India, Pakistan set to ease ban on each other’s investments

New Delhi: India and Pakistan are set to ease a ban on each other’s investments, with a key meet of their Commerce Ministers slated in New Delhi later this month, The Telegraph, Calcutta newspaper reported on Monday.

“The proposal to allow investment by both sides is under consideration and is likely to be approved. The investments will be decided on a case-to-case basis. This is part of the confidence-building measures,” a senior Indian commerce ministry official told the newspaper.

According to officials, “There is no reason to block investments from Islamabad when we can regulate investments from China. Decisions can be taken by vetting each proposal on merit.”

NR Bhanumurthy, economist with National Institute of Public Finance & Policy, said the opening of investment would not result in a deluge of money flowing across both sides of borders, but would send a positive signal in improving relations. “Signals of closer economic co-operation would have positive political gains,” he said.

Pakistan is the only country in India’s negative list under Foreign Exchange Management Act. The government had deleted Sri Lanka in 2006 & Bangladesh in 2007. Indian Finance and Commerce Ministries are now examining the feasibility of removing Pakistan from the list.

At present, investments by even large multinational firms with a presence in Pakistan are opposed by security agencies in India. “With trust deficit running high on both sides of the border, businesses would wait and see for some time before investment actually comes through. There are also concerns about policy reversal given strained relations between the two countries,” analysts said.

Officials said talks between Commerce Ministers of India & Pakistan, Anand Sharma & Makhdoom Amin Fahim, respectively, could result in Islamabad granting most favoured nation status (MFN) to New Delhi. At the same time, non-tariff barriers which Islamabad claims are being imposed by New Delhi will also be looked into, officials said.

Pakistan maintains a positive list of 1945 items, which are allowed to be imported from India under South Asian Free Trade Agreement. It is expected that instead of the positive list, Pakistan will have a negative list of about 200 items, meaning a whole range of products other than the 200 items can be exported from India, newspaper report stated. MFN status will benefit a range of Indian products, including textiles, cotton, vegetables, coffee, tea and spices.

Pakistan, on its part, expects India to remove non-tariff barriers that restrict its exports. Some of the measures include inspection, quarantine, testing and certification for products and perishable items. Islamabad wants all items on the positive list to be traded through land route, which is cost effective.

Annual trade between India and Pakistan is estimated at about $2 billion, while trade between the two routed through third countries is estimated at another $2 billion. According to a study by Indian Council for Research on International Economic Relations, potential trade between India and Pakistan stands at $14.3 billion, with India exporting about $11 billion worth of goods to Pakistan and importing items worth $3 billion.

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