India and Pakistan Should Favor Cash Over Kashmir

(Corrects formal name of Republic of China in fifth paragraph.)

April 9 (Bloomberg) -- Recently in Karachi, I dropped in on a talk by the Pakistani journalist and TV anchor Kamran Khan at a Rotary Club meeting. Describing relations between India and Pakistan at a “crossroads,” Khan exhorted his audience to feel shame about Pakistani involvement in the terrorist attacks on Mumbai in 2008 that killed 164 people and have frozen India-Pakistan relations ever since.

Khan lamented the many missed opportunities for a comprehensive agreement between India and Pakistan. Finally, he expressed great optimism about a trade deal announced in November -- in the making for almost 16 years, and recently expanded -- that would open up Pakistani markets for many more Indian products.

His audience of mostly businessmen and professionals, the likely beneficiaries of any trade liberalization with India, listened approvingly. One of them, though, did ask whether Kashmir, the single biggest source of conflict between India and Pakistan, was to be forgotten.

After the talk, a businessman, who makes fiber-optic cables and is eager to expand his business links with India, asked me if Indians would recoil from packaged products that carried the label “Made in Pakistan.” I tried to reassure him that they wouldn’t. After all, Indian consumers happily bought products made in China, another country with whom India had border disputes and bitter diplomatic squabbles.

Chinese Lessons

The trade deal has provoked much excitement in business circles in India and Pakistan. Still, the question needs to be asked: Can economic ties between India and Pakistan flourish when political conflicts remain unresolved? And can commercial integration in the long run defuse political animosities? Some instructive lessons for South Asia’s great rivals can be found in relations between the People’s Republic of China and the Republic of China, as Taiwan is known.

Visiting Taiwan for the first time in 2006, I braced myself for strident rhetoric about the PRC’s claims on the island’s sovereignty -- the issue that has kept both countries on a near-war footing since 1949. At the time of my trip, Taiwan was ruled by Chen Shui-bian of the Democratic Progressive Party whose claim that Taiwan was independent of China had provoked the mainlanders to threaten an invasion.

But the saber-rattling didn’t seem to trouble the businessmen and politicians I met; they spoke confidently of a growing economic interdependence. Mainland China was Taiwan’s biggest trading partner and investment destination. Almost 1 million Taiwanese lived on the mainland. Visa regimes were being liberalized and direct flights permitted. Commerce, it seemed, had an inexorable logic that transcended territorial nationalism.

It is tempting to extrapolate from this and make a case for trade liberalization between India and Pakistan. Certainly, both countries seem to have run out of military options against each other.

Pakistan’s military and intelligence establishment has failed to foment jihad in Kashmir through proxy militant groups, or to radicalize more than a tiny minority among India’s almost 200 million Muslims. India cannot do a “Gaza” on nuclear-armed Pakistan, and strike extremist groups and individuals in the country, as is exhorted by Hindu nationalists after every terrorist attack.

Silk Road Redux

Diplomatically, India’s strategy throughout the war on terror to use America’s good offices to ostracize Pakistan and enhance Indian influence in Afghanistan must now be judged a failure. Pakistan’s plan to coax the U.S. into a mediatory role on Kashmir was always a non-starter.

The U.S. will soon leave Afghanistan. It did not have the will or the capacity to press for a solution to Kashmir. India and Pakistan will have to resolve their issues face to face, without recourse to external help and pressures.

Trade seems one way out of the diplomatic and military cul-de-sac in which both countries find themselves. And the present moment seems propitious. Pakistan’s military and intelligence establishment, which certainly approved the grant of Most Favored Nation status to India, seems more focused on their country’s western rather than eastern borders. It may be temporarily curtailing its traditional enmity, and perhaps giving the Pakistani economy, currently beset with rampant inflation and falling productivity, another chance to grow.

Such strikingly unselfish intentions may still have to reckon with internal opposition to a trade deal with India. The benefits to Indian industry, which has been pressing for such an arrangement with Pakistan, are obvious: a large, easily accessed market for its manufactured goods. However, for many small Pakistani manufacturers, already coping with the “China price,” the benefits of liberalized trade with another large economy may not be immediately apparent.

Ejaz Chaudhary, a businessman in Lahore and vice president of Pakistan Tehreek-e-Insaf, a rising political party, told me that the trade deal benefited India more than Pakistan. In any case, the two countries had to resolve outstanding water issues, if not Kashmir, before they could implement a mutually beneficial trade agreement.

Chaudhary, who has been linked to radical Islamist groups that vehemently reject any accord with India, may be playing the spoiler. But it is also true that the greater benefits of economic cooperation for Pakistan (and India) lie in the future -- in the revival of centuries-old trade links between South and Central Asia that were disrupted first by competitive European imperialism and, then, the nationalism of the postcolonial era.

Incentives for Peace

Writing last month in the Indian daily the Hindu, Pakistani economist Ijaz Nabi offered a compelling image of the geographical region that is now Pakistan as having once been one of the world’s greatest trading hubs (Buddhism, among other things, travelled to Central and East Asia through the North West Frontier). Pakistan’s unique location also makes it a convenient energy and destination hub for India.

But for this tremendous potential to be realized, many political hurdles -- especially in Kashmir, the traditional route to Central Asia -- have to be removed. They won’t disappear simply because some businessmen and politicians have prioritized moneymaking over political and diplomatic negotiations.

Damaged by a militant backlash, Pakistan may have reined in its proxy warriors in India-ruled Kashmir. But India still has to address the aspirations of Kashmiri Muslims, and end its brutal military occupation of the valley.

The example of China and Taiwan, where many political disagreements have survived economic integration, is sobering in this regard. Most Taiwanese are still strongly opposed to reunification with the mainland; and the defiantly pro-independence Democratic Progressive Party almost won national elections earlier this year. It is still not hard to imagine inflamed patriotic feelings leading to military exchanges across the Taiwan Strait.

To defang the hyper-nationalism that has long justified India and Pakistan’s unconscionable investments in defense at the cost of health and education won’t be easy. To even speak of normal relations is to threaten powerful constituencies and lobbies -- from arms dealers to extremist politicians -- in both countries with the loss of their raison d’etre.

Furthermore, increased trade won’t dramatically expand or empower constituencies for peace in India and Pakistan beyond Rotary Club gatherings. But, carefully calibrated for maximum mutual benefit, it can become, over time, a strong incentive against war -- and for now such abridged hopes may best insure us against the disappointments that invariably follow any upswing in India-Pakistan relations.

(Pankaj Mishra, whose new book, “From the Ruins of Empire: The Revolt Against the West and the Remaking of Asia,” will be published in August, is a Bloomberg View columnist, based in London and Mashobra, India. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

Today’s highlights: The editors on the Obama “gun bubble” and how better toilets can save lives; William D. Cohan on stifling Wall Street innovation; Albert R. Hunt on Obamacare; Mark Buchanan on economic theory and the weather; Noah Feldman on strip searches; Steven Greenhut on high-speed rail; Tim Judah on Bosnia’s rejuvenation.

More Bloomberg View: {VIEW <GO>} Bloomberg View daily news alert: {SALT VIEW <GO>} More Mishra columns: {NI MISHRA <GO>} News on India-Pakistan affairs: {STNI INDIAPAKRELS <GO>}

To contact the writer of this article: Pankaj Mishra at

To contact the editor responsible for this article: James Gibney at

    Before it's here, it's on the Bloomberg Terminal.