Economic
Highlights
New Delhi, 12 August 2019
Pak Suspends Trade
LESS IMPACT THAN
CHINA-US STIR
By Shivaji Sarkar
Suspension of trade by Pakistan in the wake
of J&K being stripped of its special status by scrapping Article 370
matters little to India being a mere 0.1 per cent of the total trade. But it is
China’s trade war or currency manipulation with the US that singes India more.
Recall,
India had suspended trade effectively since the February terror attack in
Pulwama that killed 44 CRPF jawans. The trade on LoC was suspended to stop
terror funding. Besides, the most-favoured nation (MFN) treatment to Pakistan
was withdrawn too and import duties hiked to 200 per cent. So what Pakistan has
done now to suspend trade and diplomatic ties has little surprise. It does not
hurt India though those trading on the LoC have been hit on both sides of the
borders. Many traders were reportedly funding the terrorists out of the profits
say from Californian almonds. It fetched them a profit of Rs 800 to 1000 per
kg.
The
President of LoC traders’ body, Zahoor Ahmed Watali was arrested in terror
funding cases. The Enforcement Directorate has attached his property worth
crores of rupees. He was stated to have been funding the terrorists and other
subversive elements in the Kashmir Valley.
The
balance of payment has been in favour of India though trade with Pakistan is
barely 0.1 per cent of India’s total trade. In 2018-19, exports to Pakistan
were at $ 2.06 billion and imports at $ 49 million. India imports fruits, salt,
sugar, rice, sulphur, limestone, ores, slag, rawhide, leather, glass and
glassware, cement, bulk minerals, petroleum products from Pakistan and exports
cotton, yarn, organic chemicals, plastics, paints and machinery.
There's been no customs duty on cement imports from Pakistan
since 2007, making it competitive in comparison to the Indian product,
especially in the States bordering Pakistan. Out of the total imports,
industry sources say, 76 per cent -- around 12.72 lakh tonne -- was purchased
from Pakistan.
Interestingly, despite tense relationship, the volume of
bilateral trade between July-January 2018-19 increased by 4.96 per cent to
$1.122 billion from $1.069 billion during the same period a year back. But interestingly trade continues through third countries
despite official closures.
Far more devastating is the Chinese devaluation of yuan. It has
made Chinese products cheaper even with high duties imposed by US President
Donald Trump. Devaluation of the yuan is believed to be the beginning of a
currency war. It could lead to higher trade tensions.
Currency devaluations are used by countries to achieve economic
policy. Having a weaker currency relatively helps boost exports,
shrink trade deficits and reduce the cost of interest payments on its
outstanding government debts. China’s manipulations have hidden and powerful
influence. China’s central bank uses a modified version of a traditional fixed
exchange rate.
China is aggressively doing this, inviting sharp criticism from
the US but measured response from India. It hurts India more and the tariff
barriers created are likely to crumble. It may flood Indian markets with
Chinese goods. The balance of payment may get further twisted in China’s
favour.
India is being singed by the Sino-US trade war as many other
economies are being hurt. China is likely to be more vituperative against
India. The Doklam issue may have been a good Indian diplomatic move, but for Beijing
it subverts its territorial ambitions. And its reaction after declaration of
Ladakh as union territory is sharp and shows its rigidity in holding on to the
14,000 sq km area of Aksai Chin. It has also not taken kindly to the new status
of Jammu and Kashmir. It occupies sizeable part of POK that was ceded to it by
Pakistan.
Further, there is an economic angle. If Indian pressure succeeds,
its ambitious corridor to Gwadar port in Pakistan would be in danger. It is
upping its ante for protecting its and Pakistan interests. Its aggressive
economic postures may cause many problems for India such as jeopardising India’s
move to check Chinese imports and hurt ‘Make in India’ campaign. Thus, it is
more than a diplomatic problem.
China is trying to create closer ties with Sri Lanka, Maldives,
Myanmar and even Bangladesh. Because
of the sheer size of its landmass, economy and military, India is
being seen as a regional power. But its small neighbours seek to protect their
interests. Beijing misses no opportunity to exploit this resentment.
Pakistan is also being used by China for its terror mechanism and its continuous
attitude of antgonising India.
Somewhere in its move to check China, India has stopped many
good quality affordable imports such as spectacles and other accessories from
South Korea and other Southeast Asian countries. India has been trying to
improve ties with S-E Asia but sometimes over obsession with China treats them
with the same yardstick. This needs to be lowered for creating a larger
umbrella and wider Indian reach.
The Chinese moves have fangs.
India needs to gear up its policies both domestic and external. India's
trade balance with China is also huge -- it exported items worth $16.75 billion
and its import with China stood at $70.32 billion in 2018-19.
The Reserve Bank of India is also sharply watching its move as the
rupee lost its strength against sweeping Chinese actions. It has targeted the dollar
and the US economy as the entire world economy and currencies are hit by it. The
economic aggression and currency manipulation may hit further Indian
manufacturing and production. It is also adding to inflation, The RBI in its
monetary policy review has indicated that by lowering its growth estimates to
6.9 per cent from 7 per cent.
In view of increasing ante by Pakistan, borders would demand
more attention. India has the daunting task of managing two adversaries and
thus has to take a tough call. Pakistan has lost its plea in the UN against
move on Article 370. Its jingoism needs to be crushed and China needs a careful
but critical economic move to defang it.
So Pakistan’s move on trade is not an issue. But when it closes
down the air space, it adds cost to India. That may be a pinprick. India has to
take a multi-directional approach to counter Sino-Pak belligerence and ensure
path for its progress.---INFA
(Copyright, India News
& Feature Alliance)
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