Table 8.4 SUPPORT REQUIRED FOR ESTABLISHING

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Chapter 9
PROSPECTS FOR INDO-PAK TRADE
A milestone in the context of development of regional trade in South Asia is the granting of MFN Status to India by end 2012. This will, no doubt, contribute to an increase in Indo-Pak trade. Various authors including Amit Batra (2004), Ishrat Hussain (2011), AR. Kemal (2002),
Mohsin Khan (2009), Ijaz Nabi and Anjum Nasim (2001), State Bank of Pakistan (2005) and
Asad Sayeed (2005) have all concluded, by adoption of different approaches, that the potential volume of trade is a large multiple of the present volume of trade. Beyond the impact on the overall level of trade there is a need for analysing the consequences of opening up of trade at the micro level, on individual sectors. The SBP (ibid) includes an impact assessment on some key sectors of the economy of Pakistan, including automobiles. The report says
‘Compared with Pakistan, India has a strong engineering base and has successfully created
a sizable capacity for production of vehicles. It enjoys a clear edge over Pakistan in the
automobile sector. Indian auto companies are highly cost competitive due to appropriate
levels of automation and low cost automation and have achieved a high level of
productivity by embracing Japanese concepts and best practices. India is already the
second largest two wheeler manufacturer in the world, second largest tractor
manufacturer in the world, and fifth largest commercial vehicle manufacturer in the world
and fourth largest car market in Asia. The automobile industry in India is now evolving to
replicate those of developed countries
However, the SBP report was published six years ago and the automotive sector in both countries has witnessed considerable growth and structural transformation. Also, there is now the imminent prospect of the granting of MFN status to India, which from the beginning of 2013 will remove all restrictions on trade with India. Therefore, the objective of this chapter is to undertake an in-depth analysis, on the basis of latest data available, on the prospects of trade in the automotive sector between India and Pakistan following the opening of trade. The Chapter is organized as follows Section 1 describes the automotive sector of India. Previous chapters have already profiled the automotive sector of Pakistan and its state of development. Section 2 highlights the restrictions that are present currently in trade with India in the sector. Section 3 undertakes an analysis of the extent of trade complementarity in the sector between the two countries. Section 4 identifies the potential level and pattern of trade. In Section 5 we present the findings of our survey of OEMs and vendors on their perception of

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risks/potential of trade with India. Section 6 highlights some implications of the growth in trade. Finally, in Section 7, we present some policy implications on managing the process of liberalization in order to avoid any injury to the automotive sector of Pakistan.

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