Pakistan gives India MFN status, India Inc rejoices

India had given Pakistan the MFN status in 1996 but Islamabad did not respond positively. Ties between the two countries deteriorated after the Mumbai terror attack in 2008 for which Pakistan was blamed.

Wednesday's decision was taken at a cabinet meeting chaired by Prime Minister Yousuf Raza Gilani. It said the move would help expand bilateral trade relations, Xinhua reported.

Hailing the decision, the Federation of Indian Chambers of Commerce and Industry (FICCI) said the MFN status would have an exponential effect on growth of bilateral trade.

"It is a big moment which will not only double bilateral trade immediately but also put back life into the South Asian Free Trade Agreement (SAFTA)," Rajiv Kumar, secretary general of FICCI, told IANS.

"Now trade which was being conducted via Dubai can take place openly. This would immediately reflect in the books," Kumar added.

India-Pakistan trade was logged at $2.5 billion in 2010-11 and the two countries are targetting to double this in the next five years.

When a country grants a foreign territory the MFN status, it signifies that import barriers would be lowered and import quotas raised for goods originating from that country.

Pakistan would now loosen import restrictions from India. At present, Islamabad allows import of only 1,946 items from New Delhi. India does not permit trade in 850 items with Pakistan.

The Confederation of Indian Industry (CII) claimed that Pakistan's decision would send trade soaring and reach a volume of $8 billion in less than five years.

"The MFN status will substantially reduce illegal and third country trade with the potential of raising official bilateral trade to $8 billion in less than five years," said Chandrajit Banerjee, Director General of CII.

"However, road blocks like stringent visa rules, difficulty in communication and opening of more trade routes still need to be addressed. As a next step, it is imperative to look at allowing bilateral investments to further strengthening economic cooperation and enhancing people to people contacts," added Banerjee.

The Pakistani government had hinted at granting the MFN status to India during the visit of its Commerce Minister Makhdoom Amin Fahim in September.

The Pakistan Readymade Garments Manufacturers and Exporters Association welcomed the decision, saying this would help Pakistan gain a foothold in one of the fastest growing markets in the world.

But the Pakistan Automotive Manufacturers Association said Pakistan should be cautious as both countries were rivals in the automobile industry.

There has been opposition from several quarters in Pakistan to granting MFN status to India over fears that its domestic market would be flooded by Indian imports.

"There are fears that Indian goods will swamp the Pakistani market but these are uncalled for. In my interaction with Pakistani businessmen they show confidence that they can hold up on their own. Also, the Pakistanis will have access to the much larger Indian market," said FICCI's Kumar.