Trading up to better relations with Pakistan

In 1933, my grandfather left Mumbai to take up his first job as a teacher in a Marathi school in Karachi. In those days, the two cities were part of the then-Bombay Presidency under British rule. In 2010, I flew from Mumbai to Karachi and will never forget the expression of the taxi driver when he asked me which airline I was flying. When I responded “Pakistan International Airlines,” his reaction was as if I had just turned into an alien.

Perhaps there is a certain alienating effect that comes with six decades of practical isolation. Today, there are a mere four flights per week between the world’s second and sixth most populous nations, and one land crossing in over 3,000 kilometres of contiguous border. There, at Wagah, the daily ritual that accompanies the lowering of the flags is a particularly unique piece of theatre whose enduring popularity owes as much to the mutual curiosity that exists between Indians and Pakistanis as it does to shared suspicion.

The ceremony also offers a clue as to where both countries’ economic priorities should lie, as the mutual fascination we share with our neighbours serves also as a stark reminder of the economic benefits that both countries stand to reap if we were to allow that suspicion to drop.

Today, trade between the two countries is minimal, and what does get traded is conducted via intermediaries in places such as Dubai, adding thousands of miles of detour and exacting a huge toll on transaction costs, profitability and environmental sustainability, not to mention entrepreneurial spirit. As identified by the World Economic Forum’s Global Agenda Council on Pakistan, India has a middle class of about 300 million people with rising purchasing power that matches that of south-eastern Europe, while Pakistan’s middle class is approximately 30 million. A 10% penetration into the Indian middle class market would double the market size for Pakistani companies and businesses. The potential for transfer of technology from India to Pakistan and bilateral cultural exchange of fashion, music and films is enormous.

Consider the example set by China and Taiwan, two economies that have successfully managed to wield trade and economic policy to often overcome decades of deeply ingrained distrust to accelerate cooperation. Despite their delicate and often troubled past, a recent shift in the past years to allow economic policy to supersede geopolitical differences has had the result of a vast expansion of economic if not political cooperation, which has fundamentally shifted mindsets on both sides of the strait.

Today, Taiwanese companies employ millions of Chinese, while a recent influx of Chinese tourists has, in part, helped Taiwan achieve a soft landing in the wake of the global economic downturn. To the east of India, the 10 countries that comprise the ASEAN bloc are forging ahead with plans that will see them inaugurate a free trade area in 2015. Already, trade within ASEAN nations accounts for 25% of all trade, compared to only 5% within the SAARC bloc.

History cannot and should not be forgotten overnight, but I have every confidence that relations between India and Pakistan have reached an inflection point that will see an enabling environment for greater trade and mutual economic growth. The advent of de facto free trade at the end of the year marks an important step towards facilitating the movement of goods and services between two important markets.

Nevertheless, facilitating the movement of people must remain an equal priority if we are to shift mindsets as well as goods. At my organization’s Annual Meeting in Davos each year, formal and informal interactions between Indian and Pakistani participants abound. Simultaneously, the thought leaders of our Global Agenda Councils on India and Pakistan have committed over the past year to support student exchanges and internships between the two countries.

These are small steps, but we believe that by fostering greater human contact between Indians and Pakistanis, and demonstrating we are not aliens but in fact have a lot in common, we are helping to build trust.

We will build on these ideas further at the World Economic Forum on India this week in Gurgaon. While I believe the right steps are now being made to re-set India on a path of high economic growth, the dividend – social, economic, cultural and political – of trust and dialogue transcending suspicion and difference will be even greater still.

Author: Sushant Palakurthi Rao is Senior Director and Head of Asia at the World Economic Forum.

Image: A Pakistani custom official checks the papers of an Indian truck driver after he crossed from Pakistan to India. REUTERS/Mohsin Raza