May 8, 2003	Thursday	Rabi-ul-Awwal 5, 1424

MUMBAI/KARACHI, May 7: The thaw in relations between nuclear-armed rivals India and Pakistan has sparked a market rally and is expected to boost foreign investment in a region that has lagged faster-growing neighbour China.

Indian stocks, which were dawdling at six-month lows, have now risen for six straight days after moves to normalize relations began last week.

Pakistani stocks have bounced to record highs after New Delhi’s promise to restore diplomatic ties with Islamabad raised hopes the two sides could hold summit talks this year, the first in two years.

“It would remove the risk premium that is attached to investments in the region,” said V. Anantha Nageswaran, Singapore-based regional head of investment consulting at Credit Suisse Financial Services.

The latest sign of a thaw came when Islamabad said on Tuesday it would restore severed transport links which, coupled with difficulties in obtaining visas, have made it hard to trade across their common border.

“Both consumers and industries in Pakistan will benefit from cheaper Indian imports,” said Akbar Zaidi, an independent Karachi-based economist. “They will also have access to India’s massive market. Trade with India is a win-win situation.”

Official data shows bilateral trade at around $204 million in the year to the end of March 2002, but analysts say annual trade could be $3 billion including trade via other countries and smuggling. Analysts know the road ahead will be bumpy.

“It is time for business to drive politics and not for politics to dictate business,” said G. Chandrasekhar, commodities editor of Hindu Business Line.

India is the world’s biggest tea producer; rival Pakistan its third-largest importer.

Pakistan is a leading cotton producer; India a traditional importer. It should be a perfect partnership.

“Trade can be the best vehicle for peace,” the Confederation of Indian Industry’s T.K. Bhaumik told Reuters. “Almost everything and anything can be traded between the two countries.”

Bhaumik said trade could pass $1 billion a year from $200 million and grow about 15 per cent yearly if relations improve.

“Trade has been going on between the two countries through Dubai and Iran,” said Haji Majeed, a Pakistani wheat trader.

“If direct trade is opened then it will benefit Pakistan.”

India’s tea industry is keeping its fingers crossed for better relations so it can make inroads into Pakistan’s market.

“Tea appears to be the best bet this year,” Chandrasekhar said.

Pakistan, the world’s largest importer after Russia and Britain, buys 110-130 million kg of tea a year — about 60 per cent from Kenya and the rest from Sri Lanka and Bangladesh.

“We can really pump in tea if the land routes open up,” said Naba Kumar Das, chairman of India’s state-run Tea Board.

“If something is surplus there, it can come down here which we can pass onto the CIS because we have access to Afghanistan,” said Karachi rice trader Akbar Hashwani.

Traders said Pakistan could benefit in the long term by selling cotton grown in the Punjab province, where the price is cheaper and quality is the same, to textile mills in northern India to supplement their local supply.

“There is a potential to import 500,000 to one million bales of cotton every year from Pakistan,” said I.J. Dhuria, general manager of the Vardhman Spinning and General Mills Ltd in Indian Punjab.—Reuters