INDIA-PAKISTAN 

Context

Pakistan's double U-turn 

• Pakistan's double U-turn on resuming trade with India highlights the internal differences within Ministries, between business and political communities and the emphasis on politics over economy and trade.
• It also signifies the Pakistan Cabinet's grandstanding, linking the normalisation of ties with India to Jammu and Kashmir.

Pakistan's Economic Coordination Committee 

• Pakistan's new Finance Minister Hammad Azhar announced Pakistan's Economic Coordination Committee (ECC)'s decision to import cotton, Yarn and 5, 00, 000 metric tons of sugar from India.
• The media dubbed it a political breakthrough but the ECC's decision was not on bilateral trade;
• It was about importing only three items Cotton, Yarn and Sugar.
• Mr Hammad Azhar, Whose Ministry proposed the idea accepted the Cabinet's decision as the working of "Economic and political interface in a democracy" and it was left to the Prime Minister and the Cabinet to "endorse, reject or modify" the ECC's proposals.

Pakistan's textile industry

• Pakistan's textile industry has not taken the cabinet's decision kindly for them, importing cotton yarn from India is an immediate need else and it would impact their export potential.
• Three takeaways can be identified from the above. The first relates to the ECC's decision to import only three items from India, namely cotton, yarn and Sugar.
• It was based on Pakistan's immediate economic needs and not designed as a political confidence-building measure to normalise relations with India.

Practical and economic

• For the textile and sugar industries in Pakistan, importing from India is imperative, practical and the most economic.
• According to the Pakistan Economic Survey, 2019-20, through the agriculture sector witnessed a growth of 2.67 per cent (with an increase in rice and maize production),  and cotton and sugarcane production declined by 6.9 per cent and 0.4 per cent respectively.
• Sugar exports came down substantially last year, by over 50 per cent in 2019-20, when compared to 2018-19.
• Yarn, cotton cloth, knitwear, bedwear and readymade garments form the core of Pakistan's textile basket in the export sector.
• By February 2020, there was a steep decline in the textile sector due to disruptions in supply and domestic sector due to disruptions in supply and domestic production.
• Compared to the last fiscal year (2019-20), there has been a 30 per cent decline (2020-21) in cotton production.

State Bank of Pakistan Report

• According to the State Bank of Pakistan's quarterly report, the decline in cotton production is also due to fewer areas (the lowest since 1982) of cotton cultivation.
• By the end of 2020, there was a sharp decline (around 40 per cent) in cotton production.
• Besides the decline in the area of cotton cultivation, there was also a decline in yield per acre.
• Pakistan's cotton export would reduce, creating a domino effect on what goes into Pakistan's garment industry.
• Pakistan is the fifth-largest exporter of cotton globally and the cotton-related products (raw and value-added) earn close to half of the country's foreign exchange.

Industry crisis

• The sugar industry in Pakistan is also in crisis compared to cotton, the Sugar industry's problem stems from different issues the availability for local consumption and the steep price increase.
• The sugar industry has prioritised exports over local distribution.
• Increased government subsidy and a few related administrative decisions resulted in the sugar industry attempting to make a considerable profit by exporting it.
• By early 2019, the sugar prices started increasing and in 2020, there was a crisis due to shortage and cost.
• As a result, importing sugar from India would be cheaper for the consumer market in Pakistan.
• The crises in the cotton and sugar industries played a role in the ECC's decision to import cotton, yarn and sugar from India.
• It would not only be cheaper but also help Pakistan's exports. This is also imperative for Pakistan to earn foreign exchange.

Politics first

• The second takeaway from the two U-Turns is the supremacy of politics over trade and economy, even if the latter is beneficial to the importing country.
• For the cabinet, the interests of its business community and its export potential have become secondary.
• Pakistan need not be singled out, this is a curse in South Asia, where politics play supreme over trade and economy.
• The meagre percentage of intra-South Asian Association for Regional Cooperation (SAARC) trade and the success (or the failure) of SAARC engaging in bilateral or regional trade would underline the above.
• Trade is unlikely to triumph over politics in South Asia, especially in India-Pakistan relations.

The Kashmir link

• The third takeaway is the emphasis on Jammu and Kashmir by Pakistan to make any meaningful start in bilateral relations.
• This goes against what it has been telling the rest of the world that India should begin a dialogue with Pakistan.
• Recently, both Pakistan's Prime Minister and the Chief of Army Staff  Bajwa were on record stating the need to build peace in the region.
• Bajwa even talked about "burying the past" and moving forward.
• There were also reports that Pakistan agreed to re-establish the ceasefire along the Line of Control (LoC) As a part of this new strategy.
• Pakistan's cabinet is unless India rescinds the decision of August 5, 2019, in Jammu and Kashmir, there would be no forward movement, which goes against what Mr Imran Khan and Bajwa have been stating in public.
• This position also hints at Pakistan's precondition (revoking the August 2019 decision on Jammu and Kashmir) to engage with India.
• Pakistan has been saying that the onus is on India to normalise the process.

Conclusion 

• It is New Delhi's turn to tell Islamabad that it is willing, but without any preconditions and start with trade.
• It may even allow New Delhi to inform Pakistan's stakeholders about who is willing to trade and who is reluctant.