​Can trade be the game changer in Indo-Pak relations?

The SAARC aspiration for greater economic cooperation has been suffering serious jolts due to the bilateral rivalry between two of its largest nations – India and Pakistan.

Therefore Prime Minister Narendra Modi’s invitation to Nawaz Sharif to his inauguration ceremony, and his acceptance, along with other SAARC leaders coming can be seen as a welcoming gesture for a possible step towards stability in the region.

Many believe the pro-business approach of both Modi and Sharif can make a France-Germany or Brazil-Argentina – each of which share significant trade relations despite a past of political hostilities – possibly by keeping economic ties independent of ‘other’ issues.

As former President of the Karachi Chamber of Commerce and Industry in Pakistan, Majyd Aziz, who has been very emphatic of his views on liberalization of trade and investment within SAARC and primarily between Pakistan and India, says, “I have been very vocal when it comes to trade and investment between both the neighbors. Yes, I do agree that the process is not easy. My assertion has always been that trade and investment should never remain a hostage to other contentious issues or even the usual accusations that emanate out of the hallowed halls of officialdom in New Delhi and Islamabad.”

He adds, “Examples galore among countries where trade and investment have been shielded from getting overpowered by troublesome issues that are the domain of diplomats, military or bureaucracy. China-India, China-Taiwan, China-Japan, China-USA, France-Germany, just to name a few.”

In fact China-India trade is expected to reach $100 billion by 2015, despite both countries being archrivals.

Most certainly then Indo-Pak trade which today stands at a mere $3 billion with a possibility of reaching $40 billion is a huge potential that needs to be exploited.

Modi is riding the wave of his success on promises of economic development. For him to come across as a leader committed to greater investment, infrastructure and job creation, Modi needs to have a secure and peaceful region apart from using foreign relations to create more businesses at home. His invitation to SAARC members is probably a sign of his intent to have long term economic alliances in the region.

Sharif seems to share the same sense of economic diplomacy. He is seen as a leader keen on eliminating roadblocks towards trade liberalization and creating friendlier environment for investment.

In fact a few days after the Modi-Sharif meeting, Pakistan’s Commerce Minister Khurram Dastgir Khan told the media that India would be granted Non-Discriminatory Market Access (NDMA earlier Most favoured Nation – MFN) status despite issues like Kashmir, Siachen, Afghanistan and Sir Creek.

Pakistani diplomats have reportedly been involved in "back channel diplomacy" with the now ruling Bharatiya Janata Party (BJP) conveying Islamabad’s willingness for "meaningful engagement".

Will trade and investment then be the necessary game changer to bring about the long awaited and often thwarted peace between India and Pakistan?

“Yes”, says Aziz who feels a receptive Indian market for Pakistani products would be the ideal confidence-building measure. ”The advent of a Corporate Prime Minister in New Delhi and the business-oriented thinking of Nawaz Sharif coupled with their commonalities have enforced the hopes and aspirations of the Pakistani businessmen who see a new paradigm in the bilateral relations and, by extension, in the SAARC intra-trade and investment scenario.”

To echo Aziz’s spirit indeed there are ample business opportunities between the two nations ranging from joint ventures, outsourcing, technology transfers, Indian Special Economic Zones in Pakistan near the border, opening up of the Munabao-Khokhrapar route for trade, and people-to-people movement, a facilitative visa regime, mutual recognition of standards, harmonization of customs regulations and procedures, to an alternate dispute resolution mechanism, and cross-border banking facilities.

Backed by a strong mandate both the leaders seem to be better positioned to make decisions. The strong majority of the Modi government will make policy making and implementation much easier and faster. Similarly the Sharif government also took charge last year in May with a huge majority on its pro-growth agenda.

However, while they both have a majority in their elected governments, the context in both countries are different cautions Michael Kugelman, Senior Program Associate for South and Southeast Asia, at the Woodrow Wilson International Center. “Even though Pakistan’s government was elected on a strong mandate, it is difficult for it to act with carte blanche given the power of the military. By contrast, India’s new government will truly be unencumbered, because there is no larger institutional player behind the scenes that can constrain—or attempt to constrain—its actions and policies.”

Nationalism over economic pragmatism

Kugelman suggests the recent developments be taken with a ‘generous dose of pragmatism’. While Modi’s initial focus will be on economic diplomacy with Pakistan, he feels this will continue only as long as there is no provocation such as a terrorist attack in India traced back to Pakistan.

“And once this provocation occurs, all bets are off and we can expect Modi will revert to his more hardline, security-focused side. After all, while Modi is an economic pragmatist, he is above all a nationalist. And as a nationalist, he will not let his country stand idly by if it is provoked by its long-time nemesis.”

