The Longest August

by Dilip Hiro

  After the 1965 Indo-Pakistan War, bilateral trade ceased. Prior to the conflict, passenger and freight trains used to run between Jodhpur in Rajasthan and Karachi. In the aftermath of the armed conflict, rail tracks were uprooted between Munabao in Rajasthan and Khokharapar in Sindh. It was only after four decades—in February 2006—that the railway stations of Munabao and Khokharapar would be reconnected.30 Travel across the international border virtually ceased after the 1965 war because even the issuing of single-entry visas by the neighboring countries became rare. Pakistanis needed a separate visa for each Indian state, and every time they traveled to a different state they had to report to its police department. The same procedure applied to Indians visiting Pakistan.

  In early 1971, Delhi and Islamabad inked a trade agreement. It fell apart in December with the outbreak of the Bangladesh War. It was only in 1975 that the two nations signed a fresh commercial protocol valid for three years. During this period the bilateral commerce favored India. Over the next twelve years, the total volume of trade varied between $31 million and $87 million, with Pakistan selling more goods than India. But as Pakistan raised the number of items on its positive list for imports to eight hundred in 1996 (when India granted it MFN status), two-way commerce, totaling $241 million, favored India to the tune of $168 million.31

  Later, the size of the cross-border trade became susceptible to whatever diplomatic sensitivities prevailed between Delhi and Islamabad. The bilateral trade during fiscal 1999 shrank by 43 percent from the previous year’s $319.5 million because of the Kargil War. Conversely, as a consequence of the composite dialogue for peace agreed by Vajpayee and Pakistani President Pervez Musharraf in January 2004 at the South Asian Association of Regional Cooperation (SAARC) summit in Islamabad, there was a pick-up in bilateral commerce. In fiscal 2004 it rose by 76 percent from $476 million in the previous year.32 The leaders decided to reopen closed rail and air routes.

  The Wagah-Attari border crossing along the historic Grand Trunk Road in Punjab was the natural choice. But the implementation came in stages, with Pakistan being slow to reciprocate, allowing only fourteen Indian items to be imported by road. In 2005 the two sides signed a protocol to trade via this frontier post so long as the trucks were unloaded in the country of origin, with porters carrying the goods across the frontier.

  Upgrading the Wagah-Attari Border Crossing

  It was only on October 1, 2007, that Islamabad and Delhi agreed to trucks crossing the border and depositing their consignments at the other country’s customs house, to be reloaded into local vehicles after inspection. On that day, the mood on India’s Attari side was festive, with national flags flying amid cheerfully worded banners, and gaily dressed farmers singing and dancing. Indian Punjab’s chief minister Badal sent off the first cargo of tomatoes in a decorated truck. By contrast, the atmosphere on the other side was lukewarm. Disappointingly, Badal’s counterpart in Pakistani Punjab, Shahbaz Sharif, failed to reciprocate his gesture.33

  India’s exports to Pakistan jumped from $547 million in fiscal 2004 to $1.7 billion three years later. But Pakistani shipments to India stagnated around $300 million because most of its exports consisted of traditional textiles, leather products, sports goods, chemicals, and cement.34 In June 2008 the two governments decided to increase the frequency of Delhi-Lahore freight trains from two to five a week to cope with the steady rise in commerce.35

  Interestingly, contraband trade through smuggling and third-country routing exceeded legitimate transactions. It was comprised not only of audio and video cassettes but also India-made machinery and spare parts, especially for the textile industry, and newsprint, which were bought by Pakistanis through the (UAE) or Singapore. Given Islamabad’s tenuous foreign exchange reserves, the government ignored the illicit trade—until 9/11. Then, thanks to Washington’s generous aid to Islamabad for the latter’s participation in its war on jihadist terrorism, Pakistan’s foreign exchange reserves expanded nearly sevenfold. With that the need for third-country imports from India slackened.36

  The bonhomie between Indian prime minister Singh and Pakistan president Asif Ali Zardari, displayed at the end of their meeting in New York in September 2008, augured well for stronger economic ties. The next month India and Pakistan permitted limited commerce across the Line of Control in Kashmir on the Uri-Muzaffarabad and Poonch-Rawalakot trade routes. But the terror attacks in Mumbai reversed the upward trend in commerce. The bilateral trade in fiscal 2008 fell by $440 million.

