The conventional wisdom holds that India and Pakistan, which remain locked in conflict over everything from the disputed territory of Kashmir to the 2008 Mumbai terrorist attacks, while pointing dozens of nuclear-armed missiles at each other, are not going to cut a permanent peace deal anytime soon. This year, however, the perennially feuding neighbors finally notched several key positive developments that had nothing to do with borders, nukes, or terrorism. In short, both sides may be realizing that political tension is bad for business.
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Economic activity between the two bitter enemies has long been pitifully minimal. Until now, that is. In 2009, only 1 percent of India's trade was with Pakistan, and only 1.7 percent of Pakistan's was with India. A total of one customs post is open along their 1,800-mile border. But that has been changing. Trade between the two countries increased ninefold to $2.7 billion between 2004 and 2011 and is likely to increase further after the signing of several key trade agreements this past September.
As part of those deals, Pakistan agreed to phase out its "negative list" -- hundreds of items that cannot be purchased from India, supposedly for security reasons. India, meanwhile, promised to reduce import duties on Pakistani goods. Indians, for example, will now be able to enjoy Murree beer for the first time since Partition. (Yes, the Islamic Republic of Pakistan has its own brewery.)
But the biggest boost may be yet to come. The two longtime enemies also agreed to open up a key checkpoint at the Attari-Wagah border crossing, and Pakistan will grant India "most favored" status by the end of this year, meaning that it must be accorded the same treatment in trade policy as other countries. In another big move, India also loosened its visa requirements for Pakistani travelers. (In 2009, India issued fewer than 52,000 visas to Pakistanis, a number that is expected to increase dramatically under the new regime.) All told, an Indian industry group estimates, the changes will allow bilateral trade to increase to $8 billion in the next two years.
The U.S. State Department expressed hope in October that the thaw could lead to progress on issues like Kashmir. And maybe it will. In the meantime, perhaps Washington, which maintains steep tariffs on Pakistani cotton despite years of protest from Islamabad, should instead be taking notes from India on how to improve relations with its most troublesome ally.
Behrouz Mehr/APF/Getty Images
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