Improving India-Pakistan Relations

Market Scan
India and Pakistan Agree on Expanding Banking, Commerce Ties
Ruth David, August 2, 2007, Forbes.com

India and Pakistan have agreed to broaden their portfolio of traded goods to include tea and cement and will open banks in each other’s cities, as they aim to boost bilateral trade to $10 billion by 2010.

“Trade between India and Pakistan is increasing and both sides have agreed to leverage the bilateral trade relation between both the countries to the level of $10 billion by 2010 from the current level of $1.6 billion,” Commerce Secretary G. K. Pillai told reporters in New Delhi after trade talks.

Pillai met his Pakistani counterpart, Syed Asif Shah, Wednesday in the fourth round of talks as part of ongoing discussions on economic and political issues. The overall dialogue includes talks on the disputed Himalayan territory of Kashmir, over which the neighbors have fought three wars in the past.

Their strained ties have derailed a free trade agreement with the other South Asian nations--Bangladesh, Nepal, Sri Lanka, the Maldives and Bhutan. India-Pakistan trade is often routed through countries in the Middle East and Afghanistan, resulting in delays and a loss of custom revenues.

Government officials exchanged lists of goods on which either side can consider cutting tariffs and plan to increase the number of traded items. India wants to start importing cement from Pakistan immediately, as it faces a crunch domestically because of a rapid increase in industrial production.

Banking relations between both countries are also expected to start before the year-end. The State Bank of India and Bank of India will open branches in Pakistan, while United Bank and National Bank of Pakistan will open branches in India, government officials said.

India granted Pakistan most favored nation status in 1966, but Islamabad refrained from reciprocating, saying progress on trade should move hand in hand with progress on Kashmir.

Nonetheless, India’s Pillai was optimistic about the progress of business ties: “In the final analysis, what is most important is trade is improving." He added that, as the climate for nontariff and other barriers and others getting removed becomes more favorable, "the economics will take care of itself.”

Last fiscal year, Indian exports to Pakistan doubled from the previous year, while Pakistan’s exports to India increased by 70%. Both sides are implementing ways to make the land transportation of goods across the border easier and plan to establish an optical fiber link at an unspecified “early date.”