Pakistan needs to get India to yes on trade

By Mihir Sharma

Pakistani Finance Minister Ishaq Dar raised more than a few eyebrows last week when he said — almost as an aside — that his country’s new government would “seriously look into matters of trade with India”. A resumption of trade would be something of a climbdown for Pakistan, which cut off economic ties when Indian Prime Minister Narendra Modi unilaterally withdrew Kashmir’s special constitutional status in 2019. Until now, Pakistani leaders have insisted they wouldn’t restore relations until the decision was reversed.

Dar’s statement should not come as a complete surprise. His party, the Pakistan Muslim League-N, has a very particular class basis: It’s an alliance between the semi-urban petty bourgeoisie and large industrialists such as its leader, former Prime Minister Nawaz Sharif. These constituencies have always seen the benefits — for themselves and for Pakistan — of normalizing trade ties with a large and growing India.

Those gains are potentially substantial, especially for a country as desperate for hard currency as Pakistan is today. The World Bank estimated in 2018 that Pakistan’s exports could increase by as much as 80 per cent — about $25 billion at that point — if trade with India reached its potential.

At this point, Pakistan simply can’t afford to forego billions of dollars. Its economy is on life support, stumbling from handout to handout. It just managed to secure the last tranche of a $3 billion bailout from the International Monetary Fund, and Prime Minister Shehbaz Sharif — Nawaz’s brother — indicated that more money would soon be needed. Without further cash, he said, restoring macroeconomic stability would be impossible.

The problem is that Pakistan needs India far more than India needs Pakistan. The Indian economy is stable and India remains deeply reluctant to open its markets to other developing countries who might put local producers out of business.

If anything, Indians seem to have collectively decided that we can afford to ignore the nuclear-armed nation of 230 million people on our western border. India’s economy is more than 10 times the size of Pakistan’s. In the 1970s, Pakistan’s per capita income was about twice India’s; today India’s is 50 per cent higher.

When Pakistan does intrude into India’s insular politics, it generally isn’t for good reasons. Modi won re-election in 2019 after he sent fighter jets across the Line of Control in Kashmir following an attack on an Indian army camp.

So, Islamabad is going to have to be very careful about how it attempts to restore the bilateral relationship. Pakistani diplomats should certainly wait, for example, until after India’s general elections wrap up in a few months. If Modi is re-elected — as most expect — that should be a propitious moment to begin the conversation. Modi will likely have one eye on his legacy at that point and could be ready for a grand, magnanimous gesture.

At the same time, Pakistan shouldn’t be too passive. Modi gets along reasonably well with Nawaz Sharif, famously dropping by Sharif’s house for his granddaughter’s wedding on Christmas Day 2015. There’s no reason to suppose that whichever Indian leader follows Modi will be as interested in the international plaudits that would follow peace with Pakistan.

Indeed, aside from Modi, Pakistan currently has few potential advocates in India. Dar pointed out last week that “Pakistani businessmen want trade with India to resume.” There is no equivalent constituency within India; developing one will have to be a priority for Pakistan. India’s dynamic, profit-seeking private sector could be a powerful voice for closer ties if companies believe normalization will be in their interest as well.

For many, it most certainly would be. Moreover, for India, trade can’t just be about profits. It must be viewed strategically, as a method of strengthening the classes in Pakistan that desire stability, not chaos, and weaning the Pakistani economy away from its dependence on China.

Above all, Indian leaders from Modi on down should remember that a Pakistan focused on trade and growth will be one that’s less likely to descend into extremism and militancy. If Pakistan really is ready to climb down, India should meet it halfway.