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Bilateral trade between Pakistan and India almost doubled to cross the $1-billion mark last year. The $400-million increase in the year ending March 2006 was attributed to the launch of a South Asian Free Trade Area Agreement (SAFTA) and the opening of rail and road links. A look at the growth prospects between the two countries. The history of India-Pakistan's trade relations stems from a long and sordid political turmoil. Recent attempts to alleviate the political tension between the two countries have been a top priority. And in an effort to strengthen the economic status of the Asian sub-continent as whole, political and economic leaders from around the world are also looking to ameliorate the economic sanctions both countries have placed on the other. A measure of the rapprochement can be taken in the recent moves to encourage mutual trade. The $400 million (Rs 1,800 crore) increase in the trade is directly credited to the establishment of relations along with SAFTA, which has brought significant changes in customs tariffs and reduced trade-related barriers, leading to restoration of direct trade linkages and reducing the transaction costs. Most recently, India and Pakistan have decided to take the initiative as part of their plans to boost bilateral trade and improve economic relations, and ease the process of getting business visas. This was stated in the Indo-Pak joint statement issued on the completion of the third round of two-day talks on economic and commercial cooperation within the framework of the Composite Dialogue. The two sides also agreed to sign a new shipping agreement in the near future at New Delhi, and expedite talks to improve air services between the two neighbouring countries. Besides, they agreed to open bank branches in each other's countries and to get their central banks to facilitate applications. According to the statement, they agreed to facilitate importing of tea from India and encouraging delegations of importers and exporters of tea to visit to the other country. The two sides agreed to identify the problems of transportation of goods by train between India and Pakistan. The relevant ministries of both sides had a meeting on the sidelines of the talks and it was decided that they would continue their dialogue. Experts on international trade believe that bilateral trade, which stood at $161 million (Rs 724.5 crore) almost five years ago, has the potential to reach $10 billion (Rs 45,000 crore) by 2010. Despite progress, there is continued political and economic strain. Trade relations between India and Pakistan have been marked for decades by an air of protectionism. After the partition of the two countries and the first of many India-Pakistan wars ended in a ceasefire, both countries turned to inward-looking economic policies. The political and religious tensions turned both countries to pursue a philosophy that discouraged imports of goods that could be made locally. Even today, through sanctions and protectionism, trade is limited to only a few items, though the list is expanding. There are, in fact, three types of trade between India and Pakistan. The first is illegal cross-border land trade by smugglers. The second is circular or informal trade, trade involving a third country where products are re-exported. The final type of trade is legal, goods on the acceptable trade list. The total size of illegal and circular trade is much larger than official trade between the two countries. India has begun to eschew its introspective economic policy and move toward globalisation and trade liberalisation. As a result of changing from its socialistic ways, India is seeing an economic boom with a new middle class that enjoys unprecedented prosperity. Pakistan, however, is not altering its economic policy to the same degree as India and thus has a weaker economy. While the governments of India and Pakistan are standing behind economic sanctions until political peace can be met, the entrepreneurs and consumers of both countries are unwilling to wait. The sanctions and economic protection have not been as economically successful as the governments had hoped.
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