“Freeing” Trade in South Asia
| Author | Pratima Singh |
| Date | 01 July 2012 |
| DOI | 10.1177/0015732515120204 |
| Published date | 01 July 2012 |
| Subject Matter | Article |
“Freeing” Trade in South Asia
India’s Tariff Withdrawal for
Pakistan and Bangladesh
Pratima Singh
This paper discusses economic integration in the South Asian region
using an India-centric approach. It suggests that the gains for India
withdrawing its tariff on imports from Pakistan and Bangladesh
hugely outweigh the losses for the country. It uses a bilateral trade
approach, analyzing the India-Pakistan and India-Bangladesh trade
relationships. The India-Pakistan relationship shows Pakistan’s
exports to India contribute much less to India’s total imports than to
Pakistan’s GDP. The benefits of India unilaterally withdrawing
tariffs, thus, are substantial. The India-Bangladesh trade relationship,
despite having many complementary characteristics, is not very
well established. Both the countries will gain immensely if India
opens up its borders to their exports. These gains will outweigh the
minor losses for India which will be compensated for by its increased
goodwill. Economic integration is important to maintain stability in
this region and the two bilateral relationships described above are
crucial in ensuring this.
(JEL Codes: F13, F14, F15)
Keywords: India-Pakistan Trade, India-Bangladesh Trade,
India’s Import Tariffs
Introduction
THE South Asian region is said to be the least economically
integrated region in the world. Given that India is among the
fastest growing economies in the world, this comes as a bit of surprise.
The smaller countries of the region look to India to take initiative in
this regard and promote bilateral and multilateral trade. The
importance of Regional Trade Agreements (RTAs) has come into focus
recently, with Asia’s larger role in the world economy and with a
shift in trade patterns eastward. Despite the South Asian Free Trade
Area (SAFTA) Agreement being signed between the South Asian
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FOREIGN TRADE REVIEW
Association for Regional Cooperation (SAARC) countries in 2004,
trade has remained dismal. There are no South Asian countries
featuring in India’s top 30 trading partner countries in 2010-2011.
Unlike the Association of South East Asian Nations (ASEAN), SAARC
has not been successful in promoting economic cooperation amongst
its members. This paper promotes increased trade between the South
Asian countries with the intention of an economically integrated South
Asian region. Unlike other studies which propagate increasing trade
bilaterally, this paper advocates unilateral tariff withdrawal by India
for imports from Pakistan and Bangladesh and studies their bilateral
trade relations to prove this hypothesis. Pakistan and Bangladesh are
two of the larger economies in the region and they, together with
India, play a crucial role in the economic integration of South Asia.
India’s economy is growing, and it is imperative that the country
improves economic ties with its neighbours in order to develop
holistically. With other Asian powers like China increasing their market
share rapidly it is imperative that India must expand its own market
and gain access to new economies in order to remain competitive.
This economic rationale combined with the fact that an
economically integrated region is beneficial to all the South Asian
countries despite their size, is the motivation behind this study. The
paper identifies key commodities in two bilateral trade relationships:
India-Pakistan and India-Bangladesh. It measures India’s economic
importance to its two neighbours and concludes that the smaller
countries will gain immensely if India opens its borders to their exports.
The resulting tariff loss for India is negligible compared to the benefits
of increased trade and economic integration in the region. The time
frame for this paper is the last six years, starting from 2005-2006 to
2010-2011(from April to December). Data are extracted from the Export
Import Data Bank of the Ministry of Commerce, Government of India.
The India-Pakistan Relationship
The first bilateral trade relationship studied is that of India and
Pakistan. Since this study is fairly India-centric, the first step is to
determine the commodity-wise import into India from Pakistan in
the last six years. The study uses trade data at the two-digit level in
order to give an overall view of the trade relationship. This figure is
then divided by India’s total imports of that commodity, from all
countries, to determine Pakistan’s share in India’s imports categorized
FREEING TRADE IN SOUTH ASIA
83
by commodities. This helps in two ways, not only it is easy to determine
Pakistan’s importance as India’s import partner; but also helps in
determining the major commodities India imports from them.
Commodities from Pakistan that form a negligible share, i.e. less than
2 per cent, of India’s total imports of that specific commodity are
deleted. This is done in order to identify those commodities which
account for a significant proportion of the trade flow from Pakistan
to India. Table 1 shows India’s share of imports from Pakistan after
deleting negligible import commodities at the two-digit level.
The above analysis has been fairly one-sided by using India’s total
imports of a commodity as the denominator. This helps to foretell the
TABLE 1
PAKISTAN’S SHARE IN INDIA’S TOTAL IMPORTS OF MAJOR COMMODITIES
AT THE TWO-DIGIT LEVEL
(%)
HS
Commodity
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
code
(Apr.-
Dec.)
2
Meat and edible meat offal.
