KARACHI, Oct 14: Two Pakistani commercial banks — Bank Alfalah and National Bank of Pakistan — are setting up their branches in India, while two Indian banks — State Bank of India and Bank of India — are opening their branches in Pakistan on reciprocal basis.

State Bank of India is a commercial bank while the Reserve Bank of India is the central bank. The decision to open commercial banks in each other countries was taken recently when State Bank of Pakistan Governor Dr Ishrat Husain visited Mumbai and held meeting with his counterpart and senior commercial bankers.

Well-placed sources say that teams of the bankers from India and Pakistan are expected to visit each other country to finalize arrangements for setting up mutual banking relations by the end of 2005.

The year 2006 will mark the formal launching of South Asia Free Trade Agreement (Safta) under which all the seven-member countries will give each other tariff exemption on selected categories of goods.

On the bilateral basis, the trade between Pakistan and India has picked up steadily. Pakistan opened up its market to Indian goods in a big way by allowing duty-free import of meat, vegetables and pulses.

Indians are still not too happy as Indian Foreign Minister Natwar Singh during his meeting held recently with businessmen in Karachi complained that lack of a negative list of items by Pakistan hampered the flow of goods from his country to Pakistan. His suggestion was that a negative list of items would provide an opportunity to the traders of his country for exploring a vast area of merchandise goods. He was also not happy that India has not yet been given the most favoured nation (MFN) status by Pakistan, though Pakistan enjoys the same.

Pakistani businessmen complained that there were many non-tariff barriers for them in export to India. India refuses to treat goods as Pakistan made in case the inputs exceed a certain ratio.

“Pakistan’s export to India will never be able to exceed $750 million mark,” a senior official of the commerce ministry explained in an informal briefing. The Indian import regime remains restrictive despite a big market. The Indian government offers subsidy to agriculture and industry that make its agricultural and industrial products competitive in the international market.

Pakistan has recently offered a six per cent concession under the research and development to certain categories of industrial products that is being regarded as subsidy.

India desperately wants transit facility for trade with Afghanistan and Central Asian states. Pakistan is using the Indian demand as a lever to settle political issues and is not ready to concede on this count.