It's the economy, stupid!

New Delhi

24 May 2008

"It's the economy, stupid!", is a phrase made famous in the United States

during Bill Clinton's 1992 presidential campaign but it has acquired a new import in the

context of India and Pakistan. Once a bitter foe, Pakistan is beginning to appreciate the

virtues of doing business with India, even if that means resolution of certain outstanding

bilateral issues will have to wait. In a joint news conference with his Indian counterpart

in Islamabad on May 21, Pakistan Foreign Minister Makhdoom Shah Mahmood Qureshi

suggested the improvement in economic relations should not wait for the conflict

resolution. Several factors might have contributed to Pakistan's change of heart: the

state of its economy, internal political instability, or even a desire to replicate the

successful 'China model' of moving forward on the economic front in spite of the

boundary question. The jury might still be out on whether doing so is a strategic or

tactical imperative for Pakistan, but no one is questioning the salutary effect it will have

on the bilateral peace process. A leading Indian strategic analyst, Mr K Subrahmanyam,

says in the mid-1990s Pakistan's economy grew faster than India's because of the

foreign investments in Pakistan and the help from the US and China. "Pakistan was

doing better than India but after India liberalised her economy, India's economy began to

grow relatively more than Pakistan's. Also, Pakistan depended on the US aid but now it

is fraught with uncertainties," Mr Subrahmanyam tells in an interaction with this

newspaper. He feels Pakistan's appreciation of the 'China model' is a good trend

provided it is followed up appropriately. Today, there is indirect trade between India and

Pakistan via Dubai but if both countries decide to engage directly, then the costs would

come down, Mr Subrahmanyam adds. A former Indian High Commissioner to Pakistan,

Mr G Parthasarathy, attributes Pakistan's response to a combination of factors, including

but not limited to the tension on its western frontier. "[There] the US is breathing down

Pakistan's neck," he says, "Therefore it was not in Pakistan's interest to [disengage]

India."

A statement issued after the foreign minister-level talks said "both sides reiterated the

importance of enhancing mutually beneficial economic and commercial cooperation and

agreed to discuss further steps for facilitating trade and redressing the trade imbalance."

For his part, Minister of External Affairs Pranab Mukherjee said India and Pakistan have

decided to "expand the base of their economic cooperation by strengthening bilateral

trade, creating a favourable environment for investment and providing a friendly

atmosphere by making necessary amendments in our policies." For the record, Mr

Mukherjee did not fail to highlight that bilateral trade between New Delhi and Beijing has

already touched 40 billion dollars and the target has since been revised to 60 billion

dollars by 2010. Mr Mukherjee told Pakistan President Pervez Musharraf as much. "He

also emphasised the need for increased interaction between the two countries in

economic and commercial fields," the Ministry of External Affairs said in a statement.

India and Pakistan hope to expand railway links across the border at Attari / Wagah and

install a conveyer belt to facilitate transportation of cement. "The whole world is moving

towards globalisation. We need cement [and] Pakistan has been good enough to offer it,"

Mr Mukherjee has said. "The moot point is that if we create a stake in each other's

economic development, it will facilitate in resolving problems in other areas," he told

reporters towards the end of his visit to Pakistan.

Pakistan Peoples Party Co-Chairman Asif Ali Zardari revealed his mind in an interview to

the Press Trust of India (PTI). Asked if he saw economics as being the driving force in

bilateral relations, Mr Zardari told PTI's Pakistan correspondent: "Yes, I can't afford 180

million people with the poverty level today, but I have got water, millions of acres of

virgin lands ... I can feed India and the world. On the border with India, I have got gas

and oil. I can convert all that into product and market it to myself and to India. Then, I

have a 1,100-mile coastline, which is virgin." Mr Zardari doesn't stop at that. He says

Pakistan could act as a "force multiplier" for India's economy through increased

cooperation in key sectors like energy. Mr Zardari goes on to suggest: "You can't

expand Kolkata port. With today's technology, I can make 20 deep sea ports and an

economic zone in Gwadar. I can have high speed cargo trains, have a 17-18 hour

turnaround period from your railway lines and the products will be available to you. You

cannot put up gas containers on Mumbai beach, but I can put up (on the Pakistani

coastline) any number of gas containers (and acquire gas from) all sorts of friendly

Muslim countries where I, the PPP and the Government of Pakistan have influence. And

we dovetail it, we create economic zones owned by the people." Mr Zardari also says in

the interview his "model for India-Pakistan relations" is to create economic zones along

the India - Pakistan border, use Pakistan's coal reserves in Thar to generate power that

could be exported to India and even acquire gas from "friendly Muslim countries" that

could be supplied to India. Here it is interesting to note the statement issued after the

foreign minister-level talks took care to state India and Pakistan "reiterated their

commitment to the Iran-Pakistan-India gas pipeline project and had a useful exchange of

views in this regard."