  Though the South Asian Free Trade Area (SAFTA) treaty, specifying reduction of customs duty on all traded goods to zero by 2016 for SAARC members,37 had become operational on January 1, India and Pakistan ratified it only in 2009. As a result, Indo-Pakistan commerce received a boost. In fiscal 2010 two-way commerce increased by a third, to a little over $2 billion. Yet Pakistan accounted for less than 0.5 percent of India’s overall trade, and India just over 1 percent of Pakistan’s.38

  India urged Pakistan to reciprocate by according it MFN status. But its government failed to respond positively to Delhi’s call because of considerable opposition at home. It came mainly from the farm lobby, fearing competition from Indian agriculture, and textile manufacturers. Focused primarily on foreign markets, Pakistani mill owners by and large produced better quality cloth, whereas their Indian counterparts, catering for the vast domestic market, prioritized cheap, lower-quality textiles. Pakistani manufacturers were thus vulnerable to imports of India’s low-priced cloth. Unable to overcome resistance rooted in economics, combined with opposition from Islamist groups on ideological grounds, Pakistan’s government dithered.

  Nonetheless, hopeful of improved economic relations with Islamabad, the Indian cabinet decided to build an Integrated Check Point (ICP) at Attari on a plot of 118 acres in February 2010. Eighteen months later, in August 2011, it removed Pakistan from the negative list under the Foreign Exchange Management Act, paving the way for investment from Pakistan. In November 2011 Pakistan decided to grant India MFN status in principle.39

  Pakistan’s Qualitative Shift Ramps Up Trade

  On March 21, 2012, Pakistan made a major policy shift. So far it had kept a positive list of goods that could be imported from India. It now replaced that with a negative list for Indian imports, with all other unspecified items allowed entry into the country. By so doing the number of allowable Indian items leapt from 1,956 to 6,800. This helped Pakistani industrialists, who were now free to import raw materials from India except those produced domestically.40 Significantly, the 1,209 banned items were in agriculture, textiles, pharmaceuticals, and automobiles.41

  Islamabad’s liberalized protocol was expected to reduce the import of Indian goods through third countries, such as the UAE, which jacked up prices. Shipping Indian goods through Dubai was three times more expensive than transporting them overland to Pakistan. For instance, a bicycle tire, which had been on Pakistan’s positive list for trade with India, shot up to 600 Pakistani rupees from the original 250 Indian rupees (1 Indian Rupee = 1.6 Pakistani Rupee) by the time it reached Pakistan through Dubai.42

  On April 13, 2012, Attari was a beehive of activity. Since it was Baisakhi, a harvest festival coinciding with the New Year of Punjabis, the mood in the province was festive. That was the day India’s home minister, P. Chidambaram, chose to inaugurate the Attari ICP, constructed at a cost of Rs 1,500 million ($30 million) and guarded by the Border Security Force, part of the home ministry. Pakistan’s ICP at Wagah, built earlier on nine acres of land, was guarded by the Pakistan Rangers, a paramilitary force maintained by the interior ministry.

  A structure of yellow and pink stone, the Attari ICP housed state-of-the-art facilities for security, customs, and immigration requirements for passenger and cargo traffic by rail and road. Its two-story passenger terminal resembled an airport terminal, with waiting areas, restaurants, rest rooms, and duty-free shops. The cargo terminal was constructed like an office complex, with different areas ear
marked for government agencies, cargo handling agents, banks, and so on. Its parking area had space for five hundred trucks, and its warehouses, including cold storage places, were meant for receipt, inspection, trans-shipment, and delivery of imported goods. The prominently marked trade and passenger gates across the dust-blown arches completed the new, efficient arrangement. Such facilities were expected to reduce dramatically the delay of up to one week truck drivers had often experienced before.

