Over the years, I have been accused of excessive optimism in the face of harsh realities as I consistently argued for peace between India and Pakistan. One reason for this Pollyanna approach is that I have been convinced that without peace, there can be little meaningful development in the two countries, home to some of the poorest people on this planet.

With the vast expenditures diverted to defence, the two governments have little left over for investments in the physical and social infrastructure. And with the constant threat of war hanging over the subcontinent, there has been far less foreign investment coming in than a peaceful region would have attracted.

Although India has done far better than Pakistan in both these areas, its huge population has meant that millions of Indians are still living in abject poverty. Indeed, this is the very constituency that voted the BJP government out and took the shine off the economic gloss.

Now that both governments are committed to talks over the entire spectrum of bilateral issues including Kashmir, it is tempting to look forward to a scenario where normality finally prevails along the Indo-Pak border.

But first, for those to whom the concept of friendly relations between the two feuding nations is strange, here is a bit of historic trivia to put things into context: in 1948-49, 56 per cent of all of Pakistani exports were destined for India, while 32 per cent of all our imports came from our neighbour.

This bilateral trade fell to a trickle in the fifties as relations deteriorated, but these figures give an indication of the volume of goods that once crossed the border.

Currently, informal trade (an euphemism for smuggling and goods carried in both directions as personal baggage) as well as trade through third countries far outweighs the formal trade which was only $293 million a couple of years ago.

Out of this figure, Pakistan's exports amounted to a paltry $55 million while India exported $238 million worth of goods and services to us. Clearly, there is no other direction these tiny amounts can go but up.

But small as they are, many decision- makers in Islamabad believe that the imbalance in trade they reflect would only be multiplied several times over if trade is opened up.

So what if it does? As it is, Pakistan has consistently posted negative trade balances with most of its principal trading partners. Buying goods from India instead of importing them from Japan or the West would mean a far better deal for Pakistani consumers as both production and transport costs would be lower.

But the long-term scenario for Indo-Pak trade is not so one- sided, according to many Pakistani businessmen and economists. Just because relations have been so abnormal over the years, no trade pattern has had the time and stability to evolve.

Businessmen and entrepreneurs on both sides have not yet had the opportunity to take stock of prospects and explore the many possibilities. Investment decisions need time and a thorough knowledge of the markets and the ground rules. Above all, especially in our context, entrepreneurs need to develop personal as well as institutional contacts.

Obviously, free trade between India and Pakistan would mean severe dislocations for many industries, and some of the less efficient ones would go to the wall. But this kind of shake-out happens when competition is severe: witness the jolt our engineering sector received when cheap Chinese products flooded our markets.

But sink or swim is the name of the free-trade game. The more efficient Pakistani units will thrive by having a bigger market, while inefficient ones might have to shut down if they cannot swiftly restructure their operations.

There will be opportunities and pitfalls aplenty in a suddenly expanded market, and the race will go to the flexible and the innovative. The consumers will benefit from greater choice and lower prices.

In the short term, Pakistani manufacturers will be at a disadvantage as their Indian competitors will benefit from economies of scale as they already serve a huge market. In the capital goods sector, India will be at a considerable advantage as over the years, Pakistan has tended to import heavy machinery rather than manufacturing it locally.

But in the energy sector, Pakistan stands to profit from gas pipelines from Iran and Central Asia to India. Apart from the transit fees which will exceed a billion dollars a year, we would be able to buy gas at cheaper rates than we are currently paying for indigenous natural gas.

For those who think that we can't compete, PIA is a success story worth examining. When Pakistan declared an open-skies policy a decade ago, the national airline's weaknesses were exposed as foreign operators took a sizable chunk of its market share.

Its high operating costs caused by over-staffing meant that it could not slash fares without incurring losses. Its ageing fleet and shambolic management were all symptoms of the archaic controls exercised by the state in what should have been a purely commercial enterprise.

But since a professional chief executive was inducted and given greater powers and freedom to operate, the airline has been turned around. It is now profitable, and in the midst of a major fleet renewal programme.

As we contemplate competing with India in the boardrooms instead of the battlefield, we should not imagine that all of Indian industry is at the cutting edge: fortunately for us, much of it is pretty inefficient, and the large state sector continues to be a drag on its economy.

Once trade builds up momentum and entrepreneurs develop confidence in the peace process, we will find mergers and acquisitions taking place that will integrate the two economies over time. These vested interests will build up powerful constituencies for peace that will prevent politicians from dragging the two countries back to the brink.

Trade between the two traditional foes will act as a powerful engine for the entire Saarc region. Currently, Pakistan imports only two per cent of its total import bill of $12 billion from its regional partners.

Once trade and travel are normalized, tourism will receive a powerful boost, generating employment in remote regions. India is already a major force in this sector, and its burgeoning middle class would come across in large numbers.

They are already the largest group of tourists visiting Sri Lanka; many of them have been waiting to visit Pakistan for sentimental reasons. Large Indian hotel chains would want to invest in properties in Pakistan.

Free trade between India and Pakistan is a win-win situation for the people, entrepreneurs and governments. Let us not allow negotiators to drag their feet on the way to peace and prosperity.