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INDO-PAK TIES

Making Mutual Music

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For the first time ever, India has okayed foreign direct investment from Pakistan

I, the 2007 film Khuda Kay Liye, a Pakistani musician’s lady love in the US wonders where on earth Pakistan is. The musician sketches a rectangle and scrawls ‘Afghanistan’, ‘Iran’, ‘China’ and ‘India’ on each of four sides. Pakistan may be located at the centre of the world news, but which way it will tilt is an open question. This is why recent developments (tentative though they are) in the story of Indo-Pak engagement should be music to the world’s ears.

For the first time ever, India has in principle okayed foreign direct investment from Pakistan (yes, India’s fabled 1991 opening up had a Partition-ordained exception), in reciprocation of a move made by the latter earlier. It is not just equity. Banks are also being freed to lend money to each other’s businesses. “Allowing cross-border investment would create considerable stakes in peace across the region,” says Ravi Wig, chairman of Assocham’s Saarc committee. The logic is that countries that invest in each other’s economies are likely to resist an economic disruption on either side.

Ditto for trade relations. To boost which, the two neighbours plan to ease visa rules for business travel and lower other trade barriers. Pakistan’s proposal to grant India ‘Most Favoured Nation’ status will let Indian products sell at lower prices across the border. Bilateral trade, officially at an annual $2.7 billion right now, could spurt to about $8 billion if goods move directly across instead of being routed through third countries. To facilitate this, the two sides have opened an upgraded checkpoint at their main border crossing at Wagah. ‘Such legalisation,’ in Assocham’s view, ‘is expected to reduce costs and increase government revenues [thanks to] duties on imports.’

Is this bonhomie occasioned by declining economic opportunities in the West? “It is one of the reasons, but not a major one,” says Bipul Chatterjee of Consumer Unity and Trust Society. He explains it as part of India’s wider strategy of “positioning itself as a gateway to the increasingly prosperous East”. Pakistan recognises this and does not want to be left out of the picture. For far too long, Islamabad has sought to subordinate economic relations to resolution of the Kashmir dispute. But now with its own economy in crisis and US support so precarious, making the most of India’s dynamism has dawned on it as an economic imperative. “This is an era of economic cooperation,” says Muhammad Iqbal Tabish, secretary general of the Islamabad-based Saarc Chamber of Commerce, “That of hostility is a thing of the past.” True enough. But the bounce in Indo-Pak relations, hard hit by 26/11, has opponents on either side who might want to muffle the music. Is it really ‘uninterruptible’ yet?