PAKISTAN ECONOMY:
A BOTTOMLESS WELL.
INDO PAK DILEMMA: TO TRADE OR NOT TO TRADE
News coming out of Pakistan in the recent days talks of a possible economic breakdown in the coming three months. The foreign exchange reserves are down and there are billions to be paid out as interest on loans taken in the past. Pakistan is unable to cope up even with the payment of interests, leave alone the principle.
Mian Muhammad Shahbaz Sharif. was sworn in as Prime minister on 11th April. The government of Shahbaz Sharif is running from donor to donor begging for funds to overcome the crisis situation. It is now public knowledge that even this is only a band aid.
Many experts have commented that the Pakistani economic model is fundamentally unsustainable. Pakistan has had balance of payment problems repeatedly every 4/5 years. In a recent conversation on Pakistan’s Economy, Prof Atif Mian, a renowned economist from Princeton University, had mentioned that Pakistan had a fundamentally unsustainable economy.
It has approached IMF and WB for loans more than a dozen times in the last five decades. This, inspite of the billions poured in by USA as aid and free defence systems.
However, the Deft manoeuvring in the international arena and consummate abilities at deception have allowed Pakistan to thrive so far; on external finances, ie hand outs.
‘Pakistani Economic Model’, has allowed Pakistan not only survive as a nation since 1947, but even after losing in more than one war against its neighbour India, and a major amputation , has enabled its protégée the Afghan Taliban, to capture and subjugate a country i.e. Afghanistan.
It has to be accepted that Pakistan, which has been under the control of its army formally or informally since the early fifties when General Ayub Khan took over as the Martial Law Administrator, has managed to keep Pakistan afloat economically with its excellent liaison and interactions with USA.
Good times for Pakistan appear to be ending with US interest in Pakistan’s neighbourhood diminishing, almost to null, after American withdrawal from Afghanistan on 15 Aug 2021. Funds from USA have dried up.
C P E C
News coming out of Pakistan in the recent days talks of a possible economic breakdown in the coming three months. The foreign exchange reserves are down and there are billions to be paid out as interest on loans taken in the past. Pakistan is unable to cope up even with the payment of interests, leave alone the principle.
Mian Muhammad Shahbaz Sharif. was sworn in as Prime minister on 11th April. The government of Shahbaz Sharif is running from donor to donor begging for funds to overcome the crisis situation. It is now public knowledge that even this is only a band aid.
Many experts have commented that the Pakistani economic model is fundamentally unsustainable. Pakistan has had balance of payment problems repeatedly every 4/5 years. In a recent conversation on Pakistan’s Economy, Prof Atif Mian, a renowned economist from Princeton University, had mentioned that Pakistan had a fundamentally unsustainable economy.
It has approached IMF and WB for loans more than a dozen times in the last five decades. This, inspite of the billions poured in by USA as aid and free defence systems.
However, the Deft manoeuvring in the international arena and consummate abilities at deception have allowed Pakistan to thrive so far; on external finances, ie hand outs.
‘Pakistani Economic Model’, has allowed Pakistan not only survive as a nation since 1947, but even after losing in more than one war against its neighbour India, and a major amputation , has enabled its protégée the Afghan Taliban, to capture and subjugate a country i.e. Afghanistan.
It has to be accepted that Pakistan, which has been under the control of its army formally or informally since the early fifties when General Ayub Khan took over as the Martial Law Administrator, has managed to keep Pakistan afloat economically with its excellent liaison and interactions with USA.
Good times for Pakistan appear to be ending with US interest in Pakistan’s neighbourhood diminishing, almost to null, after American withdrawal from Afghanistan on 15 Aug 2021. Funds from USA have dried up.
To Trade or Not To Trade
The subcontinent had a natural pattern of complements in agriculture. Raw materials and industries prior to partition . Areas presently under Pakistan and Bangladesh were surplus in agricultural commodities, cotton and jute. These were inputs to the industries in western, and central India. This was disrupted through frequent wars launched by Pakistan and its build up to becoming a security state post 1965.
