Security implications of Indo-Pak trade

By Mohammad Jamil

B. Raman, former Additional Secretary in cabinet secretariat of the Government of India and former head of the counter-terrorism division of India’s external intelligence agency Research and Analysis Wing (RAW) has raised the question of ‘Security implications of economic relations with Pakistan’. He categorized the implications as low, medium and high. Under the head of low implications he mentioned “increased flow of Pakistan intelligence personnel and jihadi leaders to India under the cover of businessmen for establishing contacts with leaders of organisations like Indian mujahideen”. He placed ‘trade in services and foreign direct investment’ under medium security implications, and observed “this could enable the Pakistani intelligence to acquire a key presence in sensitive sectors of our economy such as banking, telecommunications, information technology etc., and use the presence to disrupt our economy and collect strategic intelligence regarding our economic deficiencies that could be exploited by them”.He categorized the Foreign Institutional Investments (FIIs) in Indian stock markets under high security implications and stated: “Allowing either China or Pakistan to invest in our stocks will give them a capability to disrupt our economy through manipulation of their stock holdings”, suggesting that it should not be allowed. It was perhaps his reaction to India’s trade minister Anand Sharma’s statement hours before the two countries were due to open a trading post on the border on Friday announcing that India has decided to allow foreign direct investment from Pakistan. Anyhow, one does not understand the logic of B. Raman whose comments reflect the Indian military mindset. There is a widespread perception that India stands to gain more from trade with Pakistan because of former’s sound industrial base. In fact, India’s real objective is to reach out to the Central Asian republics, as Pakistan is the most convenient and inexpensive route. It would be appropriate to give comparative figures of India and Pakistan’s economy to enable the readers to see that Pakistan will be rather vulnerable. India has three large stock exchanges and at least 19 regional stock exchanges, whereas Pakistan has only three stock exchanges – Karachi, Lahore and Islamabad. Foreign Institutional Investors invested $30 billion in 2010 in India as compared with $588 million foreign direct investment in Pakistan. With over 20 million shareholders, India has the third largest investor base in the world after the US and Japan. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth potential. There is a large presence of FIIs in the Indian capital market with over 451 FIIs registered with security and exchange board that have pumped in $100 billion into Indian markets in the financial year 2010-11.Bombay Stock Exchange (BSE) accounts for the largest number of listed companies (5112) in December 2011. The equity market capitalization of the companies listed on the BSE was US$ 1.6 trillion as of December 2011, making it the 6th largest stock exchange in Asia and the 14th largest in the world; whereas market capitalization in Pakistan bourses was $30.50 billion. It has to be mentioned that despite the solid industrial base and 8 per cent economic growth, India is land of appalling poverty. The intention here is not to prove that India is invincible, but to expose the mindset of the Indian military and intelligence agencies for having created roadblocks in the normalization of relations between India and Pakistan. It was Indian military’s top brass that forced Prime Minister Manmohan Singh not to withdraw from Siachen on the plea that India will become vulnerable and secondly it won’t be able to monitor Pakistan and China. Had India withdrawn from Siachen, there was a possibility of moving forward.The moot question is whether Pakistan will benefit from bestowing on India status of the most favoured nation, and by boosting trade with India? Pakistan could only save freight because in case of materials or goods imported from Europe or America, about 10 per cent freight charges are payable. On the other hand, cost of production of Pakistani products is higher because of high electricity charges, and also because of lost production hours due to excessive load shedding. This is one of the reasons that Pakistan cannot compete in the world market. Pakistani officials who are talking of ‘trade not aid’ perhaps do not understand that no country in the world, be it from Islamic fraternity or non-NATO ally, will import from Pakistan unless Pakistani products are competitive. Similarly, there is euphoria among some businessmen in Pakistan who believe that by normalization of trade with India, they would reach out to the market of more than one-billion people. Finally, to understand the manipulations of stock exchanges it is pertinent to give example of Karachi Stock Exchange where one could see steep rise and fall in prices of shares of the companies periodically, which does not come within the ambit of logical reasoning. Since 1994 the plummeting of share prices after every 6 to 8 months after escalation of prices has become a regular feature. If financial statements of the companies listed on the stock exchange are examined, it is not difficult to conclude that market value of the shares has no relevance to the book value or realistic value of the shares. In fact, international speculators with hundreds of millions of dollars at their disposal join hands with the domestic speculators to manipulate the demand for specific shares and initiate the buying spree, which culminates in the bull-run in the market. After the artificial boom, there is a doom and small shareholders stand to lose. Keeping in view India’s financial position and its global outreach, India can destabilize Pakistan’s economy, and not the other way round.

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