Businesses
IANS Analysis: Pakistan's precarious economy needs a change in its state policy
New Delhi: During the recently concluded Shanghai Cooperation Organisation’s (SCO) Council of Heads of State meeting in Astana, Kazakhstan, Pakistan Prime Minister Shehbaz Sharif highlighted Pakistan’s geostrategic location as an “ideal conduit for connectivity” and emphasised its potential to further enhance economic interlinkages in the region.
While Pakistan’s position could indeed facilitate regional trade and potentially help revive its struggling economy, its historical preference for economic ties with the West over its neighbours, with the notable exception of China, has left it regionally isolated and overly dependent on American and Chinese benevolence.
Several factors have hindered Pakistan’s economic integration within the region. These include political and territorial disputes with neighbouring countries, both perceived and actual security concerns, a limited range of exportable products, and a reliance on the West for trade and aid. These elements are key contributors to Pakistan’s ongoing economic isolation.
As such, Pakistan’s regional economic isolation is underscored by its limited participation in active regional trading blocs. Although Islamabad is nominally a member of the Economic Cooperation Organisation (ECO) and the South Asian Free Trade Area (SAFTA), both groupings have remained largely non-operative since their inception and more so because of Islamabad’s actions.
This lack of active engagement in regional trade certainly contributes to Pakistan’s failure to capitalise it’s strategic location for diversifying its trading partners and strengthening its economy. Baring China, its trade relations with the other three bordering countries of Afghanistan, India and Iran are hardly any substantive.
Consider Iran, Pakistan’s western neighbour. Despite sharing over 900 km of border, bilateral economic cooperation between Islamabad and Tehran has been minimal.
As of 2022, Pakistan’s imports from Iran were just $848 million, while its exports to Iran were only $162 million. By the end of 2023, the total trade volume increased to $2 billion.
During his maiden visit to Pakistan in April, Iran’s Late President Ebrahim Raisi was prompted to highlight the dismal state of their bilateral economic cooperation, stating that the “economic and trade volume between Iran and Pakistan is not acceptable at all.”
He announced a commitment to increase the trade volume to $10 billion as a first step toward strengthening ties. However, the likelihood of this commitment translating into improved trade dynamics remains uncertain due to Islamabad’s susceptibility to the US pressure against engaging with Tehran, as part of Washington’s policy of isolating Iran.
It may be noted that the US quickly warned Islamabad against deepening its economic engagement with Tehran, threatening sanctions. As such, this alliance with the US has hindered Pakistan and Iran from enhancing their economic cooperation over the years.
It begets the assertion that if Islamabad had maintained its strategic autonomy, it could have leveraged Iran’s economic isolation to its advantage, acting as a frontline state similar to what the United Arab Emirates, especially its Dubai emirate, has done over the years.
Despite strained Tehran-Abu Dhabi dynamics, Dubai has played a crucial role in facilitating Iran’s economic outreach to the world, a role Pakistan could have easily assumed due to its geographic proximity to Iran.
Similarly, Pakistan, which supported the Afghan Taliban’s takeover of Kabul in August 2021, has failed to establish sustainable bilateral trade cooperation with Afghanistan.
Contrary to expectations that a friendly regime in Kabul would enhance Pakistan’s internal security and allow it a greater economic role in the country, relations between Pakistan’s military-dominated establishment and the Afghan Taliban government have consistently deteriorated over the last two years, as Kabul has overlooked Islamabad dictations, especially with regards to the presence of Pakistan Taliban in Afghanistan.
This has not only exacerbated Pakistan’s security challenges but also restricted its influence over Afghanistan’s economic outreach to the world.
As such, Pakistan-Afghanistan bilateral have continued to decline and failed to witness a turnaround even after the Taliban takeover.
Apparently, Pakistan’s exports to Afghanistan have significantly dropped from $2.1 billion in 2012 to an estimated $969 million in 2023, according to the United Nations COMTRADE database. Meanwhile, Afghanistan’s exports to Pakistan were estimated to be around $440 million in 2023.
As with Iran, Pakistan’s economy would have benefited from maintaining cordial relations with the Taliban regime by serving as its gateway to the world. However, instead of leveraging the geo-economics through Iran and Afghanistan, Pakistan has isolated itself in the region due to its flawed policy outlook.
Pakistan’s economic cooperation with India is again abysmal. The two countries have not maintained full diplomatic relations since 2019, when Islamabad recalled its High Commissioner from New Delhi in response to India’s constitutional reorganisation of Jammu and Kashmir, an internal matter for India.
