Saturday, April 14, 2012



I have received many queries from my readers asking for my comments on the security implications of normal economic relations with Pakistan.I will categorise them as follows:

LOW SECURITY IMPLICATIONS: Trade in goods. Expansion of bilateral trade in goods can reduce the trust deficit between the two countries and facilitate a forward movement in improving the comfort level. Its security implications will be the least in the form of an increasing flow of Pakistani intelligence personnel and jihadi leaders to India under the cover of businessmen for establishing contacts with leaders of organisations such as the Indian Mujahideen (IM), for funding them and for giving them instructions. These threats could be managed by the intelligence agencies which have a long experience of dealing with Pakistani intelligence activities in Indian territory and have a good data-base on this.Trade in goods would not enable the ISI to destabilise our economy.


Trade in services and Foreign Direct Investment (FDI).This could enable the Pakistani intelligence to acquire a key presence in sensitive sectors of our economy such as banking, telecommunications, information technology etc and use the presence to disrupt our economy and collect strategic intelligence regarding our economic deficiencies that could be exploited by them.Our intelligence agencies are not yet in a position to deal with such threats effectively and do not have a good data-base on the likely threats and modus operandi of the Pakistani agencies.Even in the case of China, we went slow in these two sectors and even now our intelligence agencies have strong concerns over the wisdom of our allowing Chinese telecom and internet companies a presence in India. It has taken our intelligence agencies nearly 15 years to build up a data-base on Chinese companies with suspected links to their intelligence.They managed to build the data base because they got a lot of data from the intelligence agencies of Western countries which closely monitor Chinese companies.Such data-sharing will not be possible in the case of Pakistani companies which have a little presence in the economies of Western countries. We should, therefore, go slow and build up the capabilities and data-bases of our agencies before we allow Pakistani companies in these fields.


Foreign Institutional Investments in our stock markets. This has the highest security threat.Allowing either China or Pakistan to invest in our stocks will give them a capability to disrupt our economy through manipulation of their stock holdings.Our intelligence agencies will always be against any FII by either Pakistani or Chinese investors in our stock markets.Should not be allowed.( 14-4-12)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai, and Associate of the Chennai Centre For China Studies. E-mail: . Twitter @SORBONNE75 )


Vihan said...

I would add some additional concerns :

0)If Pakistani companies start Ponzi or Pyramid schemes and other fraudulent practices alone or in join ventures with legitimate or crooked Indian companies they hurt Indian investors. If such scams are done and the money exits the country and the crooks run away to Pakistan, we can forget about getting both back via legal channels.

1)Thus, I am inclined to say that we should not have any economic relationship unless we have an iron clad extradition treaty which Pakistan can't ignore like it does our Interpol Red Corner notices against Dawood Ibrahim and others.

2)It is after all logical that any business relationship has a basis in contractual obligation which in turn has a basis in law. Without a legal framework concerning monetary transactions for trade between the two countries there is a high risk to both parties, it is unwise to have business dealings in good faith alone least of all with an entity with a record as dubious as that of Pakistan. I don't know if any WTO rules can apply here, even if they do would Pakistan obey them or run to the US and China for intervention with a gun on its own head as always? How will financial dispute settlement be done for various deals from one to the other? Where will the arbitration be done if necessary? These are questions to which we need answers.

3)With the entry of goods and people from Pakistan, the entry of narcotics, and fake currency will be accelerated and thus our vigilance will have to be better. I don't know how it is presently, but this action mandates speedy improvement of it.

4)There is another a strategic as well as moral question: The Pakistan Army has a vast economic penetration of the Pakistani state. They control most or all of the land freight via the National Logistics Cell, they are the largest landowner in the country, they have a majority stake in the Karachi stock exchange, additional control over major Pakistani companies in cahoots with businessmen of feudal extraction. Should we really be creating more money for the Pakistan Army?

Best Regards,

- vihan

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Fristly, @Raman Sir- Hats off to the article you have written.The clarity of your thinking with genuine concerns of the issues are lucidly put forth.I have been a regular follower of your blog.

@Vihan I share the most of your views, but having stubborn stand of this kind (though reasonable) would not help in improving relationship with Pakistan.For, peace in Kashmir, a better relationship with Pakistan is utmost required.With more economic trade, more would be people to people contact and further, larger will be things at stake in the event of worsening of ties.This would lead to more people not supporting pseudo-Jihad and cross border terrorism & antagonism.And, probably this can lead to a long term solution to the region's problem.

Vihan said...
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Vihan said...

@Jagdish I understand your points, only, if God forbid, we have any one of the following:

0)Financial crimes by Pakistani businessmen who may or may not be associated with the Pakistani establishment. Who later run away to Pakistan with their ill gotten gains in absence of an extradition treaty and legal framework to handle such situations.

1)Further financial strengthening of the Pakistan Army and consequently the ISI who are if not more brutal with their own people than with India.

2)A high deficit trade relationship where we end up losing more and becoming a raw material colony and dumping ground while being denied access to their economy and only making money from foreign companies in Pakistan as is the case with our trade relationship with the People's Republic of China.

The relationship will worsen over time and thus prove counter productive.

Regarding trade as a means to solving other issues, if it has not helped us in the case of the People's Republic of China, I doubt it would help with Pakistan. In our bonhomie and altruism let us not repeat the mistakes of the past.

Krishna Kacker said...

Tend to agree with your analysis on all points.
Why should India permit FDI facilities to Pakistan.They should first prove their bonafides.Our experience so far has not been good.