(Reuters Breakingviews) - An impending deal between India and Pakistan to liberalise trade between the two traditionally hostile nations has been rightly called historic. The move is part of a broader effort by India to engage commercially with its neighbours, potentially to the benefit of the whole region. But it's still very early days.
India has been doing the rounds of its south Asian neighbours lately. Pakistan and Afghanistan grabbed the headlines but India has also courted warmer ties with Nepal, Bangladesh, Myanmar and Sri Lanka. Economics usually takes a back seat when it comes to relationships between south Asian governments, and these latest diplomatic efforts remain focused on regional stability. India's thirst for energy and resources is, however, also a key driver.
Few regions are less integrated or more closed to trade and investment than South Asia. Intra-region trade, currently worth $5 billion, accounts for only 5 percent of its total trade in goods. Trade between Pakistan and India stood at a mere $1.83 billion in 2010, with India accounting for only 1.2 percent of Pakistan's exports.
The potential for increased intra-region trade is staggering. A World Bank report published last year estimated it could grow to $20 billion if the restrictions were removed.
Activity levels are so low right now that it will take years for the benefits to register. There are some immediate wins to be had. India, in particular needs more oil, gas, and raw materials from west and central Asia, for which Pakistan is the most feasible conduit. India, Pakistan, and Bangladesh could cooperate in establishing a gas pipeline for transporting gas from Iran, Qatar, Turkmenistan, and Myanmar. Separately, Nepal would double its GDP if it could export hydro-based electricity to India.
A robust regional trading bloc would lead to enhanced stability and long-term prosperity. Cultivating the required diplomatic and economic ties will not be easy. At least the first baby steps have been taken.
-- India and Pakistan are preparing for the biggest liberalisation in bilateral trade since partition, the Financial Times. Details of the deal are expected to be agreed at a meeting of commerce secretaries in Delhi in November.
-- New Delhi struck a high profile strategic partnership with Afghanistan last week.
-- India promised Myanmar a $500 million credit line to improve infrastructure on Oct. 14 and praised steps towards democracy by its President Thein Sein who met Indian Prime Minister Manmohan Singh in New Delhi during a four-day state trip.
-- Prime Minister Manmohan Singh made a trip to Dhaka on Sept. 6 signing ten agreements including on trade, environment, power and road and rail connectivity.
-- In Sri Lanka the controversial comprehensive economic partnership agreement with India has been revived with a new framework document already completed the Department of Commerce said on Oct. 17.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
(Editing by Chris Hughes and David Evans)
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