A former Pakistani diplomat, Mr Javid Husain, feels the substance of the future

relationship of India and Pakistan will be decided primarily by their performance in

political and economic fields. In an article he wrote for "The Nation" newspaper of

Pakistan, which is part of the Nawa-e-Waqt Group, Mr Husain says the average growth

rate of Pakistan's economy has remained far below that of India during the past eight

years. "Thus, the nation and its leaders need to focus on strengthening internal political

stability and accelerating the pace of economic development if we expect to get

satisfactory results from our dialogue with India," he advises. Mr Husain does not shy

away from commenting on Pakistan's handling of the Jammu and Kashmir either. He is

categorical "a satisfactory solution of the Kashmir dispute from Pakistan's point of view

is not within our reach in the short-term because of the current huge power imbalance in

favour of India." Time has come for the adoption of a long-term approach in contrast with

our efforts in the past to find an immediate solution, he says. "Meanwhile, Pakistan

should focus on building up its strength politically, economically, militarily and

diplomatically to improve the balance of power vis-a-vis India."

An editorial in the Daily Times of Pakistan, entitled "Talking about Kashmir", says the

Pakistan economy needs cooperation in the region as never before. "Our economists are

now advising that normalisation should cover liberalised trade with Pakistan including

movement of capital. It is believed on all hands that the economic crises facing Pakistan

cannot be resolved without regional and extra-regional cooperation. Above all, Pakistan

needs peace across its borders so that it can adequately contend with the disorder it

faces within its borders. Kashmir has to be put in perspective after repeated defeats

suffered by the policy of putting it first. The world too tells us that a solution should be

found within the general pattern of normalisation of political and economic relations with

India," the editorial reads.

Both Mr Parthasarathy and Mr Subrahmanyam welcome the recent India - Pakistan talks.

"It is good Mr Mukherjee visited Islamabad. It was a signal to both the Pakistani people

and the international community that we intend to take the bilateral relationship forward

and build a cooperative relationship. It is good he met with the leaders of all the political

parties," Mr Parthasarathy says. According to Mr Subrahmanyam, it was a good

beginning. "The point to be understood is this: Inter-state relations take a long time to

develop and relations do not necessarily improve by a shaking of hands. Pakistan has

got a civilian government after a long time, therefore Mr Mukherjee visited Pakistan

primarily for getting to know the people in power there," he says. "Mr Asif Ali Zardari was

hitherto seen as late Pakistani prime minister Benazir Bhutto's husband in a social

manner. Mr Mukherjee got to know (Prime Minister) Gilani because he is a new factor.

Then there is Nawaz Sharif, who is now a new man after years in exile," he adds.

Another former Indian diplomat, Mr MK Bhadrakumar, thinks the atmospherics were

good. "The idea was to resume talks after an interregnum because it is not good if the

interregnum is prolonged. Therefore we did the right thing (by visiting Pakistan). The

alignments in Pakistan are changing, so it was an opportunity to touch base with the new

people," he says.

Jammu and Kashmir

Pakistan Foreign Minister Makhdoom Shah Mahmood Qureshi has said his country is

ready for a "grand reconciliation" and both sides have to sit and talk so that resolution

can be reached with "self respect and dignity". At the same time, he asserts the "core"

issue of Kashmir should be resolved as per the United Nations resolutions and by

involving the people of Jammu and Kashmir. Islamabad was ready to look at "innovative

ideas" to resolve the vexed issue, he has added.

Mr Parthasarathy characterises Mr Qureshi's remarks as yielding to populist

sentiments. "The Pakistan Government is disowning the basis of the dialogue, which is

Pakistan President Pervez Musharraf's four-point proposal and Prime Minister

Manmohan Singh's caveat that there can be no change in the borders. The Government

of Mr Syed Yousuf Raza Gilani has said Musharraf's proposals are half-baked and

Pakistan today is returning to the old rhetoric of United Nations Resolution. This, despite

Pakistan also saying it is open to innovative ideas," he recalls. Either Pakistan is a

"victim of past rhetoric or it does not know what to do next," Mr Parthasarathy adds.