This diplomatic rift led to a significant decline in trade, from $2.5 billion in 2018-19 to just $0.6 billion by 2023. In 2023, Pakistan’s exports to India were estimated at a mere $20 million, while its imports from India stood at $627 million. Notably, India’s trade with Pakistan constitutes only 0.1 per cent of its total exports and 0.03 per cent of its total imports for that year.
With its economy in free fall, Pakistan has recently expressed a desire to re-establish trade relations with India. Pakistani officials, including Foreign Minister Ishaq Dar, have made multiple public appeals in recent months. However, New Delhi has largely ignored these overtures.
For India, it has made it clear that terrorism and trade cannot coexist and unless Islamabad takes concrete steps to address New Delhi’s concerns there will be no resumption of trade relations.
On the other hand, despite its expressed desire to improve relations with India, Pakistan has failed to take meaningful steps to curb its support for terrorism in India. The recent instances of terrorist attacks in Jammu by Pakistan-based terrorist groups, clearly demonstrate a lack of genuine commitment on Pakistan’s part to foster cordial relations with India.
In contrast, consider Pakistan’s economic relations with the US. According to the Pakistan Bureau of Statistics report for 2023, the US continues to be the topmost export destination for Pakistani goods.
Pakistan’s exports to the US were recorded at $5.1 billion, constituting 21.23 percentage share in the country’s total exports. Likewise, Pakistan imported goods worth over $2.1 billion during the same year, thereby totalling their total bilateral trade over $7.2 billion. This shows Islamabad’s continued preference for overseas trade partners over its immediate neighbours.
It appears that Pakistan is unwilling to shed its dependency on the West and diversify its economic relations, and more so on integrating itself in the regional geoeconomic mix.
Islamabad needs to understand that profound economic engagements with the regional countries are a prerequisite to not only overcome its regional trade isolation but also to forge a meaningful economic recovery.
This is a golden opportunity for Islamabad to leverage its geostrategic position more effectively so as to actively participate in regional trade initiatives to become indispensable to regional economic interlinkages.
Unless and until, Pakistan change its state policy towards its immediate neighbours, it will continue to be a dependent aid economy and will fail to make any meaningful economic recovery.
–IANS
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Investors’ wealth eroded by a massive Rs 9.19 lakh crore on Tuesday as markets came under heavy sell-off with the BSE benchmark index Sensex falling 930.55 points.
Extending its previous day’s decline, the BSE Sensex plummeted 930.55 points or 1.15 per cent to settle at 80,220.72. During the day, it tanked 1,001.74 points or 1.23 per cent to 80,149.53.
The market capitalisation of BSE-listed firms eroded by Rs 9,19,374.52 crore to Rs 4,44,45,649.22 crore (USD 5.29 trillion). “There has been no respite from FIIs selling in local equities in the current month so far, which has been creating uncertainty among domestic investors.
Also, foreign investors are fleeing Indian equities to invest in relatively cheaper locations such as China, especially after the stimulus announcement by its government to boost its slowing economy.
“Along with sectoral stocks, mid and smallcap stocks too bore the brunt as persistent buying had led to valuations in several stocks getting expensive and hence the breather,” Prashanth Tapse, Senior VP (Research) at Mehta Equities Ltd, said.
From the 30 Sensex pack, Mahindra & Mahindra, State Bank of India, Power Grid, Tata Steel, IndusInd Bank, Tata Motors, Larsen & Toubro, NTPC, Bajaj Finance and Reliance were among the biggest laggards. In contrast, ICICI Bank, Nestle and Infosys were the gainers from the pack.
Mumbai, Aug 22 (IANS) The NITI Aayog in its presentation to the Maharashtra government on Thursday suggested a roadmap for the Mumbai Metropolitan Region (MMR) to become a $300 billion economy by 2030 from the present $140 billion.
NITI Aayog CEO BVR Subrahmanyam during his meeting with Maharashtra Chief Minister Eknath Shinde and Deputy CMs Devendra Fadnavis and Ajit Pawar, suggested that the state can achieve this ambitious target with the promotion of MMR as global services’ hub, affordable housing and slum rehabilitation, tourism, port-proximate integrated manufacturing and logistics hub, planned urbanisation and intensive transport oriented development, sustainability projects and world-class urban infrastructure and transport.
