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Proposal For A Study Of The Economic Potentials Of Normalization Of Relations Between India & Pakistan

Objective

To reduce tensions and build public support for the peace process in India and Pakistan by identifying, quantifying and publicizing the potential economic benefits to all parties from a peaceful resolution of bilateral issues and close economic cooperation.

Collaborators

The project will involve close collaboration between

• Federation of Indian Chambers of Commerce & Industry, New Delhi, India (FICCI)
• Federation of Pakistan Chambers of Commerce & Industry, Karachi, Pakistan (FPCCI)
• International Center for Peace & Development, Napa, California, USA (ICPD)
• The Mother’s Service Society, Pondicherry, India (MSS)
• Lahore University of Management Studies, Lahore, Pakistan (LUMS)

Rationale

The potential upside of compromise and reconciliation has never been adequately documented or portrayed to counter public perception regarding the downside. The strategy envisioned is to shift the focus of bilateral relations from the military and political spheres to economics.

Informed people in both countries understand that normalization of ties will be beneficial to both countries, but large sections of the population are unaware of the magnitude of the potential benefits that can be generated in terms of employment, growth rates, and foreign investment. Past efforts to document the potential benefits have been carried out under the regional umbrella of SAARC, but these studies have focused primarily on trade opportunities and limited to a mere listing of major tradable commodities. More recently public attention has focused on the proposal to construct a gas pipeline from Iran to India transiting Pakistan, which would provide cheap energy to India and significant transit fees to Pakistan. Trilateral negotiations between the three countries have progressed farther on the pipeline proposal than on any major project during the past five decades since both countries became independent. Projects of this type are indicative of a much wider potential that has not been adequately examined.

While everyone knows that elimination of conflict between India and Pakistan will reduce costs and open up opportunities for both nations, the true magnitude of these opportunities far exceeds what is commonly recognized. The scope for mutually beneficial economic cooperation between the countries is enormous. These opportunities include bilateral trade, energy, transportation infrastructure, industrial development and tourism. By one estimate, full utilization of these potentials could double the growth rates of both countries.

The purpose of this initiative is to challenge the conventional wisdom which says that economics necessarily follows politics. These are many examples to show that the reverse can also be true. It is generally argued that a dramatic improvement in bilateral political relations between India and Pakistan is necessary before the economic potentials can be tapped. For this reason, there has been little effort to even quantify the potential benefits. Rather than postpone evaluation of the economic potential until the political climate improves, this proposal is predicated on the belief that a full awareness of the economic costs and benefits can be a powerful lever for improving the political climate.

Background

Over the past 15 months ICPD & MSS have had discussions with high level officials in New Delhi, Islamabad and USA to ascertain their interest in the proposal. These meetings included —

In India —

• L. K. Advani, Home Minister of India – two meetings
• Jaswant Singh, External Affairs Minister of India
• Brajesh Mishra, National Security Adviser and Principle Secretary to the Prime Minister of India – two meetings and several phone discussions
• Sonia Gandhi and other senior officials of the opposition Congress (I) party in India
• Ashraf Qazi, Pakistan High Commissioner to India
• Richard Celeste, US Ambassador to India
• Farooq Abdullah, Chief Minister of Jammu & Kashmir, along with five members of his cabinet.
• Abdul Ghani Bhat, President of the All Party Hurriyat Conference of Kashmiri militant organizations
• Institute for Defense Studies and Analysis
• Center for Policy Research
• Confederation of Indian Industry
• Punjab Harayana Chamber of Commerce & Industry

In Pakistan

• Abdul Sattar, Foreign Minister of Pakistan
• Shaukat Aziz, Finance Minister of Pakistan
• John Schmidt, Deputy Chief of the US Embassy in Islamabad.
• Sudeer Vyas, Acting Indian High Commission to Pakistan
• Federation of Pakistan Chambers of Commerce & Industry
• Lahore University of Management Studies
• Institute of Strategic Studies
• Institute of Regional Studies
• Sustainable Development Policy Institute

