Pakistan new trade policy allows FDI from India

Nirupama Subramanian

ISLAMABAD: In a significant shift of policy, Pakistan has for the first time put aside its deep-seated sentiments over Kashmir to invite foreign direct investment from India.

Announcing the government’s trade policy for 2008-2009, Commerce Minister Ahmed Mukhtar said a decision had been taken that if “Indian manufacturers of CNG buses made a firm commitment to establish manufacturing of such buses in Pakistan,” his Ministry might allow the import of 10 buses by road via Wagah “from each possible investor as test consignments.”

The government has already made the import of CNG buses duty-free. The removal of the earlier 15 per cent duty was announced in the 2008-2009 budget.

No details are available yet on how much investment is being sought. Pakistan has a liberal investment policy, even allowing 100 per cent foreign ownership but officials said that in the case of India, “the devil may be in the details.”

It’s not just for CNG buses that the Pakistan government is signalling its readiness to embrace Indian investment.

Official sources said the government had invited at least three Indian companies — Tata, Reliance and Essar — to a meeting of potential investors in the power sector to discuss the development of the Thar Coal Power Project. The meeting is to be held in late July or early August.

Besides investment, Pakistan’s new trade policy opens the door for more imports from India than before, in order to cut down on transport and manufacturing costs that in turn would make its own exports more competitive and help it narrow its trade deficit.

The Minister said Pakistan had allowed imports of fuel oil, diesel, machinery such as paddy harvesters, rice driers, and mining equipment. “These items are included in the 136 additions to Pakistan’s positive list of imports from India. With this, the positive list has increased to 1,938 items. The full list has not yet been made public.”

Indian officials, who had given a list of 484 items for inclusion in the positive list, expressed disappointment that only 136 had been accepted, but conceded that overall, the new trade policy contained many positive steps for improvement of trade relations with India.

In addition to the expanded list of permitted imports, Pakistan will also allow the import of raw materials and machinery not on this positive list for manufacturing units set up under its DTRE (Duty and Tax Remission for Export) schemes.

Also, cotton yarn and stainless steel will be allowed in by road, through the Wagah border, from India. Presently, these two items are sent only by train. “Cheaper raw material sourced from India would make our exports more competitive in international market. We are [also] allowing import of diesel and fuel oil from India, because it will be cheaper due to the difference in transportation cost. This will also help us to address our global trade deficit.”

He said Pakistan was in the process of “gradually” liberalising bilateral trade with India. “The Composite Dialogue process, especially on economic and commercial cooperation, has been instrumental in addressing the bilateral issues,” Mr. Mukhtar said, referring to the four-year-old peace process between the two countries.

India and Pakistan have a bilateral trade of $1 billion, but unofficial trade is estimated at double or treble the amount. The Dawn said on Saturday that by widening the scope for imports from India, this figure could go up to over $3 billion, making India Pakistan’s second biggest trading partner after China.

He made the grant of MFN status to India conditional to New Delhi removing certain non-tariff barriers on imports, but the newspaper commented that with the proposed increase in imports from India, that conditionality was “meaningless.”

Pakistan’s efforts at liberalisation of trade with India appear to be in line with the sentiments voiced by Pakistan People’s Party chairman Asif Ali Zardari that the new PPP-led government wanted to improve economic relations and would not allow the differences on Kashmir to come in the way of this.

An indication that the new policy may not be welcomed by all was evident in some of the headlines in Saturday’s newspapers: “Indian imports to flood Pak markets,” said the News, while the Nation, said “Pakistan shows tilt towards India.”

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