Pakistan-India Trade:

Perspectives from India
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ARVIND VIRMANI
What is the business view in India regarding the prospects for a
broader trade relationship with Pakistan? I will briefly start
with that, and then go on to some broader issues from my
experiences dealing with the reform of trade tariff policy, with which I
have been deeply involved in India. My perspective reflects my 20 years
of involvement in issues of trade, tariffs, and tax policy in India. Just as
an example, I was a member of the study group on the India-China FTA
(which has never been implemented).
My general perception of Indian business on the issue of expanding
trade ties with Pakistan is that business is quite sanguine; most members
of the Indian business community are very positive about India-Pakistan
trade and economic relations. It is useful to understand why. One reason
for this optimism is the reform experience in India in the 1990s on both
trade and tariffs. To give a sense of what this means to those who have
not followed Indian reforms, peak tariffs on manufacturing in the 1990s
were 250 percent. By the first decade of the present century, however,
they were down to 10 percent. In the 1990s, virtually everything for the
general economy (i.e., apart from production for exports) had quantitative
restrictions (QRs), which resulted in random levels of import protection.
By 2000, this was all gone, at least as far as manufactures were concerned.
So what to make of this? A story I sometimes tell highlights the
point. There used to be an item many people today have never heard
of—something called “dead-burned magnesia.” This was produced in
India by one of the big industrialists, who from the very beginning of
import reforms in 1991, would come to see me before every budget and
plead that tariffs on this item not be reduced any further, because he
arvind Virmani is executive director at the International Monetary Fund and
affiliate professor and distinguished senior fellow at George Mason University.