Moneycontrol
Jun 10, 2012 09:47 AM IST | Source: CNBC-TV18

Doing Business with Pak: Hype or Reality?

There has been a lot of talk about India engaging with Pakistan on doing business. But, while we have seen this discussion happen in the past, this time the effort seem to be more credible and more real.


There has been a lot of talk about India engaging with Pakistan on doing business. But, while we have seen this discussion happen in the past, this time the effort seem to be more credible and more real.


On the Pakistan side, there continues to be some dithering on how to engage with India. Can we actually move beyond the USD 2.7 billion trade number that we have achieved to USD 10 billion which both sides are targeting? Is there more optimism and more hype than what exists currently on the ground?


To discuss the roadblocks, the impediments and the baggage that both sides carry, CNBC-TV18’s Shereen Bhan is joined by an esteemed panel, part of the delegation that travelled to Pakistan to engage with their Pakistani counterparts.


Joining this discussion are Adi Godrej, president of CII and chairman of Godrej Group; Rakesh Mittal, VC & MD, Bharti Enterprises; Chandrajit Banerjee, Director General of CII and Rahul Bajaj, Former President of CII and chairman of Bajaj Auto.


Below is an edited transcript of the interview. Also watch the accompanying videos.


Q: There has been so much talk on engaging with Pakistan, but they continue to dither on whether India will enjoy the Most Favoured Nation status or not. At the end of it, given our political legacy and the baggage we carry on both sides, is the opportunity big enough to take on the kind of risk involved?


Godrej: I do not think there is any risk involved. I think the two neighbours with such a large land boundary and vast population should have much more trade than we do now and we should have mutual investment.


This is the right time because both sides are clear that they would like to take this forward. We met all the different political elements in Pakistan - the ruling party, Nawaz Sharif’s party and Imran Khan - and everybody is clear that they would like to take this forward.


Q: Then why they dithering on MFN because we saw them putting it out and then pulling it back. It’s still unclear whether come 2012 there will be a change of status or not?


Godrej: I think it’s clear now. The negative list will come very soon and MFN is expected by December and they are clear that they will go ahead with it.


Q: But for any business to make some serious investment, you would require stability. Tomorrow, come a 26/11 god forbid, you do not want a clampdown, you do not want to risk your business investments?


Godrej: The amount of investments that will be made will be gradual. Exports can start once the negative list is placed. Currently, only industrial exports are permitted, consumer products many of them are not in the negative list, so exports could start and then investments could start.


It will be a gradual process, but it’s a process that should start. This is the right time so we should seize the opportunity. There is huge potential, because to my mind two neighbours so well placed geographically could have huge trade with each other.


Q: Is the difference in engagement on account of the fact that perhaps they need us more than we need them or is that our perception?


Mittal: I think both the countries have their own strengths and weaknesses and therefore there are synergies and opportunities on both sides. I went after seven years, and there is a sea of change in what I saw. I think to my mind Pakistan and India are not isolated from the economic situation in the region, and therefore both sides believe that there are opportunities to start building up trade and people to people contact.


I can tell you on agriculture, on healthcare, on education and energy there are clear synergies. As a matter of fact, one of the suggestions I made was to have cooperation between the two Punjabs and I believe that could be the gateway for bringing up the bilateral trade.


Q: How far is this from reality? We have had this engagement in the past as well, this time around it seems a lot more real than what we have seen in the past. But how far are we from actually implementing all of this on the ground and in reality?


Mittal: If you see the duties which have been reduced by India and clearly Pakistan’s sentiment of coming out with a negative list which will be 100% withdrawn by the end of December, I think to my mind a clear positive signal from both sides.


I also believe that if the visa regime can be made more easy and flexible for business and people to people contact, that will only further develop.


Q: What is the feedback from our home ministry as far as that is concerned? We are troubled with China and we are talking about Pakistan and easy visa requirements here?


Mittal: My understanding is that both the governments are engaged and very soon we should hear something from them on easing the visa regime.


Godrej: The business visa which has come about will allow you to travel to any of the SAARC countries. It is a multiple entry visa and it is for a period of time, so once we get on to that kind of a visa regime travel will be made easy.


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Q: I am sorry to speak like or sound like skeptic here, but it is all as optimistic as we make it out to be or do you believe that we are going to be faced with significant road blocks and this picture may not look the kind that we are talking about it today?


Bajaj: As far as I am concerned, the need for trade and investment between India and Pakistan isn’t debatable because both sides will benefit tremendously. As was mentioned, for two democratic large neighbours with such a long boundary, we have hardly any bilateral trade, so that is a must.


Secondly, I agree that there seems to be quite a bit of a change in attitude in the government, the people and the business fraternities. The ones we met, which was the big ones not the small ones, appear to be very favourably inclined and they are not worried about being swamped by Indian industry.


