Why Pakistan needs India’s agreement for trade


Published on: March 29, 2024.

Filed under:

Pakistani Finance Minister Ishaq Dar has caught the attention of many by stating that the new government in Pakistan will seriously consider trade matters with India. This is a significant shift for Pakistan, which had previously cut off economic ties with India following the withdrawal of Kashmir’s special constitutional status by Indian Prime Minister Narendra Modi in 2019. Pakistan had maintained that it would not restore relations until the decision was reversed.

However, Dar’s comments should not be surprising considering the composition of his party, the Pakistan Muslim League-N. This party consists of a coalition between semi-urban petty bourgeoisie and large industrialists, such as former Prime Minister Nawaz Sharif. These constituencies have long recognized the benefits of normalizing trade ties with a large and growing India, both for themselves and for Pakistan.

The potential gains from such trade are significant, particularly for a country like Pakistan that is in desperate need of hard currency. According to the World Bank, Pakistan’s exports could increase by up to 80% or $25 billion if trade with India reaches its full potential. Given the current state of Pakistan’s economy, it cannot afford to forego these potential billions. The country is heavily reliant on financial assistance and just secured the last tranche of a $3 billion bailout from the International Monetary Fund. Prime Minister Shehbaz Sharif, Nawaz’s brother, has already indicated that more money will be needed to restore macroeconomic stability.

However, the challenge lies in the fact that Pakistan needs India more than India needs Pakistan. India’s economy is stable, and it remains hesitant to open its markets to other developing countries that could pose a threat to local producers. The size of India’s economy is more than 10 times that of Pakistan’s, and its per capita income is 50% higher. India seems to have collectively decided to ignore Pakistan, even though it is a nuclear-armed nation with a population of 230 million.

Therefore, Pakistan must be cautious in its approach to restore bilateral relations with India. Pakistani diplomats should wait until after India’s general elections, which are expected to re-elect Modi, as he might be more inclined to engage in a grand gesture to leave a positive legacy. Pakistan should also work to develop a constituency within India that supports closer ties. India’s dynamic private sector could be a powerful advocate if it believes that normalization will benefit their interests. In addition to economic gains, India should view trade with Pakistan strategically, as it can help strengthen stability and counter extremism in the region.

Overall, if Pakistan is willing to take steps towards trade and growth, India should meet them half way. It is crucial for both countries to recognize the potential benefits of trade and work towards a more prosperous and peaceful future.

Source: [Economic Times](https://m.economictimes.com)