The Various attempts made to revive trade and relations between the two countries have been repeatedly shot down by the security apparatus in Pakistan.[1]
Atif Mian of Princeton University had also highlighted April 2022 in a conversation on how the ‘elite capture’ of Pakistan economy and its ‘productivity challenges’, impede the Pakistani economy from achieving its full potential.
While India as a goodwill gesture had assigned the Most Favoured Nation status to Pakistan for trade purposes, Pakistani state always considered India as an enemy country, and denied access to Indian goods. This had resulted in minimising the trading opportunity[2] between the two countries.
Withdrawal of Article 370 & Indo Pak Trade
Withdrawal of Article 370 in September 2019 was long awaited in India. Its withdrawal was necessary to maintain the integrity of India as a state with a single constitution. Article 370 was an irritant and a piece of legislation that was supposed to be short term arrangement to enable smooth accession of the kingdom of Jammu & Kashmir with the Indian state, in 1947.
Through the decades post 1965, Indo Pakistan trade had already dwindled considerably. “Following the suspension of trade ties with India in 2019, Pakistan’s export to New Delhi plunged 90.4% in Financial Year 2021. As per data released by the State Bank of Pakistan (SBP), the exports dipped to $0.099 million this year from $1.035 million, which was recorded last year around the same time. On the other hand, imports from India also sank to 14.9% i.e., $42.502 million against $49.947 million last year, the Dawn reported.”. https://www.republicworld.com/india-news/general-news/pakistans-export-to-india-dipped-90-dot-4-percent-after-suspension-of-trade-ties-between-nations.html
The tables below clearly indicate the vast differences in trade and commerce capabilities of the two countries.
[1] Lt General (Retd) Hamid Gul, a former director general of the Inter-Services Intelligence Directorate of Pakistan is quoted in India Today news magazine March 1, 1999, stating, “Nawaz Sharif is weak and being a businessman is trying to find economic answers through opening the trade route.” https://ciaotest.cc.columbia.edu/olj/sa/sa_99chb03.html
[2] Dr Mirza Arshad Ali Baig in an article in the Pakistan and Gulf Economist which is cited in The Tribune, of January 5, 1997, states, “It is not the bureaucrats or politicians responsible for the low India–Pakistan trade but it is the securuty agencies which consider India as enemy number one and hence advocate status quo.” According to Foreign Secretary Shamshad Ahmad, “How can the government promote trade ties with the arch rival neighbour which is not keen to settle the age old Kashmir dispute”, in The Statesman, December 11, 1998 quoting the Dawn. https://ciaotest.cc.columbia.edu/olj/sa/sa_99chb03.html
PAKISTAN FOREIGN TRADE YEARLY (Millions)
Pakistan Exports & Imports
2018–2019 22,958 54,763
2019–2020 21,394 44,553
2020–2021 25,304 56,380
The unholy obsession of the Islamic state of Pakistan about J&K is an historical fact. Pakistan under Prime Minister Imran Khan felt rebuffed and scorned; and decided to cut off all trade relations with India. Pakistani imports from China have increased, and with little to export to China, Pakistan is faced with a major balance of trade problem.
This ban however did not have any noticeable effect on Indian economy. As a result of the ban, Pakistani businesses resorted to circular trade routes through Dubai or Singapore. It also increased cross border smuggling. Both were detrimental to Pakistanis who had to pay higher prices for commodities that were cheaper when imported directly from India.
TO TRADE OR NOT TO TRADE?
Imran Khan was voted out of power in Pakistan in April this year and Shahbaz Sharif has taken over as the Prime Minister of Pakistan.
Some time back Gen Asim Bajwa, the Chief of Pakistan Army had made a comment that relations with India should be normalised. There has always been a faction in Pakistan that favoured trade and normal relations with India. Shahbaz Sharif probably felt encouraged, and has appointed a Trade attaché to Pakistan High commission in Delhi. This is viewed as a positive step in many quarters. How India will reciprocate is yet to be seen. Most likely India will also ear mark a trade attaché to the Indian High commission in Pakistan.
But considering the harassment Indian trade attaches have been subjected to earlier by Pakistani intelligence agencies like the ISI, it is doubtful if India is really enthusiastic.
