“I am confident that India–Pakistan economic relations will touch newer heights . . . . CII will continue its efforts to strengthen economic engagement with Pakistan and work closely with all the stakeholders.” ~ Adi Godrej, Former President CII, in an exclusive for The News, May 22, 2013
The Chairman of the Godrej Group had led an 80-member business delegation to Pakistan in April 2013. The speeches and presentations made by leading business stalwarts of India at the Aman ki Asha Conference in Lahore were extraordinarily bullish and visionary, and there was an urgency of purpose among all participants. The Conference was heralded as a progressive venture, more so because of the pronouncements made by the Indian mega-tycoons. It was a manifestation of their pragmatic business strategy and reflected their understanding of future business potential. They were well aware that dependence just on bilateral trade would not bring about the paradigm shift in normalization of trade nor would it be a rosy path to traverse when the excessive baggage of past animosity, oozing distrust, myopic approach of bureaucracy, rabble-rousing of religious extremists, proliferation of undocumented and informal trade, and national protection of industries and businesses against perceived deluge of Indian goods into Pakistan were back-breaking and burdensome.
These prickly factors were and still continue to be stinging thorns in hampering the liberalization and normalization of trade between the two SAARC neighbors. Despite the bonhomie evident among the business community, the normalization process moves at a snail’s speed and is meekly susceptible to the ramifications of contentious and hostile issues that plague both nations. The common declarations emanating out of various conclaves, seminars and conferences on India-Pakistan trade stress home the need for letting trade and investment find their own dedicated course and should not be entirely subordinate to touchy political, military or territorial disagreements and concerns. However, for the proponents of trade liberalization, the avenue is infested with potholes, blockages, and narrow-minded decision makers zealously guarding their check posts.
Are India and Pakistan missing out on lost opportunities due to all the factors enumerated in the narrative above? Is there a possibility of embarking upon another channel in tandem with the ongoing process of trade normalization? Would the impasse be a normal feature of bilateral relations depending upon the outcome or mood of the environment at any particular moment, be they border skirmishes, be they allegations about interference across the Line of Control, be they political, media or religious demagoguery or accusations, or be they just be wearisome resignation that bilateral trade normalization process is idealistic and that it is a long and winding road.
The dark clouds continue to shadow the lush green terrain. But, this is where entrepreneurial spirit flourishes. The industrialists and businessmen of the sub-continent are known to prosper in adverse conditions. This is their hallmark that is universally acclaimed. Persuasive lobbying by trade organizations and think tanks has convinced the decision makers to shed all inhibitions and delete obsolete country-specific regulations and rules and allow investment across the border. The die has been cast but entrepreneurs still await the favorable policies and guidelines from various Ministries and from the Reserve Bank of India and its counterpart, the State Bank of Pakistan. Thus, it is time for trade organizations to start playing aggressively on the front foot and get the ball rolling since the target is achievable and a win-win situation.
Indian entrepreneurs have been going on the multinational circuit with full force and have become major investors in the global businesses and industries. The aggressive pace of Indian foreign investment has enabled India to rapidly become a formidable source of foreign investment internationally. The composition of Indian investors is not just limited to mega private sector corporations but even many medium-sized companies as well as state-owned enterprises are increasingly establishing their footprints globally through strategic direct investments. Studies undertaken by various consulting firms have projected that by 2030, over 2,500 Indian firms would have set up entities abroad or would have acquired or merged businesses overseas. Indian firms have exhibited prudence and resolution in investing in foreign countries and have targeted and invested initially through mergers and acquisition transactions.
Comparatively speaking, the mega-corporations in India have huge financial resources as well as the critical mass to generate substantial financial support from lending organizations. It is also a fact that the outreach of these Indian entrepreneurs is considerable compared to their Pakistani counterparts. It is also a matter of record that Indian corporations have either made large strategic investments in foreign enterprises or have outright bought them out. Moreover, support and facilitation from New Delhi is very apparent. The Indian government is making efforts to integrate the country's economy with the rest of the world. To help the country's firms raise capital abroad, the government will facilitate unlisted Indian companies to list on foreign markets without having to be publicly traded on domestic exchanges. The advantage of having a large Indian Diaspora is a strong and enabling element in foreign investment by Indians.
