Business Is a Must for India, Pakistan

India and Pakistan appeared to be backing away from full-scale war as the new year began, and that was good news for world markets on many fronts.

Now that the two countries have nuclear weapons, any new conflict comparable to India and Pakistan’s 1965 war over disputed Kashmir could send financial markets worldwide into a tailspin.

Also, the conflict interrupts progress for both countries. India and Pakistan have moved in recent years to reform their economies to create opportunities for their people and for foreign investment.

“Despite current tensions, both countries realize the danger and will resolve the current dispute diplomatically,” says Safi Qureshey, a Pakistani-born Orange County entrepreneur.

Qureshey, who returned from a trip to Pakistan on New Year’s Eve, reports that business contacts between the two countries are growing, particularly in high-tech industries. “In every city in Pakistan you see Internet companies developing. And many of the companies are extensions of India’s successful software firms,” says Qureshey, whose latest venture is Avaz Networks, a semiconductor and communications-software firm located in Pakistan and Irvine.

The potential is great for further economic cooperation. Pakistan has oil and natural gas deposits, which it is now developing, and electrical energy that it could supply to power-short India if tensions eased.

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‘Futile Hostilities’

Of course the potential is enormous for both countries, particularly if India and Pakistan could devote their energies to building modern economies instead of war machines. Neither country can afford what Indian Prime Minister Atal Behari Vajpayee termed “futile hostilities” in a statement Monday.

India, despite a large middle-class population and high-tech abilities, remains one of the largest underdeveloped economies on Earth. India’s population, at 1.1 billion, is 10 times larger than that of Mexico, yet India’s economic output--gross domestic product--is only comparable to that of Mexico at about $500 billion.

India, though a democracy, ranks way behind Communist-

ruled China in attracting business investment.

But then China began to open its economy in 1978 under the late leader Deng Xiaoping; India and Pakistan started to privatize state industries and open to foreign investment only in the 1990s.

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Burdened With Debt

Pakistan, at 142 million people--small by the standards of populous Asia--has only $65 billion in annual economic output, yet is saddled with $40 billion of debt to other nations.

Because of its support in the war on terrorism, Pakistan is getting relief on some of those debts and will receive U.S. aid totaling about $1 billion. Also, Pakistan is undergoing a $6-billion privatization of its state industries, including banking and electric power, says Shezad Rokerya, chairman of Interlink Co., a Los Angeles investment firm buying banking companies in Pakistan.

The United States has a big stake in the peaceful development of both countries because they are strategic for all of Asia and because U.S. economic ties have grown in recent years.

Indian and Pakistani entrepreneurs have built dozens of U.S. companies in the last decade. And U.S. investment, particularly to India, has grown to more than $1 billion a year.

U.S. companies now rely on India for about $700 million in information services annually, ranging from computer software by programming companies in Bangalore in southern India to engineering services and biotechnology research by Indian companies and institutes.

Also, India is becoming a center for back-office services, in which Indian employees handle customer-service calls by phone and the Internet for Amazon.com and other firms in the United States and other countries. Such jobs are low-paid, but they represent an advance from subsistence village agriculture for thousands of Indian youngsters.

So some trends are positive. What steps must India and Pakistan take to increase economic growth? And how can the U.S. help most effectively?

First, it is imperative that both countries increase the education levels of their young populations.

Pakistan needs to build schools and educate more teachers for the schools it has, says Mehnaz Akber, an education specialist working with development institutes in Islamabad.

“Distance learning through the Internet could do much to improve education in a country lacking school buildings,” entrepreneur Qureshey says.

India boasts a proficient higher education system, key to the success of Bangalore software firms such as Wipro Ltd. and Infosys Technologies Ltd. But it needs to pay greater attention to primary and secondary education, says C. Chris Fair, a South Asian expert at Rand Corp.

Only 49% of India’s school-age population attends high school (and 36% of Pakistan’s), compared with 70% of China’s youngsters and 64% of Mexico’s. That’s a significant weakness for a country offering information services to the world.

And both nations would help their economies if they could reduce their heavy expenditures on defense. Pakistan, ruled by its military, spends 24% of its government budget on defense. India devotes 19% of its budget to the military. More funds would be available for social and educational purposes if those defense budgets could be cut.

And more economic cooperation on tourism, energy and high-tech industries could help bring that about.

Qureshey visited Pakistan’s president, Gen. Pervez Musharraf, on his latest trip and says, “The United States can help ease tensions, mostly working behind the scenes.” Presumably, we could be doing just that in the new year’s easing of tensions.

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James Flanigan can be reached at jim.flanigan@latimes.com