  Dressed in immaculate Tamil dress of white, open-neck shirt and a long flowing lungi, Chidambaram unveiled the ten-foot-high plaque, inscribed in Hindi, Punjabi, and English, dedicated to “the nation, and peace and harmony with Pakistan”—as Badal and his counterpart from Pakistan, Shahbaz Sharif, and Indian commerce minister Anand Sharma and his Pakistani counterpart, Makhdoom Amin Fahim, clapped enthusiastically.43 On the previous day Sharma and Pakistan’s commerce secretary Zafar Mahmood had inaugurated the Lifestyle Pakistan 2012 exhibition, displaying fashion textiles, jewelry, and designer furniture in Delhi. India had reduced the number of items prohibited for import from Pakistan by a third.

  At Attari, speeches by the dignitaries followed. When Fahim ended his speech with the instantly coined slogan “Pakistan-Hindustan dosti zindabad” (Long live the Pakistan-Hindustan friendship), he got an enthusiastic response from the audience. Badal demanded that the ICP be allowed to handle all 6,800 items traded between Karachi and Mumbai, not just 137, as was the case then.44

  Six months later Delhi agreed to curtail its sensitive list, allowed under SAFTA, to 100 items from the present 614 by April 2013, whereby a SAARC member was allowed to maintain high tariffs. Islamabad consented to phasing out its negative list in December 2012 and cutting its sensitive list of 950 items to 100 within five years.45

  By April 2013, the Indo-Pakistan trade by road though Attari-Wagah almost doubled. And each day some three hundred people crossed the border.46 In fiscal 2012 the volume of bilateral commerce reached a record $2.6 billion. But that was far less than the Indo-Pakistan trade through third countries, estimated at more than $4 billion.47

  The Pakistan People’s Party (PPP)–led government in Islamabad failed to keep its promise to confer MFN status on India by the end of 2012. It justified its failure by pointing out that India did not address its concerns about nontariff barriers (NTB) erected by Delhi. Actually, India had argued that its NTBs did not apply exclusively to Pakistan and that this subject fell within the purview of SAFTA. In any case, Islamabad’s noncompliance stemmed from the resistance of its automobile and pharmaceutical industries as well as the farm lobby, and the forthcoming general election in May 2013. Since the PPP was accused of being pro-Delhi by the opposition, its according of MFN on India would have played into the hands of its rivals.

  Most Favored Nation by Another Title

  Following the parliamentary election, Pakistan Muslim League (Nawaz), or PML (N), led by Muhammad Nawaz Sharif, formed the government in June 2013 after being overthrown in a military coup in October 1999. In their meeting on January 17, 2014, the commerce ministers of India and Pakistan—Sharma and Khurram Dastgir Khan respectively—agreed on a protocol of nondiscriminatory market access on a reciprocal basis, because in Pakistan the term “most favored nation” had become politically charged. Islamabad consented to trimming its negative list of trade items with India while maintaining one hundred items on the sensitive list, on which an additional tariff was allowed.48

  The ministers also decided to keep the Wagah-Attari border crossing open around the clock instead of twelve hours a day. Islamabad agreed to allow the import of all products from India at its Wagah ICP. These changes were expected to divert trade from the complicated sea route to a simplified one by land. And the declaration of Wagah and Attari as dry ports set the stage for shipping cargo by container, which would reduce transportation and handling costs.49

  These steps boosted cross-border commerce. One of the main hurdles to further expansion of trade was the poor infrastructure on the Pakistani side of the land frontier. Its ICP at Wagah was a fraction of the size of India’s at Attari.

  In addition, bureaucratic and other procedures in Pakistani were far more arduous than in India. A Pakistani exporter had to deal with the paramilitary Pakistan Rangers; the military’s National Logistic Cell, charged with crisis management and logistics emergency; the customs department; and the Anti-Narcotics Force, with overlapping responsibilities. Pakistan’s railway infrastructure was also in a worse state than India’s. And with Karachi being the only major Pakistani port so far, transportation by sea was constrained by limited port facilities, cumbersome customs procedures, and bureaucratic red tape. In addition, because of currency restrictions, all payments had to be made in a hard currency.

