New Delhi, Nov 3 (IANS) Pakistan’s Most Favoured Nation (MFN) status to India will help businesses on both sides to cut transaction costs sharply even as more direct trade will make possible further confidence building measures, say analysts and India Inc.
‘The MFN status is a huge step forward and it will have an exponential impact on trade between the two countries,’ Anis Chakravarty, director of consulting and advisory firm Deloitte Haskins and Sells, told IANS.
Pakistan’s decision Wednesday came 15 years after India granted MFN status to Islamabad but there was no reciprocity.
‘If you look it at from the trade angle, then the MFN status would have happened much earlier. So there were other factors at play, some of them political,’ Chakravarty said.
There has been opposition from several quarters in Pakistan to grant of MFN status to India over fears that its domestic market would be flooded by Indian imports.
At present, Islamabad allows import of only 1,946 items from New Delhi. India does not permit trade in 850 items with Pakistan. This list could see further pruning from both sides as trade grows and businesses of the countries feel the need to diversify into more sectors.
‘It will only help Pakistan as it gives companies access to a much larger Indian market while it will boost India’s drive to expand the export destinations. Its a win-win for both parties,’ Chakravarty added.
Till now, trade between both countries, which was logged at at $2.5 billion in 2010-11, was routed through Dubai — an expensive and time consuming option.
Once direct trade starts, not only costs will come down but analysts said it will open up further confidence building measures as well.
‘An automobile company will find it convenient to have its entire supply of metal parts coming out of India but the entire supply of electronic or plastic parts could come from Pakistan. This will give companies economies of scale,’ said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI) .
‘Where it today might have several plants in different South Asian countries, now with the lifting of all these barriers and trade, they will put up new plants across the borders. This is what is happening in South East Asia and there will be a large number of Indian companies who will do the same.’
Also India has started diversifying from the traditional major destinations of Europe, the US to African and Latin American countries. Opening up of Pakistan as a trade destination will add to the list of expanding destinations.
Increased trade with Pakistan will also help in free movement of goods and services with other economies in the South Asian region. This could also eventually result in getting natural resources such as minerals, gas from the resource-rich Central Asian countries like Kazakhstan.
