Bloomberg News

Sons of Partition Seek Pakistan Peace Dividend: Corporate India

June 26, 2012

Sons of Partition Tragedy Seek India-Pakistan Peace Dividend

Indian labourers unload sacks of baking soda from Pakistani trucks at the newly constructed Integrated Check Post (ICP) at the India-Pakistan border in Wagah. Photographer: Narinder Nanu/AFP/GettyImages

H.P. Nanda fled his burned-out home in newly independent Pakistan with $1,500 in his pocket, driving his Chevrolet past torched villages strewn with dead bodies, across the days-old frontier into India. More than 60 years later, the company he built is planning to return.

Escorts Ltd. (ESC), which sells farm and construction equipment in 40 countries and is now run by Nanda’s son, aims to exploit the biggest drive yet to bolster trade ties between India and Pakistan. The Nandas are exploring selling their machinery in their father’s former homeland as Pakistan prepares to lift punitive trade restrictions on its historic enemy by year-end.

“No country can progress by fighting with its neighbors,” Rajan Nanda, H.P.’s eldest son, said at the company’s New Delhi headquarters. “We are incredibly keen to export to Pakistan, but we haven’t been able to because of political tensions.”

Reviving commerce across the 2,065-mile (3,323-kilometer) border would lift the world’s lowest intra-regional share of trade, a legacy of the two nations having gone to war three times in six decades. Potential beneficiaries range from Pakistani cement makers with excess capacity to Indian steel producers that could target displacing competitors from Brazil to Australia, according to Standard Chartered Bank Plc.

“They are trying to put in place enough of a momentum that, if something bad were to happen, they can sustain the process,” Kalpana Kochhar, chief South Asia economist for the World Bank, who sees commerce nearly tripling in three to four years, said in a telephone interview from Washington. “The impact is going to be much larger in the case of Pakistan,” boosting annual economic growth by as much as 0.5 percentage point, she said.

Muslim Customers

Some of India’s and Pakistan’s wealthiest businessmen, including Nanda, 69, Lakshmi Mittal and Mian Mohammad Mansha, see opportunities across a border guarded by hundreds of thousands of troops. Since peace talks resumed last year, the two governments have approved commerce in 4,000 previously banned items and opened new trade routes.

Mansha, who is chairman of Nishat Group, a financial, textile and cement-making empire, said his company has applied to the State Bank of Pakistan for permission to open branches in India.

“We can do syndications and joint loans with Indian banks,” Mansha, who was six months old when his family fled India after partition, said in a phone interview from Lahore June 20. “India has a huge Muslim population which might also find that it’s much easier to get Shariah-complaint services from us.”

Trade Opening

Pakistan agreed in November to grant India most-favored nation status, under which its exports wouldn’t be discriminated against. India, which gave Pakistan the designation in 1996, in April pledged to allow investment from its neighbor for the first time. Pakistan plans by the end of this year to remove 1,200 items on a remaining banned list.

The economic rapprochement is developing even as the two governments are stymied by domestic political strains. Pakistan on June 22 chose a new prime minister after Yousuf Raza Gilani was ousted by the judiciary for failing to pursue corruption charges against President Asif Ali Zardari. In India, Prime Minister Manmohan Singh’s liberalizing agenda has been crippled by opposition from within his own coalition, contributing to a sell-off in the rupee and the slowest growth in nine years.

Violence Threat

Renewed violence could still extinguish the warming in ties. India scrapped dialogue with Pakistan in 2008 after an attack on Mumbai by 10 Pakistani militants of the Lashkar-e- Taiba group left 166 people dead and shattered five years of peace-building.

Talks last month over relaxing rules on business visas were dominated by wrangling over probes into the Mumbai attack and a 2007 bombing of a cross-border train in which 68 people, mainly Pakistanis, died. India charged five Hindu activists with the crime after initially blaming local Muslim extremists.

Watchtowers and soldiers with automatic rifles positioned in Indian wheat fields are a reminder of the threat of hostilities along the border. An Indian soldier was killed June 11 in an exchange of fire with Pakistani troops in Kashmir, said an Indian defense official, who spoke on condition of anonymity because he isn’t authorized to discuss the matter publicly.

Even so, a consensus between Pakistan’s civilian and military chiefs on the need for trade to help revive a stumbling economy has encouraged business leaders on the subcontinent, said Rasul Bakhsh Rais, a professor of politics at the Lahore University of Management Sciences. India is engaging with its neighbor after earlier saying ties would only improve once Pakistan reined in militant groups operating from its territory.

