With little attention outside South Asia, Indian and Pakistani leaders have moved to gradually improve trade and transportation links this year, despite the still-bitter wounds of the 2008 Mumbai terror attack. America’s next president should seek to encourage this process, a rare good-news story that may help transform the subcontinent.
President Zardari traveled to India in April. Since then, economic delegations have gone back and forth, and a deal easing visa restrictions has been signed. There is talk of opening up huge amounts of Indian direct investment in Pakistan. Congress leader Sonia Gandhi and Prime Minister Singh are said to back increasing trade with Islamabad. In the past, efforts to encourage free trade usually get bogged down in bureaucratic red tape. Talk about a South Asia free-trade zone is a perennial staple of regional summits, but in reality there is little trade between the subcontinent’s two biggest countries.
Increased trade and transit would build constituencies in both countries that support an end to conflict and favor peace. Unleashing the economic potential of a unified South Asian market could do for Pakistan, India and their neighbors what the European Union did for Europe, re-creating a common sense of identity and self interest. Tourism between the two big states could build a level of understanding and familiarity that would be healthy. It could reunite what partition broke apart, a subcontinent of peace—not war.
Today, direct trade between the two nations is relatively small. The total trade between Pakistan and India in 2011 was $2.6 billion. In 2010, India exported about $2 billion to Pakistan and imported about $300 million. This is twice the amount in 2006 and almost ten times larger than 2001, but it’s still fairly small. The Economist estimates that bilateral trade would grow tenfold to $25 billion a year if all trade barriers were removed. Indirect trade (usually via Dubai or Singapore) is much greater but very hard to quantify. Air flights between the cities of India and Pakistan are rare. It is usually easier to travel via a third nation such as the UAE.
Both governments’ intelligence and security services scrutinize visitors from the other side with an assumption that they are up to no good and should be watched carefully or, better, kept out. Nonetheless, modest but important progress has been made in the last year. Most recently, in September the two countries signed an agreement to ease visa requirements: children under twelve years old and adults over sixty-five will not need a visa. But Prime Minister Singh made clear that the Mumbai masterminds must be brought to justice for a greater loosening to occur in travel requirements.
There is certainly much interest in India in more trade and transit. Successive Indian governments, both Congress and the opposition Bharatiya Janata Party, have talked about more economic interaction and freer trade. Prime Minister Singh famously dreamed once in public about a day in which he could breakfast in New Delhi, lunch in Lahore and dine in Kabul. India in August 2012 unilaterally decided to allow direct foreign investment from Pakistan in India, which one expert has called a “huge psychological blow to elements hostile to improved ties.”
Traditionally there was much less Pakistani interest in trade with India, but now it is growing. Pakistani finance minister Abdul Hafeez Shaikh told a Brookings audience in June 2012 that when he was asked in the past how to improve Pakistan’s economic prospects, he facetiously advocated moving the whole country to the Alps and becoming part of the European Union. Now he said he realizes the Himalayas are really the better venue since Pakistan is superbly positioned next to the two fastest-growing economies in the world, India and China.
But Shaikh may still be in the minority in Pakistan, where many still fear India as a partner. Some worry the larger Indian economy will swamp Pakistan with cheap products. Others fear it will make Pakistan dependent on India. Those who are the most hawkish on India, of course, oppose more trade, considering it dealing with the enemy. The army traditionally has been very skeptical of improved trade, transit and communications. But it may be rethinking the issue since the army owns many business ventures, including the largest highway-construction company.
Lashkar-e-Taiba (LeT) founder Hafiz Saeed, the mastermind of the Mumbai massacre, has in 2012 organized massive demonstrations in Lahore, Karachi and Islamabad against trade with India and relations with the United States. LeT is prepared to go further. A key operative with the nom de guerre Abu Jindal was captured in Saudi Arabia this summer plotting a major new attack on India. Now he has been extradited to New Delhi.
America helped catch Abu Jindal, but is not a central player in the bigger picture. But Washington does have an interest in the success of this nascent rapprochement. Whoever wins in November should put U.S. diplomacy and entrepreneurship behind an economic integration of the subcontinent. Neither President Obama nor Governor Romney mentioned India in their foreign-policy debate, but both should have it very much on the mind if they win.