Moreover, there is considerable opposition in Pakistan with Imran Khan who is virtually on war Path against Sharif government and has been holding massive rallies wherein he has been ranting and raving against USA, India, former Prime Minister Nawaz Sharif and his family members. He is openly indulging in rabble rousing and screaming against any normalisation of ties with India.
Pakistani general elections are due in a year’s time. Can Shahbaz Sharif proceed with normalising trade ties with India and face Imran who is accusing him of being weak and succumbing to pressures from USA and India?
Shahbaz Sharif’s equating Palestine issue and Kashmir on a regular basis flies against the positive note by Gen Asim Bajwa to improve into Pak ties.
Indian Security Fears
It is an open secret now that Pakistan has been organising terrorist groups and exporting terror as a state policy. It has stopped the drama of avoiding responsibilities for terrorism across borders attributing heinous acts to ‘non state actors’.
Pakistani use of tribals and armed raiders trained and supported by Pakistani army since 1948 is not a secret anymore. Pakistan continues to support terrorist organisations like JeM, LeT, and dozens more including the Taliban even today.
Trained terrorists are being launched from across the border into Kashmir almost on a daily basis. Innocent Hindus are being targeted to spread fear and panic.
Is trade with Pakistan worth it?
Cliches like ‘people of Pakistan and and India are the same’, ‘peace among nations’, ‘share a common cultural heritage’, ‘people to people contact’ etc are thrown around casually by vested interests. In this context there is a need to look at some facts also.
For Pakistan in its poor economic condition, it may be a positive proposition to reopen trade routes to India.
But for India opening up of trade with Pakistan is highly disadvantageous, and a major security hazard. There will be trade for a maximum of 50 million, but India will be spending Billions on security.
We know that the trade routes especially those in Kashmir are used to push though jihadis, fake currencies and incendiaries from Pakistani launch pads.
Punjab has already a sensitive border across which narcotics and arms are being smuggled into India. The formation of a government of Kejriwal’s Aam Admi Party in Punjab has sent security agencies into a tizzy. The general perception is that the AAP has been supported by Khalistan elements with funds and manpower in its quest for power in Punjab.
Is the recent RPG attack on Punjab Police Intelligence HQ, an indication of the free run that Khalistanis appear to have under Kejariwal regime?
India is on the major route for narcotics flowing from Afghanistan to South Asia. Punjab has among the highest number of addicts in this country. [1]
ISI the infamous organisation of Pakistan army that organises terrorist attacks internationally, has recently opened a new section K2. It is the Lashkar e Khalistan department in the ISI. Pakistan has been attempting to destabilise Kashmir and Punjab through induction of terrorists in the last five decades.
There has been some respite since the trade between India and Pakistan was stopped. It reduced large scale free movements of terrorists, weapons and narcotics from Pakistan into India.
Opening up of trade with Pakistan will lead to a soft border and vastly increase the chances of infiltration of bad elements from Pakistan.
Why should India take on this great security risk? To what purpose?
While talks of ‘bhai Chara’ are fine, the realities on the ground are otherwise. The ‘bhais’ do not run Pakistan. The true situation is that Pakistan is run by its army, which has a major stake in anti Indian stand. Pakistani politicians, and bureaucracy, the elite in Pakistan, have been brainwashed through three generations and possess an inherently anti Indian and anti Hindu bias.
It is to be noted that while there are odd statements supporting peace on the borders, there has been no let up whatsoever in the number of terrorists being pushed across the border, to destabilise India.
JeM, LeT, K2 etc are not fringe elements in Pakistani society but representatives of Pakistani state.
The sum and substance is that while India should continue to accept the presence of Pakistan as a neighbour, with which peace would be ideal, India must take into account lessons from Pakistani behaviour over the decades and be wary of Pakistani moves at all times.
There is no need for India to jump to react prematurely , however positive they may appear to be on the surface. Issues of Trading with Pakistan and soft borders cannot be isolated from security threats emanating from Pakistan.
[1] 70% youth in Punjab take to drugs, Rahul Gandhi says. https://timesofindia.indiatimes.com/india/70-youth-in-punjab-take-to-drugs-rahul-gandhi-says/articleshow/16772237.cms