Executive Response

Executives are responding. More than 600 Pakistani businessmen in April promoted products, including fashion textiles, jewelry, designer furniture and leather goods, at a trade fair in New Delhi. Last month, 45 Indian businessmen traveled to Lahore to meet fellow entrepreneurs.

As the U.S. plans its exit by 2014 from an 11-year war with the Taliban in Afghanistan, it also has an interest in India- Pakistan rapprochement. U.S. Defense Secretary Leon Panetta used a speech in New Delhi on June 6 to urge the two countries to overcome their differences in a bid to improve security in the region as American troops leave.

For two nations with a fifth of humanity, or 1.4 billion people, and which share mutually understandable languages, trade between India and Pakistan is relatively tiny. It was $2.7 billion last year -- less than 1 percent of their combined commerce with other nations.

World’s Lowest

That left south Asia with the lowest inter-regional trade in the world, at 1.5 percent of the region’s economic output, according to Standard Chartered. The ratio is 7 percent in East Asia and Latin America, the bank said in a June 7 note.

Elsewhere in the region, the end of Sri Lanka’s civil war has yielded a peace dividend, with economic growth exceeding 8 percent in 2010 and 2011, compared with an average 5 percent the previous decade. Indian neighbor Myanmar’s transition from dictatorship prompted the International Monetary Fund to dub it potentially “the next economic frontier” of Asia.

Indian companies producing cheaper and higher-quality steel are likely to benefit from higher exports to Pakistan, which now gets the metal at a higher cost from countries such as Brazil. In return, Pakistan’s cement makers with a surplus of capacity should gain by exporting to India where there’s a shortage.

Tragic Start

Cheaper imports from India may also help to reduce inflation in Pakistan, currently the fastest in Asia. Consumer prices climbed 12.3 percent in country in May from a year before.

The history of India and Pakistan was forged in blood. As Britain emerged economically ravaged from World War II and amid a growing rift between Hindu and Muslim leaders, it rushed through separation of its largest colony in a few months in 1947.

In the Punjab region, which was split between the new countries, roads were choked with bullock carts and migrant families as they attempted to flee violence that left an estimated 1 million people dead and another 10 million uprooted.

Now, hundreds of trucks roll across the countries’ border in Punjab daily. Under a sweltering sun, hundreds of men in orange turbans and faded blue uniforms used metal hooks last month to unload white sacks of dried fruit, cement, marble and other goods emblazoned with green “Made in Pakistan” signs.

‘Great Opportunity’

Jawed Salim Qureshi, chairman of the Lahore-based Four Brothers Group, began importing pesticides from India in the 1990s, through Indian agents based in Dubai. Sales of Indian- made chemicals and seeds now account for 10 percent of the company’s $76 million in turnover in Pakistan, Qureshi said in an interview last month. His company also grows vegetables on 5,000 acres (2,000 hectares) in Punjab.

“We can easily grow this trade manifold if all barriers and disparities are removed,” said Qureshi, whose father migrated to Pakistan at the time of partition and settled in Rawalpindi.

“There’s also a great opportunity for Pakistani farmers,” he said. “When we can compete in a market of over a billion people, we will definitely improve our quality and bring down the cost of production.”

India’s Prime Minister Singh accompanied Mittal, chief executive officer of ArcelorMittal (MT), the world’s largest steelmaker, at the opening of a $4 billion refinery in Punjab in April in a joint venture with Hindustan Petroleum Corp. Ltd. (HPCL)

The plant, 100 kilometers (62 miles) from the border with Pakistan, is well positioned to export if talks to lift restrictions on trade in fuels are successful, S. Roy Choudhury, its director, said at the ceremony.

Gas Pipeline

Greater trade may also smooth the building of a $7.6 billion gas pipeline from Turkmenistan to India, according to Standard Chartered. (STAN) The gas will help meet demand in both energy-starved India and Pakistan.

Anticipating a pickup in commerce, the Indian government in April completed a $30 million checkpoint at Wagah, the busiest border crossing between the two countries. Four new warehouses, each two soccer fields in length, have been built there, the number of customs staff doubled and a new four-lane highway now runs to the nearby city of Amritsar.

“The past is the past, we can’t be prisoners to history anymore,” said Rahul Bajaj, 73, the billionaire chairman of Bajaj Autos Ltd., whose daughter escaped unharmed when his apartment was hit by six bullets fired by the Mumbai gunmen.

Bajaj, who traveled with the Indian business delegation to Lahore last month, said that if Pakistan removes the company’s motorbikes from its remaining list of banned items, he will consider building a production plant across the border.

“Both countries have realized that 60 years of disputes and differences have reached no conclusions,” said Escort’s Nanda. “It’s time we lift up the shutters.”

To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Haris Anwar in Islamabad at hanwar2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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