According to the global consulting firm Grant Thornton, “Indian companies announced Merger and Acquisition transactions worth US$ 8.4 billion in July 2014, from 110 deals, an increase of 36 per cent in transaction value and 23 per cent in volume over July 2013.” Reserve Bank of India data states that “Direct investments abroad by Indian companies stood at US$ 1.59 billion in May 2014. The investments in the form of equities, loans and guarantees were US$ 155.69 million, US$ 182.59 million and US$ 1.26 billion, respectively, during the month.” The global advisory firm Kroll Advisory Solutions reported that “in 2012 Corporate India acquired 72 companies abroad worth $11 billion, while in 2011 the figure was around $ 7 billion.” Market intelligence data revealed that “since 2003, USA and UK have ranked as the top two investment destinations for Indian capital. Emerging market economies are also a hot favorite for Indian companies and they are utilizing best practices learnt domestically to acquire assets in markets in Central and Southeast Asia.”
Some significant acquisitions by Indian companies include Corus Group (UK) by Tata Steel for over $ 12 billion, Zain Africa Mobile Telecommunications by Bharti Airtel for $ 9 billion, Novelis, an aluminum company, by Aditya Birla Group for $ 6 billion, Imperial Energy (UK) by Oil and Natural Gas Corp for $ 2 billion, Jaguar Cars and Land Rover (UK), the two iconic British automobile brands by Tata Motors for $ 2.30 billion, Honiton Energy Holdings (China), a wind energy firm, by Tanti group for $ 2 billion, Abbot Point Coal Terminal (Australia) by Adani Enterprises for $ 2 billion, Algoma Steel (Canada) by Essar Steel Global for $ 1.85 billion, Marcellus Shale (US), a natural-gas properties company, by Reliance Industries for $ 1.70 billion, and Minnesota Steel (US) by Essar Steel Holdings for $ 1.65 billion. There are other publicized acquisitions, mergers, and offers to buy by Indian companies since India has rapidly become a major source of foreign investment for the rest of the world.
The above narrative is highlighted to impress upon the fact that while Indian companies are expanding their footprints all over the world, it is imperative that these companies, as well as hundreds of other companies, take advantage of the relaxation of rules for cross border investment as announced by Reserve Bank of India and State Bank of Pakistan. The potential can be gauged from the fact that investment in Pakistan can open up the direct routes for exports to Afghanistan, Central Asian Republics as well as the Middle East. Moreover, these products can be marketed in Pakistan and also exported under the formal trade regime to India too.
In 2008, the Pakistan Japan Business Forum, of which I am one of the Founders, floated the concept of a Special Economic Zone in Karachi for Japanese investors. The Board of Investment spearheaded this concept and in September 2012, then President Asif Ali Zardari inked the Special Economic Zone Act 2012 at a glittering ceremony at the Presidency. This opened new vistas for foreign as well as domestic investors. In early 2013, at a Conference on India-Pakistan Trade held in New Delhi, I proposed that there should be an India Special Economic Zone on the Pakistan side of the Wagah-Attari Border. As Senior Advisor for the Transnational Strategy Group based in Washington, I made a suggestion to Dana Marshall, President, and my other colleagues in TSG that it should initiate a study to determine the feasibility and importance of an India-SEZ. TSG prepared a detailed initial “Study of the Benefits of Establishing a Pakistan-India Cross-Border Special Economic Zone” that has been commended as a pioneering, pragmatic and doable approach.
The focus on cross-border investment helps in underscoring a fundamental point. The field is wide open and attractive. It is upto the private sector who has the determination to reach those goals best by removing the obstacles to growth, and letting things grow by themselves. Two-way investment, unhampered by government protectionism and restrictions, would go a long way towards realizing that potential. To put in a nutshell, private sector leaders are the future architects of ushering in peace in the region through trade and investment. It is time to shed the primordial mindset and strive for regional economic integration in a fast-mode. SAARC, with all its merit, can become a formidable force if Pakistani and Indian trade and industry become sincere game changers. Milton Friedman poignantly stated that “History suggests that capitalism is a necessary condition for political freedom.”