India has allowed its capital to flow into Pakistan and this move would have healthy impact on the scenario in South Asia. Pakistan had done the same, some two decades ago when it announced it would not discriminate against any country in regard to foreign direct investment. However, mainly due to political tensions, Pakistan did not receive any significant Indian investments. Last December, when Pakistan decided to grant Most Favoured Nation(MFN) to India, it was a seminal development too. The recent Indian decision on investments appears to be in response to the Pakistani gesture. So things appear to be moving in the right direction on both sides of the border.

The Pakistani business community has, by and large, welcomed the Indian decision. In recent years, Pakistani capital has flowed to Bangladesh, Malaysia, United Arab Emirates and Jordan. If a Pakistani businessman is able to set up business at a comfortable driving distance from his home, it would cut down his travel costs. Moreover, he would be able to monitor his business from a closer quarter. The same applies to Indian entrepreneurs investing in Pakistan. When the economic and commercial ties flourish, there may be greater incentive to resolve thorny issues.

There is some empirical evidence that nations with extensive trade and investment ties tend to fight less. We have before us the example of China and India. They have not fought a war since 1962 as the bilateral trade volume has multiplied. Similarly tensions between China and Taiwan are now under control since Taiwan is a major investor in China. Trade and investment ties build mutual trust and diminish biased stereotyping of each other. Generally the business and industrial activities are allergic to war-mongering. I remember the heightened Indo-Pak tensions in 2002 improved only after capital looked like flowing out of the subcontinent.

I think the Indian restrictions on investments in Pakistan will now be lifted too. However, more Pakistani capital is likely to flow into India, in the short run. Investment opportunities in Pakistan have shrunk due to power outages and the security situation in Karachi, the main commercial hub. Karachi was ideal for investments being a port city and its entrepreneurial class , composed of Gujrati Memons and Chinoti Punjabis, is of international class.

Pakistan would be the fulcrum of the Asian trade and energy map in near future. Energy pipelines to India and China would pass through Pakistan. Indian overland trade with Afghanistan and Central Asia would also take place via Pakistan. Once these linkages develop, all the beneficiaries would develop stakes in a secure and stable Pakistan. Once Pakistanis start seeing the benefits of this enhanced economic interaction with China, India, Iran and the GCC nations, they would themselves make greater efforts to keep the country secure and business friendly for
foreigners.

There is evidence that poverty in Pakistan has increased in the last four years. 51 per cent of Pakistanis lived below the poverty line in 2010, according to an Oxford University study. This is not a happy situation at all. According to the same Oxford University study, 55 per cent of India’s population of 1.1 billion or 645 million people, were living in poverty. Arundhati Roy thinks the number of poor in India is around 800 million. However, according to the Indian Planning Commission the percentage of people living below poverty line now has dropped to 29.8 per cent. Now that means that number of poor in India is equal of the Pakistani and Bangladeshi populations put together. And that is not a happy sign either .Both nations have large poor segments and the size of the absolute poor in Pakistan is increasing. Increased investments, both ways, can create more jobs and increase incomes.

Consumers will benefit in both nations as Indians open outlets in Pakistan and Pakistani products, like textiles, are sold directly to consumers in India. Consumers will get greater variety of merchandise at cheaper rates as fewer middlemen would be involved. Atomic energy, aerospace technology and defence have been indicated by India as exclusive areas that are not open to Pakistani investments and that is understandable. The promising fields for Indian investments in Pakistan would be power generation, IT and health. For Pakistan, textile products are important.

It is time for both India and Pakistan to eradicate poverty. They should cooperate and compete in knowledge, sports, technology and trade. Co-operation and competition can be healthy. Otherwise, we will be marginalised. If you have any doubts, look at the London Olympics medals’ table and the sub-continental share in it.