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Businesses, consumers await bilateral benefits

New delhi has allowed Pakistani investment into India, something the business and industry in the two countries had hoped for years, but never got it clinched.

In the first flush of reaction, all businesses and the government have profusely welcomed it.

India has just overturned its ban on foreign investment from Pakistan. The key objective of the action is to build the much-lacking goodwill and a new push for peace among these two feuding neighbours, and the region, Indian Commerce Ministry, highlighting various aspects of the plan pointed out. It said, “the government of India has reviewed the policy and decided to permit a citizen of Pakistan, or any entity incorporated in Pakistan, to make investment in India.” But, the current ban on investment in strategic sectors like defense, space and atomic energy will continue, and “all propositions should be notified to the government of India.” It was April, 2011 when India actually took this decision at the New Delhi conference of Ministers of Commerce of India and Pakistan, besides easing business travel, allowing each other’s banks to open branches in the other country. Three Pakistani banks, National, United and Muslim Commercial Bank, are already on way to open their branches in India, with the blessings of state Bank of Pakistan (SBP), the central bank. Permission of the Reserve Bank of India (RBI) the Indian central bank, is awaited.

Pakistan has a longstanding policy under which it has allowed FDI and other foreign investment from all countries and sources on a 100 per cent ownership basis. Such investors are allowed repatriation of their 100 per cent capital and full dividends and profits.

The Indian decision is not just business and roses all the way. It has far reaching implications many of which may not be clearly visible, at this stage, to the Pakistani government, investors, business and the consumer at large. These implications range from cost of production to economies of scale, to regional security and its political fall out, and ongoing energy crisis which has eaten into Pakistani GDP by two to three per cent a year. Cheaper, and abundant labour supply, is yet another attraction. If Pakistani, and other investors, use considerable quantities of Pakistani raw materials, and finished products made in India are shipped back and sold to Pakistanis, the consumer in this country will benefit hugely as a result of low-transportation costs and cheaper cost of production in India. The consumers in the region may also benefit from better quality of products and services, better design of garments and products of middle class needs, lower price.

But Pakistani business and industry will have to fight hard its competitors in India, and Pakistani investors shipping their products back to their home land.

Most production factors are, at the moment more favourable for investors and industrialists operating in India than in Pakistan. The overall cost of production for most products is lower in India than Pakistan. India, serving its local and regional market has a bigger margin of the economies of scale. Its security and political environment is much better than Pakistanfighting an international war on terror, and suffering.

These are strong points which can attract Pakistani investors to India, as has happened in the past when a number of textile and other units, and investors, have moved from Pakistan to Bangladesh, Malaysia, Dubai and some African points. The Indian decision allowing Pakistani investment has been welcomed all round. Federation of Pakistan Chamber of Commerce & Industry (FPCC&I), and India-Pakistan Chamber of Commerce and Industry (IPCCI) have welcomed opening India’s doors to Pakistani investment. President FPCC&I Haji Fazal Kadir Shirani said: “It will definitely benefit Pakistani investors and industrialists, but it will be more interesting for Pakistan when the India lifts its ban on Indians investing in Pakistan.” “The Indian investors have shown interest to invest in Pakistan. Both countries should also enhance the scope of trade by setting up joint ventures in each others’ country. India is one of the world’s biggest markets and Pakistani manufacturers and exporters should make the maximum use of this market by aggressive marketing of their quality products.”

Tariq Saeed, former President of South Asian Association for Regional Cooperation Chambers of Commerce, said: “This bold decision by the Indian government will go along way in eliminating poverty and will help to raise the standard of living of the people inhabiting both the countries. Normalisation of trade with India is in the interest of both the countries. For India, it will help to strengthen its national economy and boost its economic activities in the region.”

S. M. Muneer, President of India-Pakistan Chamber of Commerce & Industry (IPCCI), said: “India’s move to allow Pakistani investment should be followed by removal of all non-trade barriers in the way of bilateral trade. In addition, all decisions taken in the past, particularly opening of bank branches in each other’s country, should be implemented, to help free flow of goods, services, as well as FDI.”

Welcomes, good wishes and plans apart, now business, industry, investors, and more particularly the consumers rich and por, and the fast expanding middle class in the region, are keenly awaiting the outcome and benefits for all. If the experiment succeeds, it will benefit all the region from Middle East and Gulf right up to South Asia, and Asean.

Views expressed by the author are his own and do not reflect the newspaper’s policy