Mistrust Hurts Trade as India-Pakistan to Talk: Chart of the Day

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India’s increasing trade with neighbors Sri Lanka and Bangladesh doesn’t extend to its border with Pakistan, highlighting political tensions before the first formal talks to revive ties in two years between nations with a combined 1.4 billion people.

The CHART OF THE DAY shows annual two-way shipments between India and Sri Lanka jumped 72 percent to $5.3 billion in the three years to 2013, and those to and from Bangladesh advanced 37 percent to $5.8 billion. That’s about double the $2.8 billion with Pakistan, where trade rose just 2 percent. The lower panel shows Pakistan’s roughly 196 million population dwarfs Sri Lanka’s 22 million and compares with Bangladesh’s 166 million.

While the neighbors share a 3,200-kilometer (2,000-mile) border and mutually understandable languages, trade was less than 0.5 percent of India’s combined commerce with other nations, government data show. The Aug. 25 meeting in Islamabad between foreign secretaries from India and Pakistan is part of Prime Minister Narendra Modi’s efforts to improve ties with South Asian countries since his May election win.

“Given there’s a very large border between India and Pakistan, you’d expect the trading partnership to be stronger, but the history between the two nations is fraught,” said Glenn Maguire, Singapore-based chief economist for Asia Pacific at Australia & New Zealand Banking Group Ltd. “Modi’s politics haven’t been tested in terms of foreign relations yet. The meeting will start a dialogue, but I don’t think there’s going to be any rush to open up economically on either side.”

Poor connectivity, crossborder conflicts and security concerns have contributed to South Asia being one the least integrated regions in the world, according to the World Bank. Modi’s courtship of India’s neighbors has included visits to Bhutan and Nepal.

While Pakistani Prime Minister Nawaz Sharif attended Modi’s inauguration in May, cease-fire violations in the disputed region of Kashmir remain an obstacle to improved ties between countries that have fought three wars against each other since independence in 1947. Modi blasted Pakistan for engaging in a “proxy war of terrorism” during a visit to Kashmir this week, an allegation Pakistan called “baseless” and “unfortunate.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net; Stephanie Phang at sphang@bloomberg.net Lee Miller, Jeanette Rodrigues

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