Economics of Survival

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Economic survival is essential for any country in order to achieve the desired socio-economic goals. The on going bilateral negotiations between Pakistan and India is moving in the right direction and hopes are high for attaining sustainable regional economic development through mutual economic survival. In the recently held negotiations a natural gas pipeline project was also thoroughly discussed.

A lagging GDP growth rates and mounting fiscal deficits and fallout of the burgeoning foreign and domestic interests payment liabilities and increasing defence expenditures have had a perilous impact on both the countries’s national finances. There is an urgent need to revive domestic demands, accelerate industrial productions and tap foreign markets to boost export earnings of both the countries to stop the naked dances of poverty, illiteracy and financial dependency.

Most of the regional as well as economists of both the country feel that the time has come for the two rivals to join in a common gas endeavor. A joint statement issued after the talks in Delhi reflected as much. "In our discussions, we recognized the importance of availability and access to energy resources in the region around South Asia. We have agreed that the ministers of petroleum and gas could meet to discuss the issue in its multifarious dimensions."

Volume of Trade of Other Regional Trade Areas/Blocks

Name Of The Regional Trade Areas

Volume %

North
American Free Trade Area, NAFTA

49%,

European
Union, EU

73%

Association
of the Southeast Asian Nations, ASEAN

53%

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According to the President of World Bank that next international war would be fought on the subject of economies not the geographic frontiers. Ours is the age of globalization of financial markets, integration of economies and services. All the countries of the world are facing severe shortage of financial resources and trying their best to maximum utilization of available resources in the context of regionalism and bilateralism. The existence of NFTA, EU, ASEAN, and SARRC are supposed to be answer of controlling and prompting regional trade and commerce activities within the respective regions. Mere policies of economic and political isolation may harm the long terms plans of reliable economic development of Pakistan and India.

Projects Gas Pipelines and Conflicting Economic Realties

Some Indian economists view the Gas Pipeline as a "Peace pipeline", implying its potential as a confidence-building measure [CBM] for the two countries, despite their deep differences. Gas Pipeline project is win-win geo-economic idea for both Pakistan and India. The Turkmenistan-Afghanistan-Pakistan [TAP] pipeline is also known as the Trans Afghan Pipeline. While the proposed TAP project would supply natural gas from the Daulatabad fields in southeast Turkmenistan to Afghanistan, Pakistan and then on to India, the Iran-Pakistan-India line would deliver the gas from Iran to India through Pakistan.

The United States and Russia are keenly interested in the sourcing of natural gas supplies for the rapidly growing Indian market. Early September, the US Trade Development Agency signed an agreement with the Gas Authority of India for its partial funding US$700,000 of a feasibility study for a natural gas grid in India. The US has thereby underlined its keenness to be involved in India’s multi-billion dollar market for gas distribution. It is therefore, in the best interest of both the countries to start their mega projects of gas pipelines at once. Russia entered into a 25-year natural gas agreement with Turkmenistan that effectively put it in control of Turkmen gas, as well as its transportation and marketing. The deal, dubbed by world energy circles as "the gas deal of the century", casts Russia in the role of a market leader in natural gas sales. Russia’s focus is unmistakably on the marketing of Turkmen gas in the Russian and European markets. By this approach, in geopolitical terms, Russia hopes to find itself in a commanding position as the supply source of natural gas for West Europe 36% as of now and Central Europe over 50%.

Pakistan has been working on both the TAP and the Iran-Pakistan-India pipeline project and his recent visit to central Asia the PM of Pakistan has shown his full support to initiate gas pipelines projects. According to Pakistan’s oil ministry, its demand for natural gas is expected to grow at about 6% annually.

Trade Between Pakistan And India (Million Us$)

Year

Export

Import

Balance of
Trade

Total Exports
of Pakistan

% Share in
Total Exports

Total Imports
of Pakistan

% Share in
Total Imports

1997-98

90.575

154.531

-63.96

8627.66

1.050

10118.021

1.527

1998-99

186.232

153.992

+32.24

7779.28

2.394

9431.656

1.633

1999-00

53.648

127.398

-73.75

8568.59

0.626

10309.425

1.236

2000-01

55.410

238.330

-182.92

9201.59

0.602

10728.918

2.221

2001-02

49.370

186.809

-137.44

9202.21

0.536

10342.865

1.806

Source: (FPCCI, 2003 December 11).

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Pakistan Major Export & Imports Items In (Million Us$)

Major
Exporting Items

1999-00

2000-02

Major Importing
Items

1999-00

2000-02

Vegetable
& Fruits

22.140

35.320

Sugar-cane refined

92.590

Textile
yarn & fabrics

2.900

10.370

Organic Chemicals

17.520

40.070

Plants
for perfume, Pharm. Etc.

2.240

2.290

Oil-cake residue of soybeans

23.510

21.770

Rice

12.700

0.750

Iron ore agglomerated

15.270

13.250

Leather
manufactures

0.180

0.350

Dyeing, tanning materials

11.740

10.530

Source: (FPCCI, 2003 December 11).

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The main problem with the Iran-India pipeline is that the US is likely to come down heavily on any country that aspires to enter into collaboration with Iran in the energy sector. The geopolitical reality is that any significant involvement of Iran at the moment in any grand venture would require the tacit agreement of the US and Israel. The two would see any development that could accrue to Iran’s strategic power as very much their business until such time as they have quite figured out the "Iran question".