  On the other hand, political opposition to normalization of commercial relations between the two neighbors was on the wane, while lobbying for it by businesses became more vigorous. In February 2014, Malik Tahir Javaid, chair of the Pakistan Industrial and Traders Associations Front, urged the government to allow the import of all those items not manufactured in Pakistan to be imported from India.50

  Were this to happen, annual bilateral trade could easily reach $10 billion before the end of the decade. Other estimates put the figure at $20 billion under “normal” commercial relations between Islamabad and Delhi. After the Islamabad-Beijing free trade agreement went into effect in July 2007, the bilateral commerce increased more than threefold in six years—from $4.1 billion in fiscal 2006.51

  When the governments in Beijing and Delhi embarked on economic liberalization in 1991–1992, they decided to set aside their border disputes, which had led to war thirty years back, and tighten commercial ties. Within a decade, their bilateral trade ballooned from $265 million to $4.95 billion. During the subsequent decade the growth rate accelerated. With bilateral commerce amounting to $74.7 billion in fiscal 2012, China became India’s number one trading partner.52

  The moral is that if Pakistan and India were to follow the example of China and India, they would both gain materially. Thriving commerce may well bring about the end to the Longest August between the two neighbors by helping to create mutual prosperity underpinned by continued peaceful coexistence. This would require putting the Kashmir issue on the back burner the way Beijing and Delhi did with their border dispute and focusing on forging strong economic links.

  20: Overview and Conclusions

  India and Pakistan, born as twins in August 1947, are now respectively the second and the sixth most populous nations on the planet. They also belong to the exclusive nine-member nuclear arms club. In terms of GDP estimates based on purchasing power parity, India is number three after the United States and China. And it has the distinction of being the world’s largest democracy. These facts underscore the importance of its relations with its neighbor, Pakistan, which also shares borders with China, Afghanistan, and Iran. Twice, between 1999 and 2002, India and Pakistan came close to a nuclear confrontation.

  The partition of the Indian subcontinent was the culmination of a process that started when Afghanistan-based Muhammad Ghori, commanding an army of Afghans, Arabs, Persians, and Turks, gained control of the Indus Valley basin in 1188. Four years later he defeated Prithvi Raj in the Second Battle of Terrain, paving the way for his leading general, Qutbuddin Aibak, to annex Delhi. Out of this was born the Delhi Sultanate. It lasted until 1526, when it gave way to the Mughal Dynasty, which ended in 1807. What distinguished the Afghans and Mughals from the earlier invader-conquerors of the subcontinent was that they were the followers of Islam. Their beliefs and religious practices clashed with those of the indigenous Hindus.

  The rise of the British Empire on the ashes of the Mughal Dynasty put both the Hindu majority and the Muslim minority under the common yoke of a foreign power with its home base in distant Britain, a Christian country. While the Muslim elite’s loss of power left it sulking, upper-caste Hindus adjusted readily, switching from lea
rning Persian to English to help the new rulers administer the subcontinent.

  Preeminent among those Muslim aristocrats who accepted the unpalatable reality was Sir Syed Ahmed Khan, who urged his coreligionists to learn English. He also understood the importance of nationalism, a nineteenth-century construct originating in Europe. According to him, Muslims in India were a nation, and so were Hindus.

  Within a few years of the founding of the Indian National Congress in 1885, calling for an increased role in the government by Indians, Sir Syed foresaw its modest demand escalating to a campaign to expel the British from India. “Is it possible that under these circumstances [of British withdrawal] two nations—the Mohammedans and the Hindus—could sit on the same throne and remain equal in power?” he asked rhetorically in 1888.1

  His argument was flawed. It failed to recognize that universal suffrage in an independent India would deprive the minority Muslims of being “equal in power.” This is the point Muhammad Ali Jinnah articulated four decades later. Alluding to the historical oppression of minorities by majorities, he demanded legal safeguards for the Muslim minority in his address to the Congress session in 1928. He pleaded that Muslims, forming a quarter of the population, should be allocated a third of political power. The overwhelmingly Hindu leadership of the Congress prepared to concede only 27 percent. This was the first of the landmark events that led to the division of the subcontinent.