Non-traditional trade opportunities in India
By Shahid Javed Burki
Monday, 02 April, 2012
ALTHOUGH the pace has been slow, Pakistan and India are making progress in moving towards normal trade relations.
This was recognised by the comments made by Dr Manmohan Singh, the Indian prime minister, after his meeting in Seoul, Korea with his Pakistani counterpart.
He was appreciative of the fact that Pakistan had moved from using a positive list to regulate trade with its neighbour to a negative list. As trade economists have long argued, positive lists are more restrictive compared to the negative ones. They also create rent-seeking opportunities for the officials who manage trade.
However, given the huge burden of history the two countries carry, it will take both time and effort before trade relations become close to normal, and goods, commodities, services and people begin to flow relatively freely across the border. In this context, it would be useful to indicate some of the opportunities that exist on both sides of the border for the gains that could be made by producers, traders and consumers.
Private industrial and commercial groups in both countries are preparing for more open trade.
One example of the way industry and trade will be affected comesfrom some industrial groups in India. It was reported in both the Indian and Pakistani press that Indian oil companies including the Hindustan Petroleum Corporation (HPCL), the Indian Oil Corporation (IOCL) and GAIL India are preparing to supply petroleum products and liquefied natural gas to Pakistan. There are enormous opportunities in Pakistan for products such as these produced in India.
Pakistan`s refining capacity meets only half of its total domestic requirement while India now exports almost one-fourth of the 185 million tons it refines. A Mumbaibased oil analyst was quoted as follows by the Times of India: `Pakistan`s move to ease trade with India could translate into a big opportunity for HPCL as it will be best positioned to use its Bhatinda refinery as a critical gateway.` This will require the building of a 50 km pipeline connecting the refinery being erected in the Indian Punjab with Lahore in Pakistan.
`We plan to tap capital markets as soon as our Bhatinda refinery nears completion to lay the pipeline` said a member of the HPCL board. Also, India`s largest oil refiner, the Indian Oil Corporation, is examining the possibility of connecting its Panipat and Mutthura facilities with the contemplated Bhatinda-Lahore pipeline.
Liquefied natural gas is another product of interest for the Indianindustry since Pakistan does not have domestic capacity for producing LNG. The Indians estimate that by 2016 Pakistan could experience shortfalls of three billion cubic feet per day. A Pakistan delegation led by petroleum and natural resources secretary visited New Delhi in late March to hold discussion for facilitating trade in petroleum products and petrochemicals between the two nations.
It is worth noting that entrepreneurs in India are looking at the possibility offered by the Pakistani market by not confining their attention to products. There is also talk of exporting services to Pakistan. During the Musharraf period there was a visit from senior Tata officials who wanted to create a presence for their IT wing in Pakistan.
Tata is India`s largest information technology and consulting company. It has expanded rapidly along with several other firms based in India. They have now begun to experience worker shortages in some skills that Pakistan has developed but are not fully employed in its own IT industry.
The Indians were hoping to set up shop in Pakistan. After showing some interest in the Tata initiative, the Musharraf administration backed away, fearing political backlash in the country.
But smaller companies that would not have a large footprint that would invite political noticehave ventured into Pakistan. I know of an Indian-owned company based in Singapore that has Pakistani programmers working in two offices, one in Lahore and the other in Islamabad. The company`sCEO told me that the entire programming work for his enterprise is done in the Pakistani offices since he is able to find the skills he needs at a much lower price than he would pay in his native India.Film industry is another area where the entrepreneurs in the two countries could work together.
A Pakistani newspaper recently reported on a visit to Lahore by Mahesh Bhatt, an Indian film mak-er. He was part of an 11 member delegation from India that came to Lahore to celebrate Bhagat Singh`s death anniversary.
`In 2003, I received a lot of flak in India for saying that the centreof music in the sub-continent was Karachi. Even today that statement rings true,` he told an audience at the Punjabi Complex in Gaddafi Stadium.
`Although Pakistan is going through a dark period, it can still take South Asian culture forward.
He also revealed that he was working on a project with the late Salmaan Taseer for the joint production of a film. The project is on hold following Taseer`s death but Bhatt is confident that he will be able to move forward. `I want to create a film in which 70 per cent of the technical team is from Pakistan, only then the film will be profitable for the Pakistani film industry,` he told his audience.
While India is industrially more developed and its manufactured products will have more prospects in the Pakistani markets, Pakistan should be able to do well in agriculture, agricultural processing, various industrial supply chains, and in some services. There is nothing wrong or belittling about using Pakistan`s potentially rich agriculture sector as leading the way to India. After all, Denmark and the Netherland, two of the richest countries in Europe, are large exporters of agricultural products to other states in the continent. To take one example: Cultivation and marketing of flowers in the areas around Lahore are now big businesses. These could be developed further once the large and rapidlygrowing Indian markets open up for Pakistan. When I was working for the World Bank on Latin America I saw countries such as Colombia and Ecuador reap rich rewards by exporting flowers to the United States. These two countries are not close to America as Lahore is to such large centers of consumption as Delhi in India.
Pakistan`s well developed and rapidly developing fashion industry is another non-traditional area of opportunity for the country.
There are several aspects of this industry that are attractive. It uses locally produced cotton cloth as the main input. It provides employment to a growing number of women. It is managed mostly by women entrepreneurs. It is promoting the development of expertise in some of the educational institutions in the country.
Periodically women from this industry go overseas to sell their produce to the expatriate community in Britain and the United States. For them India offers an even better and larger market.
The important point about the opportunities that will open up as a result of the easing of trade restrictions in the sub-continent is that all of them cannot be anticipated at this point. An alert entrepreneurial class will be able to develop new ideas about products and services as trade begins to flow in an unrestricted way between Pakistan and India.
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