Pakistan and India Relationship

A foundry equipment manufacturer in India procured an order of
Rs 7crores for supplies to a new foundry in Pakistan in 2004.
The equipment was routed through Dubai with all signs of India
removed from the machinery. The Pakistani importer had to pay at
least 17 percent more than what he would have paid if he could
have imported the equipment directly from India.
In any case the cost of similar equipment from other countries would
have been higher by at least 35 percent, so the Pakistani
businessman soundly bought the equipment from India. When he
will need to buy spare parts, he would follow the same circuitous
route. Similar experiences obtain in many such situations, where
goods worth hundred of crores from India and Pakistan are bought
through either a circuitous route or clandestine channels.
However, times seem to be changing and the greater social impacts
seem to have made everyone alive to the fact that every action does
have its rather, grave, economic implications which cannot but be
taken into account. Regional and bilateral trade, more often than
not, have been the first casualty in cross-border conflicts. It’s a
double whammy and therefore, costs tend to be multiplicative rather
than additive in their emergence and effect.
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A simple back of the envelope calculation of such costs indicates
that costs of conflict in addition to the costs of lost trading
opportunities more often than not constitute a not so significant
proportion of GDP. Had it not been for these costs the impact on
social development could have pushed most countries engaged in
cross-border conflict a few notches up the HDI. Conflict deterrence,
therefore, seems appropriate and a Rupee saved, is therefore a Rupee
earned. In times of fiscal stringency with ever widening costs of
running a country, such cost cutting efforts are most welcome.
More significant are the costs to the consumer and the producer -
the most significant segments of the social...