Mr Subrahmanyam, in turn, says talk of UN Resolution is a step backward. "Former UN

Secretary Generals Boutros Boutros Ghali and Kofi Annan have said on more than one

occasion that the Resolution is no longer valid or relevant. To go back to it is a setback,"

he says. Mr Subrahmanyam is categorical the UN Resolution is "unimplementable"

because a clause in it says Pakistan must withdraw its troops from Jammu and Kashmir,

which Pakistan has not fulfilled. Another clause says all those who have entered Jammu

and Kashmir after 15 August 1947 must leave Jammu and Kashmir and all those who

were sent out should be brought back. Again, India law bars a non-Kashmiri from settling

down in Jammu and Kashmir, whereas it is not so in Pakistan. The area's population is

not the original population of Jammu and Kashmir in 1947. Going back to the UN

Resolution will entail uprooting the people and throwing them out and to bring in the

people who were asked to leave. "Either Pakistan does not want to make progress on

Jammu and Kashmir or it is [displaying] sheer ignorance," Mr Subrahmanyam asserts.

Mr Bhadrakumar suspects it is nothing but "grandstanding" on the part of Pakistan and

therefore, India has neither made much of the remarks nor cared to issue a rejoinder. A

former Indian High Commissioner to the United Kingdom and veteran journalist, Mr

Kuldip Nayar, says the talk of the UN Resolution and plebiscite is "finished" because

India will not accept division on the basis of religion after 1947. Another negative point,

according to Mr Parthasarathy, is the influence of the Army and the jihadi tanzeems has

not abated. The United Jehadi Council has been revived, Syed Salahuddin is making

fiery speeches, and Maulana Masood Azhar has been released. "In that way Pakistan is

regressing and India would do well to watch it in security terms," he cautions. Also, Mr

Pranab Mukherjee did not meet the men who matter in Pakistan, namely Pakistan Army

Chief General Ashfaq Kayani or General Nadeem Taj, Director General of the Inter

Services Intelligence (ISI). "These are the real men who wield power," he points out.

Prime Minister's visit

On Prime Minister Manmohan Singh's proposed visit to Pakistan this year, Mr

Parthasarathy feels Dr Manmohan Singh will be "ill-advised to rush in to a Summit" with

Pakistan without proper preparation and prospects of a positive outcome. "He would

otherwise land up in a disaster similar to that of the erstwhile NDA Government," he

cautions. Mr Subrahmanyam, in turn, says the Prime Minister's visit will strengthen the

hands of the civilian government in Pakistan. "It has much more to do with lending

legitimacy and showing support to the new government of Pakistan. We must give

Pakistan adequate time to sort out internal problems, like those between the Government

and President," he adds, while pointing out that Pakistan has not stabilised yet and

visiting that country now might not allow India to make full use of the visit. Mr

Subrahmanyam urges patience, when he is asked about the likely outcomes or

deliverables from the proposed visit. "Where we must move forward quickly, like the

India-US nuclear deal, for which the window is ever closing, we don't act fast. Where we

have to be patient, we show great hurry," he rues. Mr Kuldip Nayar voices similar

sentiments; he believes the Prime Minister will only be undertaking a "nostalgic" trip

down memory lane when he travels to Pakistan later this year. "It will be an emotional

visit," Mr Nayar says. The Prime Minister will not be going to sign any big agreements

because the Government of Pakistan is not stable and is not in a position to make any

commitment, he adds.

// Box 1 //

Foreign Minister Level review of the fourth round of Composite Dialogue, Islamabad, 21

May 2008

The Foreign Minister of Pakistan, Makhdoom Shah Mahmood Qureshi, and External

Affairs Minister of India, Mr Pranab Mukherjee, met in Islamabad on 21 May 2008 to

review the progress made in the Fourth Round of Pakistan-India Composite Dialogue.

This was preceded by a meeting between the Foreign Secretary of Pakistan , Mr Salman

Bashir and Foreign Secretary of India, Mr Shivshankar Menon, on 20 May 2008.

2. The talks were held in a friendly and constructive atmosphere.

3. They reviewed the progress made in the Fourth Round of the Composite Dialogue

encompassing (i) Peace and Security, including CBMs; (ii) Jammu and Kashmir; (iii)

Siachen; (iv) Sir Creek; (v) Wullar Barrage / Tulbul Navigation Project; (vi) Terrorism and

Drug Trafficking; (vii) Economic and Commercial Cooperation; and (viii) Promotion of

Friendly Exchanges in Various Fields.

4. They noted the positive contribution to improvement of relations by the Composite

Dialogue process since its resumption after the joint statement of 6 January 2004 and

the subsequent Summit Statements of 25 September 2004, 18 April 2005, 14 September

2005 and 16 September 2006. The Ministers reaffirmed their determination not to let

terrorism impede the peace process and take all necessary steps to eliminate this

scourge against humanity. They further resolved to carry forward the peace process and

to maintain its momentum.