NITI Aayog has said that the state government can attract a private investment of $125-135 billion, incremental GDP growth of $130-150 billion and additional capital by the state government of the order of Rs 50,000 crore over 5-6 years to chase the goal of making MMR a $300 billion economy.
“MMR is a $140 billion economy across 5 districts and covering 9 municipal corporations with a 25.8 million population and 10 million jobs. Good news is that MMR is on a positive growth trajectory on the back of $50 billion ongoing infrastructure investments. Our vision is to grow MMR into a $300 billion economy by 2030 and $1.5 trillion economy by 2047,” said Subrahmanyam in the presentation.
According to NITI Aayog, MMR has a potential to become a global services hub due to the existing two world-class business districts, Wadala and BKC for financial services and after the development of Navi Mumbai Aerocity as a global aviation city.
It has suggested that the rehabilitation of 2.2 million slums will create new housing stocks in addition to around 1 million affordable housing for low income and middle income group segments.
NITI Aayog has suggested the state can promote two themed tourism development hubs at Gorai and Madh and Alibaug and implement a masterplan for a 300 km coastline.
Further, the MMR can promote port proximate integrated manufacturing and logistic hub with the development of Kharbav integrated logistic cluster as a multi-modal logistic park, circular economy parks and electronic manufacturing and manufacturing cluster for white goods assembly at Khalapur-Panvel section.
In the wake of the development of Rs 76,000 crore Vadhavan port, NITI Aayog has suggested that it can be exploited for the promotion of green hydrogen, steel, chemicals, integrated textiles and apparels.
Further, the NITI Aayog has suggested that the government should release a slew of policies for services, tourism, affordable housing, and transport-oriented development. In addition, the government will have to craft investment promotion and land allocation policy, simplified and enabling urban planning policies, women-inclusivity blueprint and Green MMR policy.
Chief Minister Eknath Shinde has said that the government is focusing on the construction of affordable housing, development of a data center in Navi Mumbai, and completion of Alibaug Multimodal Corridor. Recently, the state government has cleared projects with an investment of Rs 80,000 crore. The government has stepped up efforts to promote tourism along the 720 km coastline.
(Sanjay Jog can be contacted at sanjay.j@ians.in)
–IANS
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New Delhi, Aug 22 (IANS) Inflationary pressures in the Indian economy eased in July and food inflation is expected to come down further with this year’s better monsoon leading to higher agricultural production, according to the Finance Ministry’s monthly review released on Thursday.
Retail inflation based on the Consumer Price Index eased from 5.1 per cent in June 2024 to 3.5 per cent in July 2024, the lowest since September 2019.
This was mainly due to a significant fall in food inflation. It declined to 5.4 per cent in July 2024 from 9.4 per cent in June 2024, the review states.
The substantial fall witnessed in food inflation was helped majorly by a decline in vegetable inflation from 29.3 per cent in June 2024 to 6.8 per cent in July 2024 and mild deflation in ‘oils and fats’ and spices.
On the other hand, core inflation (which excludes food and fuel) was at a moderate level of 3.3 per cent in July 2024.
Overall, the retail inflation rate moderated to 4.6 per cent in the first four months of FY25 as compared to 5.3 per cent in FY24 (April-July), according to the review.
With moderate core inflation and positive progress in the monsoon, the headline inflation outlook is positive. Assuming a normal monsoon, CPI inflation for FY25 is projected at 4.5 per cent by the RBI, with Q2 inflation at 4.4 per cent.
A steady progress in the southwest monsoon has supported agricultural activity. The cumulative southwest monsoon rainfall was 3 per cent higher than the long-period average up to August 19, 2024. Further, the spatial distribution has improved, with 84 per cent of subdivisions receiving normal or excess rainfall. This has enabled healthy Kharif sowing.
As of August 16, the actual sowing area under total foodgrains was 4.8 per cent higher than the corresponding period of the previous year, while progress in cereals and pulses was 4.6 per cent and 5.7 per cent higher than the previous year.
Corresponding to healthy progress in monsoon, availability of water level in reservoirs improving, ensuring water adequacy for irrigation during current Kharif and upcoming rabi crop production. The storage availability in 150 reservoirs as of August 15, was 111 per cent of the corresponding period of last year and 114 per cent of the average storage of the last ten years, according to the Central Water Commission. This augurs well for healthy food production that will aid in cooling food inflation in the upcoming months. Further, to enhance productivity and resilience in the agriculture sector, various measures have been announced in the Union Budget FY25, the Finance Ministry said.