Internationally

• Karl Inderfurth, then US Assistant Secretary of State, and other representatives of the US State Department and Commerce Department.
• Dr. Maleeha Lodhi, Pakistan Ambassador to the USA
• T.P. Sreenivasan, Indian Deputy Chief of Mission, Washington D.C. USA
• Michael Clark, CEO, US-India Business Council
• Robert Radtke, Vice President, Policy Programs, Asia Society
• Claude Smadja, Managing Director, World Economic Forum, Switzerland

The response of the Indian and Pakistani Governments can be summarized as follows:

• There is strong agreement that the scope for economic cooperation between the countries is very great and that the unassessed costs of continued confrontation are far beyond the amounts reflected in defense budgets.
• There is strong agreement that documenting and building greater public awareness of the ‘upside’ of peace will provide greater maneuverability and flexibility to the negotiations between the governments.
• There is agreement that past bilateral efforts to explore the full scope for economic cooperation have been impeded by domestic political constraints.
• There is agreement that an third party international initiative will be better received and more credible than an initiative by one or both of the governments.

Representatives of CII, FPCCI, ICPD, MSS and LUMS met together in New Delhi on March 13, 2001 and agreed to jointly undertake a study. Subsequently, CII has shown continued interest in the project.

Project Proposal

• FICCI will act as project coordinator for India
• FPCCI will act as project coordinators for Pakistan
• ICPD will act as international project coordinator

Scope

The study will examine the prospects for economic benefit to both countries in the event that a full normalization of ties between India and Pakistan is achieved.

Priority sectors

The study will examine the potential for bilateral and international trade, investment and economic development in major sectors including

1. Energy
2. Agriculture and Agri-business
3. Information technology
4. Telecommunications
5. Transportation
6. Health care & Pharmaceuticals
7. Tourism
8. Automotive
9. Steel, Cement & Construction
10. Education – especially technical education

Methodology

The project will be divided into two phases:

• Identification of sectoral potentials
• Assessment of overall economic impact & implementation issues

Phase 1: Identification of Sectoral Phases

1. Project Coordinators in India and Pakistan will identify and commission papers by expert individuals or organizations examining the potential areas and economic benefits of collaboration between India and Pakistan in the sectors listed above. Each country will prepare a minimum of six papers on sectors chosen in view of their perceived importance for each country.
2. Each sectoral paper should examine the following major issues:
   
   1. What is the potential scope for development of this sector in India and/or Pakistan through economic association with the other country?
   2. What specific types of projects or business activities would be most suitable for tapping this potential?
   3. What public policies would be most effective for realizing the full potential?
   4. What could be the overall impact of tapping this potential on investment, economic growth, employment in the country?
3. The draft papers prepared in both countries will be exchanged with the experts from the other country for review and comments.
4. A three day conference will be conducted bringing together these experts together will business leaders from both countries to examine in detail the magnitude of the potential in these sectors and the best ways of developing them.

Phase 2: Assessment of Overall Economic Impact & Implementation Issues

1. A team of economists including representatives from both countries will prepare a report assessing the overall economic impact of developing these sectoral potentials on the macro economic performance of India and Pakistan, including its impact on

• Employment generation
• Economic growth
• Foreign Investment

2. The report will consist of three major sections-

• Potential — Identification and quantification of the potentials for mutually beneficial bilateral economic cooperation
• Strategy — Formulation of business strategies and public policies that promote development of these potentials.
• Impact — Evaluation and quantification of the macro level impact of tapping these potentials on the overall growth and performance of the Indian and Pakistan economies, including the impact on employment generation, GDP growth rates, foreign investment, and foreign trade.

3. One or several additional conferences will be conducted bringing together experts, business and political leaders from both countries to explore the wider potential benefits of normalization as reflected in the project report.
4. The findings of the report and the conference output will be projected nationally and internationally through the media.