India’s unofficial and smuggled exports to Pakistan are estimated at US$1 billion, while the official figures are a mere US$ 94 million. Though officially only 600 items are under the list of imports to Pakistan, a much larger number find their way into Pakistan, from India to Bandar-e-Abbas in Iran, to Kabul and later to Peshawar. The selling price of these goods in Pakistan’s markets is that much more inflated due to this circuitous trading route. Pakistan imports iron ore at a higher cost from Brazil and Australia. Cars and scooters produced in Pakistan are priced 50 per cent higher than Indian vehicles. Pakistan is the second-largest consumer of tea in the world, a market that can be exploited by India. Indian drugs are 30 per cent cheaper.

Pakistan has banned the import of textile machinery from India and manufacturers import the machinery mostly from Germany. Pakistan’s annual demand for tyres stands at 10,00,000, whereas it produces only 200,000. Indian coffee is smuggled into Pakistan in a big way due to lack of official recognition. For instance, Indian drugs and cycles come at a price 30 percent and 20 percent higher in the country because these and many other products like steel, machine parts, branded clothes, etc. are imported through middlemen based in Dubai, Singapore and Hong Kong. Analysts say that Pakistan has strong gas reserves and a telecom infrastructure, which is one of the best in the region. If the country can exploit the two advantageously, it could earn market share in the neighbouring country as well.

India would be ideal place for exports of Pakistan due to many reasons. Pakistan has the comparative advantage in cotton yarn and textile fabrics, leather products, surgical instruments, sports goods, electric fans, water coolers, vegetables and fruits, sugar etc. Pakistan is already exporting textile yarn and fabrics to India, which can be accelerated. It is also estimated that Pakistan’s vegetable ghee is very popular in India while about 8 ghee units are lying closed in Pakistan. This is an area where Pakistan can earn a lot by officially exporting vegetable ghee by putting the closed units into operation and reduce the levels of poverty and unemployment. The textile sector can also be benefited form the formal bilateral trade between the India and Pakistan. This sector has earned a lot of money in 1999-00 and many groups desire to restore their production capacities so that they could become competitive when textile quota exports are done away with in 2004.

Pak-India trade has more than doubled from $237 million in 2002-03 to $476 million in 2003-04, it is still 0.29 per cent of the total trade of the two countries. Pakistan’s average exports to India have been $64.5 million a year in the last five years. In 1998-99, Pakistan’s exports to India were all-time high at $ 186 million. Pakistan’s exports to India are much less than 1 per cent of its total exports. In recent times, it was only in 1998-99 that exports to India exceeded 2 per cent of the total exports. During last five years, the average annual share of exports to India in Pakistan’s total exports has been only 0.63 per cent during the last five years; Pakistan’s total exports have grown up by 43 per cent. However, during the same period, exports to India have grown by 74 per cent. This means exports to India have increased at a faster pace than total exports.

AREAS OF COOPERATION FOR ECONOMIC SURVIVAL

Many studies are being conducted in many countries of the SAARC and especially in both the countries to increase the volumes of mutual trade and economic cooperation. The main focus of all the studies is to

– Common investment strategy for South Asia at the dawn of WTO, and onslaught of China in the global markets as well as regional economies.

– Energy cooperation. Trading and sharing of power, high-voltage interconnections between national grids. Pakistan currently has a surplus capacity of 2,000 megawatts, which could be sold to India. Government of Pakistan offered save passage of giant gas pipeline project to India. It would meet a critical need for energy in northern India, make the project viable for the investors, and earn Pakistan up to 2 billion dollars a year in transit fees. The quantum jump in economic interdependence will also make it easier for the two countries to resolve their political problems. Pakistan, India. The recent rate of power in Pakistan is 25 % to 30% higher in the region due to which cost of production is on higher side and Pakistan is loosing its exports in the international markets.

– Common strategy for common interests in the WTO. Joint Consortium of Textile to cope with China after WTO 2005.

– Establishment of a free trade area in both the countries/region

– Concrete efforts for poverty alleviation. More than 400 million people in South Asia live below the poverty line, 300 million of them in India alone. Joint projects in agricultural projects such as milk, vegetables, fruit, flowers and marine fisheries; a regional network of support institutions to enable small-scale industries located in regional growth nodes with specialized facilities such as heat treatment, forging, quality control systems and provision of marketing facilities on a regional basis should initiated to eliminate poverty.

– Greater participation of private sector in building a network of motorways and railways of international quality connecting major commercial centers, towns and cities within the region and with the economies of Central Asia, West Asia and East Asia. Facilitate the construction of new ports along the western and eastern seaboard. Concrete efforts should also be made to make arrangements for regional investment projects in a network of airports, cold storages, warehouses, and dams.

– Complete abolishment of double taxation in the SAARC region and an arbitration mechanism to handle intra-SAARC commercial disputes.

– Removal of non-tariff barriers, particularly in respect of customs and technical barriers to trade standards and regulations and the inclusion of a safeguards clause to protect the interest of certain domestic producers.

– Establishment of a task force on deeper integration and liberalization of services and investment strategies in the SAARC region.

– Common strategy to compete in the international markets. India, Bangladesh and Sri Lanka compete with respect to tea; India and Bangladesh compete with respect to jute; India, Pakistan and Sri Lanka compete with respect to ready wear products; etc. Thus, this calls for a unified marketing strategy by SAARC members in order to compete in the global market for mutual benefit.

Conclusion

Economics survival would be difficult in the days to come for both the countries especially in the sectors of energy, engineering and consumers markets. Dawn of WTO is knocking at our doors. Onslaught of China is unstoppable. Increasing ratios of poverty, unemployment, illiteracy, decreasing ratios of having clean water, better facilities of schooling and medication are the hallmark of both the countries. Let us hope that Economics Survival which is mutual/conditional be restored in the near future.

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