Modi is likely to resort to a muscular foreign policy on the occasion of any border incident. His party has also been very vocal in criticizing inaction from the former government towards an alleged beheading of Indian soldiers by Pakistani troops last year.

Even during the bilateral meeting after his swearing in, Mr Modi asserted that Pakistan brings those accused of 26/11 attacks and other terrorism in India to task. Even if the Modi government wants to forward an economic diplomacy independent of issues around security pressure will mount from various factions in India to take tough actions.

As Sameer Patil, Associate National Security Fellow at Gateway House, says, “For India, Pakistan’s cooperation in curbing anti-India terrorist activities and the trial of the 26/11 accused are both pre-conditions for any substantive talks.”

“The peace process cannot make any progress if Pakistan allows terrorist groups like Lashkar-e-Tayyaba, Jaish-e-Mohammed and Hizbul Mujahideen to continue their anti-India activities. In such a scenario, there would be immense pressure on the Indian government, from the general population and the security establishment, to not to engage with Pakistan,” Patil continues.

Being part of a right-wing nationalist party, Modi will face pressure from within to make peace and security issues are a prerequisite for any further talks including economic cooperation. Then there are diplomatic factions who have for the past two years rejected bilateral dialogues until the 26/11 attackers are brought to book.

Rajiv Nayan, Senior Research Associate, Institute for Defence Studies &Analysis (IDSA - India), agrees that “even if Modi takes any bold posture, he cannot ignore terror-related cases. In an established democracy like India, where public opinion matters, Modi will not afford to ignore public sentiments regarding its security.”

The hardliners

In Pakistan, despite positive sentiments demonstrated by its political and diplomatic factions over Modi’s election, Sharif faces opposition from hardliners comprising the country’s military establishments and anti-India factions like Jamaat-e-Islami and Lashkar-e-Tayyeba who vociferously opposed Nawaz Sharif’s visit to India.

Though it did not spell out its resistance, according to media reports the recent developments did not go down too well with the Pakistani Army. Many fear this might further widen the rift between Nawaz Sharif and the Army – a relationship already at a standoff over the country’s Geo TV Network's allegation that the Army’s intelligence wing ISI was behind the recent attack on its anchor Hamid Mir. Sharif, who shares good relations with the media group, decided to support Geo TV which has irked the Army. Added to that, there is a bigger difference between the two over possible dialogues with the insurgent Tehreek e Taliban.

As Pakistan based journalist, CT Adviser and an entrepreneur, Ali :* Chishti, says, “Overall feel in Pakistan is negative since there's tension between Military and PML-N government and overall opinion about the situation had been that PML-N is pro-India and has chosen the wrong time to meet Modi.”

Pakistan has always had a faction of the Pakistani security establishment who simply do not want to reconcile with India, says Kugelman. “And in fact, the military as an institution has long justified its powerful role in politics on its contention that India is an existential threat. If there is a peace accord with India, then it would be hard to argue that India continues to be a threat—and it would then also be hard for Pakistan’s military to continue to justify its outsize role in political affairs.”

“As with many other aspects of India-Pakistan relations, Pakistan’s government may be more willing to give more than the Pakistani military is willing to sanction,” he argues. “Many of those responsible for the Mumbai attacks are members of anti-India militant groups with longstanding ties to Pakistan’s ISI. Pakistan’s military won’t be as eager to give up its assets as Pakistan’s government—and India’s government—would like.”

Trust deficit

The trust deficit between the two nations continues to prevent any major breakthrough. While India feels the Pakistani military and Inter-Services Intelligence (ISI) is fuelling cross border terrorism, Pakistan accuses India of supporting insurgents in Balochistan.

Says Ismail Dilawar, Acting Bureau Chief, Pakistan Today, “The nature of conflict between the two countries is that of perception in nature and so the trust deficit on two sides goes quite deep. Pakistan like India is coping with the non-state actors militarily as well as judicially. The Mumbai attack and 26/11 are the incidents that happen to seriously challenge the leadership in Islamabad and New Delhi. Both will have to adopt a forward looking approach in the broader interest of their crises-hit peoples.”

Added that there’s a general mistrust in Pakistan about Narendra Modi’s taking charge, who is seen as an ultra-conservative Hindu leader emerging from the RSS. With this in the background long term relations – economic or otherwise – is always a hostage to activities of anti factions.

As Kugelman sums it up, “This is the tragedy of India-Pakistan relations. Regardless of how much progress is made, and regardless of the various diplomatic efforts to inject momentum into a peace process, all it takes is one big terror attack in India, traced back to Pakistan that can squander all of the goodwill. The key is for the two sides to generate sufficient goodwill and trust, so that the bilateral relationship can weather and survive a traumatic act such as a Pakistani-hatched terror attack on Indian soil. “

Jhinuk Cchowdhury

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.