Pakistan-India Trade:

Ijaz Nabi
the benefits associated with a more liberal trade and economic regime
between the two countries.
a sTraTeGiC aPProaCh To Trade WiTh india
Regional trade, of which trade with India is a key component, has to
be seen in the context of Pakistan’s overall economic growth objectives.
Pakistan needs economic growth of 7 percent or more for the next four
decades. This is just one percentage point higher than the growth rate
Pakistan has achieved in several decades in the past, and only two percentage
points higher than the average growth rate since 1947. Sustained
growth at these rates will double GDP every 10 years, will result in
a substantial improvement in living standards within a generation, and
will engender a sense of optimism in the citizenry.
But there is an important caveat. Pakistan needs a growth vent
(source of growth) that is geographically balanced and thus can be sustained
politically. Furthermore, the growth vent Pakistan seeks requires
tapping into lucrative markets outside its borders in a manner that creates
several growth nodes—a southern and western node (Karachi, the
Arabian Sea coastline of Sindh and Baluchistan), a central node (Multan,
Lahore), and a northern node (Peshawar, Abbottabad). A liberalized
economic relationship between Pakistan and India and other neighbors
(Iran, Central Asia, and China) can help achieve a high growth rate that
is regionally balanced, and can therefore be sustained for a longer period
than Pakistan has ever achieved in the past. 3
Seen in the context outlined above, the current state of trade between
the two largest South Asian economies is not encouraging. Pakistan and
India account for most of South Asia’s regional GDP (nearly 90 percent;
see Figure 1). Yet direct trade between the two largest regional
economies is almost nonexistent. Figure 2 shows that in 2009, combined
world-wide trade for India and Pakistan was $462 billion, while their
bilateral trade was a mere $1.7 billion. While a more conducive trade
regime with all regional neighbors is important, the critical area of focus
for Pakistan is its trade and broader economic relations with India.
Trade relations between India and Pakistan have been difficult in
the past because the two countries have viewed each other through a
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