0.00
0.00
5.41
1.23
0.00
0.00
3
Fish and crustaceans, molluscs
2.91
0.87
2.61
1.46
2.10
0.77
and other aquatic invertebrates.
7
Edible vegetables and certain
10.66
0.14
0.10
0.00
0.25
0.42
roots and tubers.
8
Edible fruit and nuts; peel or
3.32
10.77
4.76
3.31
3.72
5.03
citrus fruit or melons.
12
Oil seeds and olea. fruits; misc.
2.39
1.68
2.21
3.63
4.83
2.15
grains, seeds and fruit; industrial
or medicinal plants; straw and fodder
13
Lac; gums, resins and other
1.58
1.82
0.79
1.63
1.36
1.26
vegetable saps and extracts.
17
Sugars and sugar confectionery.
4.21
0.00
0.00
0.00
0.00
0.00
20
Preparations of vegetables, fruit,
0.00
4.20
1.24
3.68
3.47
2.94
nuts or other parts of plants.
22
Beverages, spirits and vinegar.
0.00
0.00
4.33
0.39
0.48
0.06
25
Salt; sulphur; earths and stone;
0.09
0.13
2.25
2.37
2.53
2.09
plastering materials, lime and cement.
41
Raw hides and skins (other than
0.57
1.06
2.89
2.61
2.04
1.73
furskins) and leather.
51
Wool, fine or coarse animal hair,
0.81
1.34
1.57
1.23
1.60
2.56
horsehair yarn and woven fabric.
52
Cotton.
6.42
10.50
8.32
7.04
7.83
6.39
55
Man-made staple fibres.
1.49
2.17
0.76
0.44
0.26
0.12
61
Articles of apparel and clothing
1.33
0.92
1.18
1.29
1.25
2.24
accessories, knitted or crocheted.
78
Lead and articles thereof.
1.29
3.10
6.15
0.61
3.48
2.83
Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and
Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp
on 20 September 2011.
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FOREIGN TRADE REVIEW
impact of India’s unilateral tariff withdrawal on its imports. To
complete the analysis, it is important to analyze the situation from
Pakistan’s perspective as well. It is assumed here that India’s imports
from Pakistan are exactly equal to Pakistan’s exports to India and
there is no discrepancy in the data. To determine the importance of
its exports to India, Pakistan’s export figures are divided by its Gross
Domestic Product (GDP) as shown in Table 2 and Figure 1.
TABLE 2
PAKISTAN’S SHARE IN INDIA’S TOTAL IMPORTS AND PAKISTAN’S EXPORTS
AS A SHARE OF ITS GDP
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
(Apr.-Dec.)
Pakistan’s exports
179.56
323.62
287.97
370.17
275.94
244.27
to India (US$ mn)
India’s total import
149165.73 185735.24 251654.01 303696.31 288372.88
258843.59
(US$ mn)
Pakistan’s share of
0.12
0.17
0.11
0.12
0.10
0.09
India’s imports (%)
Pakistan GDP
127500.00 143171.18 163891.68 161989.98 174799.15
(US$ mn)
Pakistan’s exports
0.141
0.226
0.176
0.229
0.158
as a share of Pakistan
GDP (%)
Source:The Export Import Data Bank, Department of Commerce, Ministry of Commerce and
Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp
on 20 September 2011; and The World Bank development indicators. Retrieved from
http://data.worldbank.org/indicator on 21 September 2011.
FIGURE 1
PAKISTAN’S SHARE IN INDIA’S TOTAL IMPORTS AND PAKISTAN’S EXPORTS
AS A SHARE OF ITS GDP
0.25
0.2
0.15
0.1
0.05
0
2005-06
2006-07
2007-08
2008-09
2009-10
Pakistan’s share of India's Im ports (%)
Pakistan’s exports as a share of Pakistan GDP (%)
FREEING TRADE IN SOUTH ASIA
85
TABLE 3
SHARE OF MAJOR COMMODITIES IN PAKISTAN’S TOTAL EXPORTS TO INDIA
AT THE TWO-DIGIT LEVEL
HS
Commodity
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
code
(Apr.-
Dec.)
7
Edible vegetables and
37.84
0.43
0.47
0.01
2.01
2.33
certain roots and tubers.
8
Edible fruit and nuts; peel or
14.56
27.43
14.72
9.91
16.82
20.69
citrus fruit or melons.
17
Sugars and sugar confectionery.
4.15
0.00
0.00
0.00
0.00
0.00
25
Salt; sulphur; earths and stone;
0.37
0.35
11.03
15.72
15.43
11.56
plastering materials, lime and cement.
27
Mineral fuels, mineral oils and
0.00
35.49
23.01
45.68
3.46
14.43
products of their distillation; bituminous
substances; mineral waxes.
32
Tanning or dyeing extracts;
0.00
0.00
0.01
0.01
0.05
0.03
tannins and their deri. Dyes,
pigments and other colouring
matter; paints and ver;...
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