Estimating the India-Pakistan trade potential at $19.8 billion, the Indian Council for Research on International Economic Relations (ICRIER) has called for an investment treaty to promote economic engagement and improve the confidence of businesses to invest in each other’s country. A study ‘Enhancing India-Pakistan Trade,’ done by Nisha Taneja of the ICRIER, has found that investment flows are important for trade links to become deeper and stronger. India has permitted investments in and from Pakistan. “If a bilateral investment treaty is put in place, it will improve business confidence…,” it says. The study assesses trade possibilities, examines the physical and regulatory impediments to realising the trade potential and suggests measures to tap into the potential, Dr. Taneja says.

According to the study, the trade potential is estimated at $19.8 billion, 10 times larger than the current $1.97 billion in official trade. Of this, export potential accounts for $16 billion and import $3.8 billion. The potential in the trade of mineral fuels is another $10.7 billion (export $9.4 billion and import $1.3 billion).

The three categories with the largest export potential (54 per cent) from India are machinery, mechanical appliances, electrical equipment, chemicals and textiles.

The largest potential items among these categories are cell phones, cotton, vehicle components, polypropylene, xylene, tea, textured yarn, synthetic fibre and polyethylene.

The three categories with the largest import potential from Pakistan are textiles, jewellery and precious metals and base metals, accounting for 45 per cent. The items with the largest import potential are jewellery, medical instruments and appliances, cotton, tubes and pipes of iron and steel, polyethylene terephthalate, copper waste and scrap, structures and parts of structures, terephthalic acid and its salts, medicines and sports equipment.

Interestingly, the study points out that a substantial proportion of India’s export potential, around 58 per cent, is in products that are on Pakistan’s negative list for India or on the sensitive list applicable to India under the South Asian Free Trade Area (SAFTA), an agreement to create a free trade area of 1.6 billion people in Bangladesh, Bhutan, the Maldives, Nepal and Sri Lanka, besides India and Pakistan. Likewise, 32 per cent of India’s import potential is in items on the sensitive list for Pakistan under the agreement.

India’s sensitive list indicates that the textiles sector is protected the most — an area in which Pakistan has an edge.

There are also opportunities in the services sectors such as information technology and business process outsourcing, health care, and entertainment.

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