Finally, Some Good News from South Asia…. But Will It Last?

UPDATE (February 29): Islamabad today announced that it would grant “most favored nation” trade status to New Delhi and phase out major restrictions on Indian imports by the end of this year.

For all of the discouraging news coming out of South Asia – Afghanistan’s escalating turmoil, the breakdown in U.S.-Pakistani relations, and growing political instability in Islamabad – there is one heartening development: India and Pakistan have restarted their peace dialogue following a three-year hiatus caused by the 2008 terrorist strikes in Mumbai. As a leading Pakistani daily puts it, “there is a discernible defrosting of relations with our neighbor to the east.”

The annals of India-Pakistan relations are filled with numerous false dawns and the current moves could well founder upon the sharp historical animosities that regularly bedevil bilateral affairs. But things may be different this time. Reports out of Islamabad indicate that the Pakistani government realizes the country is in desperate economic straits and that closer ties with its ever-richer sibling constitute a much needed lifeline. The military establishment is also said to understand that the eastern border needs to be stabilized so resources can be focused on combating rising internal security threats.

In a potentially significant development, Islamabad is reportedly even willing to put the perennially-inflamed dispute over the Kashmir region on the back burner. If these media accounts prove accurate – and if the beleaguered civilian government in Islamabad is able to sustain this stance in the face of vigorous domestic opposition – the event would represent an important breakthrough in the India-Pakistan rivalry. It would pick up where the intensive back-channel peace process both sides undertook in 2004-07 left off. Although those negotiations ultimately collapsed due to Pervez Musharraf’s political travails, they may have come tantalizing close to defusing the volatile Kashmir issue.

Things are already rolling along on the economic engagement front. Last summer, Pakistan’s Bollywood-esque foreign minister, the 34-year-old Hina Rabbani Khar, held unexpectedly warm talks in New Delhi, where she emphasized that a “mind-set change” was occurring among younger Indians and Pakistanis. This was quickly followed by a trip to New Delhi by Pakistan’s commerce minister, who brought with him a notably large business delegation.

The trip was especially productive. The two countries pledged to more than double their two-way trade flows – to the $6 billion annual level – by 2015. They agreed to ease visa rules for business travel and to open a new customs post at the Attari-Wagah border crossing that lies midway between Lahore and Amritsar. Islamabad also committed to extending “most favored nation” trade status to New Delhi, reciprocating the status India earlier conferred upon Pakistan. This last development promises to enliven the 2006 South Asia Free Trade Agreement which up until this point has been all but a dead letter. India’s commerce minister, Anand Sharma, captured the spirit of the meeting when he exclaimed that “only shared prosperity can bring lasting peace.”

Mr. Sharma, with his own high-profile business delegation in tow, paid a reciprocal visit to Islamabad earlier this month, where he signed several agreements to further reduce impediments to bilateral trade. The Indian and Pakistani central banks have announced plans to open branch offices in the other country, a move that will help facilitate cross-border transactions. Both countries have also advanced initiatives to enhance energy cooperation, including joint development of a natural gas field in Turkmenistan. Expert talks on expanding commerce in the electrical power and petroleum sectors are scheduled to take place in the coming weeks.

If enhanced trade ties were to develop between South Asia’s largest economies, they would produce significant commercial and (eventually) security dividends for both countries. Despite the common civilizational and historical bonds that permeate South Asia, as well as the unified market forged by the British Raj, the region today is remarkably fragmented economically. Trade flows between India and Pakistan, for instance, represent a miniscule fraction of each country’s overall trade portfolio. Attari-Wagah is the only vehicle crossing along the 1,800-mile-long international border. The two-lane road there is only open a mere eight hours a day and the cargo that passes through it must be unloaded and transferred to local trucks. Indeed, the crossing, which some refer to as the “Checkpoint Charlie of South Asia,” is better known for the Kabuki-like displays put on by the border guards than as an efficient transit point.

The pervasive barriers to bilateral economic cooperation have also spurred circuitous and highly inefficient trade patterns. A booming India requires cement for its construction sector yet is forced to import it from Africa instead of Pakistan, where the cement industry has excess capacity. Off-the-books trade – the value of which easily rivals official levels – is also conducted via third countries like Dubai, Singapore and Afghanistan. According to various studies, a more liberalized trade regime would increase bilateral exchange at least 20 times above current figures as well as boost economic prosperity in both countries. A new report by the Confederation of Indian Industries argues that cross-border trade could easily quadruple in just a few years if both governments moved to increase economic linkages.

(This commentator has argued elsewhere that the United States would be wise to reinforce the current stirrings by launching a Marshall Plan-like initiative geared toward bolstering cross-border economic cooperation between the two countries. This effort would dovetail well with the Obama administration’s “New Silk Road” initiative that is designed to ensure Afghanistan’s economic viability by building it up as a regional trade and transit hub.)

To be sure, there is a surfeit of factors that could derail the thaw in India-Pakistan relations, such as political upheaval in Islamabad or a major terrorist attack in India that emanates from Pakistani soil. Prime Minister Yousaf Raza Gilani’s government has a tense arrangement with the army leadership and is under increasing fire from an emboldened Supreme Court; indeed, Gilani may in the coming months find himself in jail on contempt of court charges. Still, the Pakistan Peoples Party is expected to do well in the March 2nd Senate elections and this should provide enough political reinforcement for the government to continue, at least in the short term, with the push for improved relations with New Delhi.

A larger, if somewhat more distant, danger resides in the sharper security competition that is sure to erupt between the countries as the United States and its NATO allies hasten their departure from Afghanistan. Both India and Pakistan regard the country as a key theater for their strategic rivalry and the current defrosting in relations will likely be a casualty as the situation in Afghanistan deteriorates into a new civil war that has regional powers scrambling for influence.

Still, the present stirrings of peace demonstrate that despite its singularity intensity the India-Pakistan rivalry has always been a fluid admixture of cooperative impulses and competitive dynamics. Both governments would be smart to do what they now can to accentuate the former before the latter returns to the fore.