In the past few weeks, ties between India and Pakistan seem to have hit rock bottom. Due to the prevailing tensions between both countries, India’s Finance Minister Arun Jaitley will not attend the SAARC Finance Ministers Conclave on August 25th and 26th. Finance Secretary Shakti Kanta Das will be representing India. While the overall focus of the Summit is likely to be on SAARC, and not just India-Pakistan ties, it is likely that economic relations between both countries will find some space. In spite of tensions between both countries, neither side has really spoken about disrupting economic ties. During the SAARC Summit in November 2014, in spite of the cold vibes between Modi and his counterpart the former PM spoke about exploring connectivity and made an important point:

“Today, goods travel from one Punjab to the other Punjab through Delhi, Mumbai, Dubai and Karachi – making the journey eleven times longer and the cost four times more.”

The media discourse on both sides tends to overlook economic ties, but it is not just trade economists, but realists on both sides, both in the strategic community as well as government,  realize that robust economic ties will only strengthen lobbies in favour of a better relationship.

Some successes in the last decade

In the past, some efforts have been made to strengthen economic linkages. While in the years 2005-2006 important steps were taken in the context of enhancing connectivity between both countries, with the initiation of bus services between Srinagar-Muzaffarabad (2005), Amritsar-Nankana Sahib (2006)  and rail services between Munabao-Khokhrapar (2005). In the phase between 2011-2014, there was further movement with regard to bilateral trade. A number of achievements were made during this period, such as up-gradation of infrastructure at the Wagah-Attari corridor and the inauguration of an Integrated Check Post (April 2012), there was also talk of Pakistani banks setting up branches in India, and vice-versa but this did not move ahead. Trade also witnessed a marginal increase during this period, though official trade through the land route has not been significantly beyond 2.5 Billion USD in the past few years, way below the potential which is estimated at 8 Billion USD.

During both these phases, it felt as though India-Pakistan relationship may move back toward the pre-1965 relations, where there were political differences, but these did not come in the way of economic ties. Former President of Pakistan, Asif Ali Zardari in fact spoke about the need for both countries to follow the ‘China model’ of engagement. In his addresses as a president, he had also stressed the need of regional congeniality and warned global powers to stop interfering in choosing who should Pakistan have or have not ties with, especially in the context of Iran-Pakistan-India gas pipeline.

The PML-N and BJP governments

With the election of Nawaz Sharif in 2013 as Pakistani PM, and then the election of Narendra Modi and invitation to SAARC leaders for Modi’s swearing in, it seemed as though both sides may work on strengthening economic ties. Confusing signals from the Indian side to Pakistan’s civilian government in 2014, followed by the weakening of the PML-N government may have diminished chances, but not removed them. In spite of the developments of the past few months, weeks and days, there are a number of strong reasons for both sides working on economic relations.

The Pakistan-China factor

While for the time being, Pakistan may feel that Beijing will bail it out from its current problems, a number of industries are already complaining of the ill effects of the Free Trade Agreement FTA, which has benefited China and recently some provinces have complained about being discriminated against in CPEC.

It would do well to draw lessons from Bangladesh’s approach towards India. While the business community has not shied away from competition, similarly, the political leadership has sought to be part of India’s Act East Policy, and been keen to emerge as a gateway. Its decision to provide access to Bangladesh’s ports, and the recent inauguration of a Tripura-Bangladesh rail service can be seen in this context. Pakistan should similarly seek to benefit from its location, and try to benefit from its geo-political location as a potential gateway to Afghanistan and Central Asia.

Pakistan would also do well to learn from the India–China model of economic engagement. Their biggest trading partner in South Asia is not Pakistan but India. Interestingly, like Indo-Pak, Indo-Sino relations have never been cordial. They fought a war in 1962 and had subsequent border skirmishes until 1980s when both countries rebuilt diplomatic ties until China became India’s largest trading partner in 2008. In 2012, Chinese vice premier Li Keqiang declared Sino-India ties to be the most important bilateral relationship in 21st century. Despite China’s opposition to India’s inclusion in National Suppliers Group (NSG) the increasing chasm between diplomatic relations of both countries is not likely to impact bilateral trade. Only recently, Indian Foreign Secretary S. Jaishankar also spoke about the improvement in India-China economic ties and easing of visa procedures for Chinese businessmen.

Steps both sides need to take

A lot was expected from the Pro-Business PML-N Government but so far it has failed to fulfill its commitment of granting India MFN status. India on its part needs to be amenable to legitimate economic demands with regard to Non-Tariff Barriers. Both sides may have problems but they can begin by finding common ground in the economic sphere.

One way could be exploring ties between border provinces and having more land crossings for trade, not just between the two Punjabs but Rajasthan-Sindh (Munabao-Khokhrapar) and Gujarat-Sindh. Such land crossings will benefit not just both countries and create more stakeholders for a better relationship. It is pivotal for Pakistan to understand that relying on just one economic power is not likely to yield long term dividends.

In conclusion, New Delhi and Islamabad relationship has for too long been driven by extreme emotions and rhetoric it is time to give realism a chance and focus especially on strengthening economic ties which will benefit both sides.