Revitalising Indo-Pak Trade By Dr. Jamal Shah
Pakistan’s economic landscape is at a critical juncture, offering substantial opportunities for growth through enhanced trade with India, revitalisation of its agricultural sector, and reallocation of resources towards development and social welfare.
Currently, Pakistan and India engage in trade through three distinct channels: official, informal, and third-country trade. Informal trade involves illegal smuggling across the porous Indo-Pak border and via Afghanistan. Official trade, though legal, remains marginalised and limited to transactions across the India-Pakistan border. Third-country trade occurs through intermediaries in locations such as Dubai and Singapore. Despite the significant potential for intra-regional trade, there is no direct formal trade between Pakistan and India; all trade is conducted through third countries.
Formal trade could substantially reduce trading costs for both countries compared to the rest of the world, as third-country trade incurs significantly higher expenses. Formal trade could generate around USD 400 million in exports for Pakistan annually and could also reduce smuggling while enhancing revenue through customs duties. This approach would positively impact multiple industries in Pakistan, such as the cotton industry. For instance, Pakistan could import reactive dyes more cheaply from India than from China and South Korea, and automobile parts could be imported from India at a lower cost compared to imports from the EU, Japan, and UAE. This would lower the costs of Pakistani automobiles, benefiting domestic consumers and boosting sales. More importantly, India is one of the largest producers of essential products such as tomatoes, potatoes, onions, and wheat, which Pakistan currently imports from China, Ukraine, and Russia. Liberalising trade between India and Pakistan would allow Pakistan to import these items at a much lower cost than from other countries.
Enhanced economic cooperation and regional trade would enable both India and Pakistan to redirect a substantial portion of their enormous defence budgets towards addressing crucial issues such as improving access to healthcare, providing free education, and building adequate housing—services essential for the impoverished populations in both countries.
Unfortunately, agriculture is no longer profitable in Pakistan due to the government’s preference for the interests of a select few rather than supporting the broader agricultural sector. This has led to housing societies becoming the only profitable industry in the country, with detrimental effects on the livelihoods of millions who rely on agriculture as their primary source of income. As the backbone of Pakistan’s economy, the agricultural sector’s challenges must be urgently addressed. One significant challenge is the conversion of fertile land into residential societies, which has severely impacted agricultural productivity. The government must take decisive action to fully harness the potential of agricultural land and expand the areas under cultivation.
A recent report by the Kisan Board reveals that real estate developers and industrialists have acquired 30 to 40 percent of fertile land in Faisalabad, Gujranwala, Sheikhupura, and Kasur over the past five years. In Punjab province, which supplies 65 percent of the country’s total food requirements, 20 to 30 percent of fertile land has been converted into industrial units and housing schemes. This trend is particularly alarming in Lahore, where 70 percent of agricultural land has been converted into housing, followed by Gujrat, where the figure stands at 60 percent.
The real estate industry is predominantly controlled by a particular class, which contributes little to the overall economy. If this trend of unplanned expansion of housing societies continues over the next few decades, the country’s fertile land will be under severe strain due to population growth. It is imperative to raise awareness of these issues and advocate for reforms that prioritise the well-being of the entire agricultural sector, leading to a more prosperous and sustainable economy for all. If this trend goes unchecked, we may end up with a society that has a roof over its head but faces widespread hunger.
To enhance agricultural productivity, farmers need government support in the form of subsidies and other relief measures. Currently, the average cost of production per acre in Pakistan is PKR 60,000, which is significantly higher than in India, where it is approximately INR 15,000. For example, the cost of wheat production per acre in Pakistan is PKR 40,000-50,000, while rice production costs PKR 100,000-110,000 per acre. In India, the cost per acre for wheat is approximately INR 12,000-14,000 and for rice INR 27,000-30,000. Furthermore, production per hectare also differs between the two countries; for instance, wheat production per hectare in India is 4 tons/hectare, while in Pakistan, it is nearly 3 tons/hectare.
The Indian government provides extensive subsidies to its farmers for fertiliser, irrigation, equipment, credit, seed, and export through schemes such as PM-KISAN, Minimum Support Price, Pradhan Mantri Fasal Bima Yojana, and the Modified Interest Subvention Scheme. In contrast, Pakistani farmers are deprived of such benefits and subsidies. Fertiliser costs alone account for approximately 20-30% of the total production cost. Providing subsidies for fertilisers and other agricultural inputs would ensure food security, improve productivity, promote exports, and facilitate disaster recovery. Reallocating a portion of the non-developmental budget to the agricultural sector could fund these subsidies without requiring additional taxation.
Non-developmental expenditure at the Prime Minister’s house varies with each administration. Between 2008-2013, the total expenditure was PKR 3.6 billion. From 2013 to 2017, it increased to PKR 4.3 billion. Over the subsequent three years (2018-2020), it decreased substantially to PKR 1.15 billion. Notably, the expenditure continued to decrease in the following years. In 2018, the total expenditure was PKR 514 million, which decreased to PKR 305 million in 2019, and PKR 334 million in 2020. This reduction underscores that a significant portion of non-developmental and unnecessary expenses can be curtailed, saving billions of rupees that could be allocated to crucial sectors such as health, education, R&D, and agricultural subsidies.
Pakistan has the capacity to generate and retain billions of dollars, reducing its reliance on foreign aid and loans. Pakistan is not hindered by geography or a lack of resources; it suffers from a deficit of honest leadership and an effective system of governance. Importantly, a system only functions when it is not merely on paper but also effectively implemented. With the adoption and implementation of bold, drastic, and innovative measures, Pakistan’s potential to become self-sufficient in terms of debt relief, both domestically and internationally, is not far-fetched. Nevertheless, this endeavour requires significant fortitude, as taking such actions may provoke criticism from internal and external sources. Achieving self-sufficiency, sovereignty, and prosperity for the nation is not an unattainable objective, but it necessitates honest, sincere, and dedicated leadership akin to that of Muhammad Ali Jinnah, and the support of the populace.
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Dr. Jamal Shah
The writer has a PhD in Economic Studies from University of Dundee and teaches at Abdul Wali Khan University Mardan.
Revitalising Indo-Pak Trade By Dr. Jamal Shah
Source: https://www.nation.com.pk/28-Aug-2024/revitalising-indo-pak-trade