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'Summit failure setback for Indo-Pak trade'

Fakir Chand in Bangalore

The summit failure between India and Pakistan at Agra early this week has turned to be a setback for boosting the trade relations between the two countries.

Regretting the negative outcome of the Indo-Pak summit, Federation of Indian Chambers of Commerce and Industry president Chirayu R Amin told rediff.com in Bangalore on Thursday that the prospects of expanding the current trade ties with the neighboring country appear bleak, at least for some more time to come.

"I wish there was some progress on the trade front as the potential to expand business with Pakistan is huge. The balance of payments on account of trade, including exports and imports could go up to $5 billion from the current level of $2 billion if the borders are thrown open and movement of goods is allowed between the two neighboring countries freely," Amin affirmed.

Though the talks have failed, Amin feels that the government should go ahead with its confidence building measures for improving the bilateral relations, the imbroglio on Kashmir notwithstanding.

"On account of the political stalemate on Kashmir, I do not see any breakthrough for the time being. Ficci will, however, favor an immediate revival of normal trade relations with Pakistan. It is high time Pakistan reciprocates the Indian gesture of awarding the most-favored nation status to it by granting the same to India," Amin asserted.

Asked whether direct trading will be possible after the visit of Prime Minister A B Vajpayee to Pakistan later this year, Amin said the Indian government should strive for it, as free trade between the two countries will benefit Pakistan more than India.

'Instead of importing Indian goods at a premium via third countries like UAE, Singapore, or Sri Lanka, Pakistan should import Indian goods directly to reduce their cost. We have so much to offer and also import from there."

To reverse the current slow down within the country, Amin has favored a four-pronged strategy and kick-start the economy.

"The first priority should be to ensure that the assurances given by Union Finance Minister Yashwant Sinha in his budget proposals, including changes in labor legislation and the Essential Commodities Act are implemented without any further delay."

The executive committee of Ficci, which met in Bangalore earlier in the day, has concluded that investment prospects could be revived through rationalization of the corporate tax, abolition of minimum alternative tax, and restoration of investment allowance.

"Faster spending of the unutilized funds lying with the various ministries to the tune of Rs 500 billion will help improve the investment demand, and stepping up the pace of divestment will revive business confidence," Amin stated.

In view of the tardy progress in the second generation of reforms, Ficci says the current scenario indicates that the chances of a firm recovery are very bleak in the short term.

A significant pick up in consumer demand is dependent on a good kharif harvest in the second half of the current fiscal, and the hopes are bright in the wake of a good monsoon across the country this season.

It may be recalled that after a record agriculture growth of 7.1 per cent during the fiscal 1998-99, farm production slumped drastically to a mere 0.7 per cent during 1999-2000, and further decelerated to 0.2 per cent in the preceding fiscal 2000-01.

Likewise, the industrial growth declined to 5.3 per cent during 2000-01 from a high of 6.4 per cent during the previous year, and services sector dropped to 7.7 per cent in 2000-01 from a record 9.6 per cent during 1999-00.

While lauding the Centre for initiated efforts to coordinate state level efforts in the spheres of sales tax and rationalization of user charges in the power sector, Amin said there was an urgent need for such a sustained recovery in the medium and long terms at the various state government levels.

"Ficci is of the view that the central government should extend such coordination to more areas so that state level reforms also generate the required momentum to boost growth to a higher trajectory," he added.

Prospects of a firm revival of investment demand hinged very much on boosting business confidence that has plummeted in the recent months.

"The macro-economic indicators show that the economic down turn has persisted during the last two consecutive years, and the latest trends only confirm that worse is in store," Amin cautioned.

A Ficci study has shown that the current slowdown was unprecedented in a number of ways, viz., it is the first time that the GDP growth rates have declined for the last two consecutive years since the start of the economic reforms with growth rates since 1998-99 to 2000-01 falling from 6.6 per cent to a mere 5.2 per cent.

"It is also for the first time since the nineties that all the three major sectors of the economy - agriculture, industry, and services have been affected by the down swing," Amin claimed.

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