But as far as I am concerned, I am not that optimistic. I think the people and the governments of the two countries need to make some crucial choices. We should not be the prisoners of the past, but we neither can ignore each other. I know that the negative list will come, but it hasn’t come yet. I heard somebody say that 100% negative list will go away by December, but that is not my impression. The matter has to go back to their Cabinet, that is what the commerce secretary clearly told us, and only then can we hope it will become zero.


My products incidentally are on the negative list, but we are not talking any individual case. China is a different matter, I have lots of reservations about that but we are not talking about that. With Pakistan, security is the consideration which I don’t think they should have, but they must decide that. As far as we are concerned, we have to be careful about visa. Nawaz Sharif casually mentioned to us when we met him that let us do away with visa, but this is not EU. We cannot do away with visas.


Q: Doing away with visas when we’re talking about India-Pakistan, is that going to happen?


Bajaj: No, nobody says it will happen, it is not going to happen. We want a liberalized visa situation, especially for businessmen. Multiple entry, where you can go to the whole country and at least for a year. Now they give you for just one city for limited time, so that needs to be liberalized. Integrated checkpost for goods traffic should also be liberalised, we shall have more bank branches with each other, we should have more flights.


But keeping in mind what has happened in last 5-7 years, India would have a security situation. Not for trade and investment, but people coming in. Nobody there admits that they are at fault, but everybody knows people come in from there. So that we have to be careful about.


Q: The sense that we get is that Pakistan continues to have not made up its mind on how it wants to engage with us. You have talked about the negative list, you have talked about the most favoured nation, but what we have seen happen on the ground there is a lot of back and forth from the Pakistan side. It also seems to be conditional on how much will we lower our trade barriers, by when will lower our trade barriers and then we will respond in the manner that you want us to respond?


Godrej: No, up to now the only trade that was taking place is in some industrial products because there was a positiveness. Now, from I think around June 1, we go onto a negative list. For example, we feel we can export a lot of a consumer products from our group. Many of them are not on the negative list, so we will be able to start the export. You start exports, you build up a market, and then if investment opportunities open up, then you start investing. So I think the scope is strong.


Q: Already India is exporting much more to Pakistan than Pakistan is to India, so that is already a sensitive issue as far as they are concerned.


Godrej: Yes, but if it opens up, they are confident of exporting a lot to India. For example, some Pakistani textile manufacturers participated in a exhibition here and they were sold out in a matter of a day. I believe there are some stores which are selling only Pakistan textile products doing extremely well in India and they want to expand to a couple of 100 stores in India.


So it takes time to build a market, to build brands, but it will happen. The important thing is both sides are very positive to these developments, so we should seize the opportunity. In the past, one side or the other wanted to do it while the other may not have wanted to do it. There were things which would have come in the way of opening up, but now both sides want to open up, so we should seize the moment.


Q: So USD 2.7 billion is the current trade between the two countries. The expectation is that if all goes well, it could go up to USD 10 billion. Do you think that is a realistic number?


Mittal: If you look at the informal trade numbers, they are much higher. Just to pick up the point which you mentioned earlier, to my mind, why should the consumers in both the countries suffer because there is an informal trade happening.


Q: Is the Indian consumer suffering or is it the Pakistani consumer who pays in excess of Rs 4 lakh for a Maruti 800 suffering?


Mittal: No, it has to be product to product, but clearly the costs are going up because of the informal route of trade being taken. So to my mind, why should both the countries look at any kind of protectionism? There would be some industries which may not be as efficient, but ultimately the consumers will benefit.


Q: Is India pushing for this because it benefits India more than it benefits Pakistan from an opportunity point of view for Indian business?


Godrej: This is not the way you should look at it - whether it benefits India more or Pakistan more. It benefits both. Open trade is always beneficial.


Q: But when we talk about market access, when we talk about brands getting access to a market, obviously we have home grown brands that Pakistani consumers would want.
 
Godrej:
That is not the point, you build brands. Nobody anticipated how big French-German trade would get to when the EU was formed. The Canada-US trade has become huge over the year. Trade increases with time and one should open up.


Now whether it becomes USD 10 billion, USD 20 billion or stays only at USD 5 billion, to my mind, is immaterial. We should open up and give each others entrepreneurs the chance to develop business.

Mittal: Also Indian companies can only export to the extent the consumption is going to happen on the other side. Let us look at Taiwan and China; 80% exports are from Taiwan to China because that is a much bigger market. So maybe in the initial stages there maybe some sort of imbalance from the viewpoint of Pakistan, but in the long run, Pakistani companies, Pakistani customers will always end together.

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