–IANS
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New Delhi, Aug 22 (IANS) The Indian economy experienced a notable upswing across various economic indicators in July 2024, signalling strong and resilient business activities with both the manufacturing and services sectors posting a robust performance, according to the Finance Ministry’s monthly review released on Thursday.
“The month saw impressive milestones being reached, substantial growth in GST collections, and a significant rise in e-way bill generation, which points to an overall increase in economic activity. The stock market indices also reached record highs in July,” the review states.
On balance, India’s economic momentum remains intact. Despite a somewhat erratic monsoon, reservoirs have been replenished. Manufacturing and services sectors are expanding, going by the Purchasing Managers’ indices. Tax collections – especially indirect taxes, which reflect transactions – are growing healthily, and so is bank credit, according to the review.
Inflation is moderating, and exports of both goods and services are doing better than they did last year. Stock markets are holding on to their levels. Foreign direct investment is looking up as gross inflows are rising, the review states.
Gross GST collections for July 2024 maintained their momentum, achieving their second-highest level since May 2023. The total gross GST revenue rose by 10.3 per cent year-on-year (YoY), bringing the total for FY 25 (April to July) to Rs 7.4 lakh crore.
This increase in GST collections also highlights robust compliance and expansion of GST coverage across various economic activities.
The upward level shift is reflected in the average monthly GST collections rising from Rs 1.68 lakh crore in FY24 to Rs 1.85 lakh crore in FY25.
The year-on-year increase in e-way bills reached a nine-month peak of 19.2 per cent with the total number of e-way bills issued in July surging to 10.5 crore, setting a new single-month record.
According to the review, the manufacturing sector has continued to demonstrate robust performance in the first four months of FY25, as evidenced by the strong performance of various high-frequency indicators.
The Purchasing Managers’ Index (PMI) Manufacturing, a crucial gauge of the economic vitality of the manufacturing sector, stood at 58.1 in July 2024, significantly above the series long-run average and among the highest recorded in recent years. This expansion, driven by buoyant demand conditions and a surge in production volumes, bodes well for the overall health of the economy.
Similarly, the service sector continued to perform well.
PMI services remained in an expansionary zone at 60.3 in July 2024, driven by expansion in international sales, an increase in new order uptakes, and a rise in new export orders.
Despite a rise in wages and material costs which pushed up business expenses, overall sentiment in the services sector remains upbeat, driven, among others, by an upswing in the tourism cum hotel industry induced by leisure travel, business travel, and social events, the Finance Ministry said.
–IANS
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Mumbai, Aug 22 (IANS) Indian stock markets again closed higher on Thursday due to positive sentiment in the markets.
At closing, Sensex was up 147 points, or 0.18 per cent, at 81,053 and Nifty was up 41 points or 0.17 per cent at 24,811.
The market’s positive sentiment was bolstered by optimistic global cues, particularly from the US markets, where the S&P 500 extended its winning streak, reflecting investor confidence amid expectations of potential interest rate cuts by the Federal Reserve.
During the day, Sensex traded in the range of 80,954 to 81,236 and Nifty traded in the range of 24,784 to 24,867.
In the Sensex pack, Bharti Airtel, Tata Steel, ICICI Bank, Titan, Asian Paints, UltraTech Cement, JSW Steel, Maruti Suzuki and SBI were the top gainers. Tata Motors, M&M, Wipro, NTPC, TCS, Power Grid, Sun Pharma, Axis Bank, and Nestle are the top losers.
Thursday’s market rally was led by Nifty Bank which settled up 300 points or 0.59 per cent at 50,985.
Among the sectoral indices, PSU Bank, fin service, FMCG, metal, realty and Private bank were the major gainers. Pharma, IT and energy were the major laggards.
An upward trend was also seen in small and medium stocks in the trading session. The Nifty midcap 100 index was up 400 points or 0.69 per cent at 58,844 and the Nifty smallcap 100 index was at 19,099, up 32 points or 0.17 per cent.
According to market experts, the domestic market witnessed modest gains owing to positive global sentiments.
“Particularly, the recent signs of weakness in the US non-farm payroll data have strengthened the case for potential interest rate cuts in September. However, in the broader market, investors are being cautious, opting for a selective approach, awaiting more clarity from central bank leaders in Japan and the US,” they added.
–IANS
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