimate the economic costs and benefits of the various policies the three countries have pursued vis-à-vis one another in the past. We could begin with the example of Pakistan’s refusal to grant transit rights to India for trade with Afghanistan and Central Asia. The benefits that would accrue to India are obvious; I have made the case on several occasions that Pakistan would also gain considerably. It would, for instance, charge transit fees from the buses and trucks using Pakistani space.
The country would also benefit by servicing Afghan and Indian operators on the transit route. There would be several other advantages including the development of warehousing at certain points; Lahore and some designated places on Sindh’s border with Rajasthan on the one side and in Quetta and Peshawar on the other.
Serious economic analyses of the benefits of this new economic relationship should take stock of the pros and cons of such an initiative. If even in light of the potential benefits, policymakers are reluctant to open Pakistan for transit trade then they would know the economic costs of their approach.
Only once in their troubled history have India and Pakistan taken a particularly difficult decision on purely economic grounds. This was the Indus Water Treaty signed by President Ayub Khan and Prime Minister Jawaharlal Nehru at the urging of a group of experts assembled by the World Bank. The treaty divided the Indus system between Pakistan and India. Pakistan was given access to the three western rivers, the Indus, Jhelum and Chenab. India could use the water in the eastern rivers of the Ravi, Beas and Sutlej.
The treaty also established an elaborate system of dispute resolution which has been used only once even though the two countries have fought two bitter wars since the signing of the treaty. The popular and not terribly well-informed nationalist press on both sides continues to rage against the treaty. A section of the Indian media continues to condemn Nehru for having given away too much; as an upper riparian, it says, New Delhi could have gotten a better deal.
Similar charges continue to be levelled against Ayub Khan on the Pakistani side of the border. This issue could be settled if a careful economic analysis is done to estimate the benefits that have accrued to the two sides as a result of the treaty. These have been substantial for both.
There are other areas of cooperation that could be explored such as the easing of the movement of people across the borders, special facilities aimed at facilitating religious tourism and across-the-border investments by entrepreneurs in the three countries. There has been little progress in making the South Asia Free Trade Area a success largely because of India and Pakistan’s mutual suspicions.
Pakistan now recognises that it could become the centre of regional commerce if it allowed regional trade to flow unhindered through its territory. It is foolish not to realise this potential. India has a policy of looking east for developing regional trade, Pakistan favours trade with China on the east and the Middle East in the west.
It needs to be recognised by policymakers on both sides that the two countries are each other’s natural trading partners. At the time of partition India was Pakistan’s largest trading partner. It was dislodged from that position as a result of the trade war between the countries in 1949 when Pakistan refused to follow India in devaluing its currency with respect to the American dollar.
An approach based on economics may provide enough ammunition to those who argue that it is in the best interest of both sides to work together. As Islamabad and New Delhi sat down at the conference table and renewed their dialogue, hostile voices were raised on both sides. India Today published a report under the caption of ‘The Karachi project’. It was claimed that intelligence agencies were using Karachi to train and launch disgruntled elements within the Indian Muslim community to commit acts of terrorism in India.
Serious reservations have also been expressed by some on the Pakistani side that the country, perhaps under the pressure of the Americans, was preparing to give up its claim on Kashmir. These kinds of claims and counter-claims will continue for as long as we don’t base relations between these two countries on economics. The same is true for Pakistan’s relations with Afghanistan.