5. The Ministers noted that in 2007 and over the course of the Fourth Round of

Composite Dialogue there had been a number of important bilateral achievements,

including:

* MoU to increase the frequencies, designated airlines and points of call in either

country.

* Agreement for the trucks from one side to cross the border up to designated points on

the other side at the Wagah-Attari border.

* Increase in frequency of Delhi - Lahore bus service from two to three trips per week.

* Signing of Agreement on 'Reducing the Risk from Accidents relating to Nuclear

Weapons'.

* MoU between the Securities and Exchange Board of India (SEBI) and Securities and

Exchange Commission of Pakistan (SECP) to facilitate the sharing of information between

two agencies.

* Completion of the Joint Survey of Sir Creek and adjoining areas.

* Two meetings of the Joint Anti-Terrorism Mechanism.

6. The two sides signed the Agreement on Consular Access, which was finalised during

the Fourth round of Composite Dialogue.

7. They exchanged views on the issue of Jammu and Kashmir and agreed to continue

discussions to build on convergences and narrow down divergences. They also agreed

to continue with the implementation of Cross-LoC CBMs with a view to enhancing

interaction and cooperation across the LoC. In this regard, they decided:

a) To increase the frequency of Muzaffarabad - Srinagar and Rawalkot - Poonch Bus

service from a fortnightly to a weekly basis.

b) To finalise modalities for intra-Kashmir trade and truck service as early as possible.

c) To implement other measures to expand and facilitate travel a meeting of Working

Group on Cross-LoC CBMs would be convened within two months.

8. They reaffirmed the importance of ceasefire in place since November 2003 and the

commitment of both sides to cooperate to safeguard it.

9. They agreed that progress has been made under the Composite Dialogue process on

promoting a stable environment of Peace and Security including CBMs. The Expert

Groups on Nuclear and Conventional CBMs should consider existing and additional

proposals by both sides with a view to developing further confidence building measures

in the nuclear and conventional fields.

10. Both sides exchanged views on Siachen and reiterated their commitment to seeking

an early amicable solution.

11. Both sides expressed satisfaction on the progress made on Sir Creek, with the

completion of the joint survey, the exchange of maps, and the discussions thereafter.

They agreed to further facilitate the process for an early resolution of this issue.

12. Both sides reiterated their commitment to fight terrorism in all its forms and

manifestations, and re-emphasised the need for effective steps for the complete

elimination of this menace. In this context, it was agreed to continue cooperation in the

Joint Anti-Terrorism Mechanism whose next meeting would be held within two months.

Both sides agreed to refrain from hostile propaganda.

13. Both sides emphasised the need for further strengthening cooperation to eliminate

drug trafficking and welcomed the finalisation of an MOU on Cooperation between

Pakistan's Anti-Narcotics Force and Narcotics Control Board of India.

14. Both sides reiterated the importance of enhancing mutually beneficial economic and

commercial cooperation and agreed to discuss further steps for facilitating trade and

redressing the trade imbalance. In this regard, Indian and Pakistan Railway officials

would meet in June for resolving all technical issues to enable increase in to and fro

freight movement. They also agreed to facilitate the process of early opening of bank

branches in the two countries.

15. Both sides appreciated the work being done by the Judicial Committee on Prisoners,

which will meet in Pakistan shortly; welcomed the finalisation of the Consular Access

Agreement that will help addressing humanitarian aspects relating to persons under

detention in each other's country and; agreed to provide on a regular basis updated and

comprehensive list of prisoners in each other jails.

16. Both sides agreed to the need for promoting friendly exchanges between the two

countries.

17. Both sides agreed to the early finalisation of the Visa Agreement which will help

liberalise the visa regime and facilitate people-to-people contacts.

18. The two Ministers reiterated their commitment to the Iran-Pakistan-India gas pipeline

project and had a useful exchange of views in this regard.

19. The two Foreign Ministers also exchanged views on promoting the Pakistan-India

peace process, reinvigoration of SAARC and agreed to work towards promoting regional

cooperation for enabling South Asia to realise its full development potential. It was

agreed to work for promoting sustainable development and food and energy security.

20. It was decided that the two Foreign Secretaries will launch the Fifth Round of the

Composite Dialogue in New Delhi in July 2008.

21. The External Affairs Minister of India, Mr Pranab Mukherjee, called on the President

and the Prime Minister of Pakistan.

// Box 2 //

The road ahead

June Pakistan Foreign Minister Shah Mahmood Qureshi to visit India

June India - Pakistan Joint Commission meeting

July India - Pakistan Joint Anti-Terrorism Mechanism meeting

August SAARC Summit at Colombo, Sri Lanka

September Jammu and Kashmir Assembly election

? Prime Minister Manmohan Singh to visit Pakistan