India’s Economic Option Against Terror


D M Deshpande

After the Pulwama attack, the Government of India has decided to withdraw  Most Favoured Nation (MFN) clause granted unilaterally to Pakistan. Unilateral because, though India has granted MFN way back in 1996, Pakistan has never reciprocated and given the same status to India. In fact, after the Uri attack by terrorists in 2016, the status was reviewed but it was not revoked. MFN is basically a non-discriminatory clause under the parlance of WTO. What it means is that Pakistan will not get a treatment which is different from what India gives to other members of WTO. In simpler terms, if we are levying lesser custom duties from X member country of WTO, then we cannot levy a higher custom duty on imports from Pakistan.

In effect, Pakistan continues to levy higher custom duties on goods it imports from India. At the Secretary level talks in 2012, it was agreed that Pakistan would grant MFN status to India; but it changed it’s mind later. It was reported that it had issues with translating MFN in Urdu which could have been ‘sabse pusandida mulk’! Rejection couldn’t have been on more flimsy grounds, to say the least.  In addition to this discrimination, Pakistan has moved from a positive list based regime with India to a negative list based regime. This has resulted in banning of 1209 items of imports from India. This is another hurdle; granting MFN mean abolition of negative list which Pakistan would not like. Actually, it could still maintain a list of prohibited items that will allow it to block imports from India.

In a related development, India has also announced hiking of customs duties to a very high level of 200%. But at the end of it all, it doesn’t hurt Pakistan as much as most people believe. Direct trade between India and Pakistan is less than $2.5 billion; after increasing by 6% it has touched $2.4 billion in 2017-18 with just $500 million imports from and $1.9 billion exports to Pakistan. Further Islamabad has placed more restrictions; only 137 import items are allowed entry from India via land route through Wagah-Attari border. A lot of trade between the two nations now gets diverted and happens through Singapore and UAE. There is immense potential for both the countries if artificial trade barriers and restrictions are removed. According to a World Bank report in September last year, trade between the two nations could top $37 billion. As of now, however, in breaking trade relations, India will be a greater loser, albeit in economic terms.

Political option to counter terrorism is the obvious answer. But India has not been able to get terror outfits listed in UNSC as China has always blocked India’s proposals. As one of the five permanent members, China has the veto power to block any move by UN. The last time it did so was in respect of proposal to designate Azhar Masood as a terrorist in 2017. Pakistan has been all weather friend of China. To go back in to pages of history, the signing of border Agreement in 1963 was a land mark. Pakistan gifted 5,180 sq km of land (Shaksgam Valley) to China; in quid pro quo China recognised Pakistan’s claim over Kashmir. It also was the beginning of an unhealthy nexus between the two nations in this region. This relationship is now strengthened by CPEC-China Pakistan Economic Corridor much to the chagrin of India.

We cannot possibly ban imports from China being a part of WTO. Even otherwise, it does not make economic sense. China is now a big and growing economy. Our trade relations are growing briskly though presently India’s trade deficit is on the higher side. Moreover, by outright banning, we will be disrupting production, distribution and services in a massive way. It will also hit our job market; some of the Chinese smart phones have quickly acquired large share of Indian market employing thousands of people directly and indirectly. This will have huge implications on our reputation as an emerging market and in our effort to attract FDI for our various projects. Instead, the better alternative that is being suggested is social boycott of Chinese goods in India.

India is second most populous country in the world; if they shun scores of Chinese goods from mobiles to washing machines, from toys to fireworks- all huge purchases made during holidays such Diwali and otherwise, it will be the most fitting reply. This will not involve any Government diktat nor will it be in contravention of any rule in law book. And it will hurt the Chinese economy especially now that it is not in best of it’s shape in view of trade wars with the US. Chinese have boycotted Japanese goods in the past whenever their pride has been hurt by Tokyo. We can also do it provided we create that kind of awareness and sensitize people across the country. This will be no mean job but whoever said that tough challenges have soft options?