In March 2011, the Pakistan Peoples Party (PPP)-led government resumed the composite dialogue with India, with the rapid pace of its economic liberalisation program demonstrating political will to normalise bilateral relations. The November 2011 decision to grant Most Favoured Nation (MFN) status to India by the end of 2012 is not merely an economic concession but also a significant political gesture. Departing from Pakistan’s traditional position, the democratic government no longer insists on linking normalisation of relations with resolution of the Kashmir dispute. India no longer insists on making such normalisation conditional on demonstrable Pakistani efforts to rein in India-oriented jihadi groups, particularly the Lashkar-e-Tayyaba (LeT), responsible for the 2008 Mumbai attacks and hence suspension of the composite dialogue. The two countries need to build on what they have achieved, notably in promising economic areas, to overcome still serious suspicion among hardliners in their security elites and sustain a process that is the best chance they have had for bilateral peace and regional stability.

Within Pakistan, the normalisation process enjoys broad political support, including from the Pakistan Muslim League (Nawaz, PML-N), the largest opposition party. Viewing liberalised trade with India as in Pakistan’s economic interest, the PML-N also believes that broader economic ties would provide a more conducive environment to address longstanding disputes like Kashmir.

Liberalised trade, stronger commercial links and deeper bilateral economic investment would strengthen moderate forces in Pakistan’s government, political parties, business community and civil society. Yet, an effective integration of the two economies would only be possible if Pakistani and Indian traders, business representatives and average citizens could travel more freely across borders. For this, the stringent visa regime must be relaxed, including by significantly reducing processing times, granting multiple-entry visas, eliminating police reporting requirements and removing limits on cities authorised and the obligation for entry and exit from the same point.

However, Pakistan’s ability to broaden engagement with India and move beyond Kashmir depends on a sustained democratic transition, with elected leaders gaining control over foreign and security policy from the military. Pakistan must also counter anti-India oriented, military-backed extremist groups. These include the LeT – banned after the 2011 attacks on the Indian parliament but re-emerging as the Jamaat-ud-Dawa (JD) – as well as the Jaish-e-Mo­hammad and similarly aligned outfits. A powerful military, deeply hostile towards India, still supports such groups and backs the Pakistan Defence Council (PDC, Defa-e-Pakistan Council), a new alliance of jihadi outfits and radical Islamic and other parties aligned with the military that seeks to derail the dialogue process.

Within India, with suspicions of Pakistani intentions still high, Prime Minister Manmohan Singh has limited political support for talks that do not prioritise the terrorist threat. Another Mumbai-style attack by a Pakistan-based jihadi group would make such a dialogue untenable. It could also provoke a military confrontation between the two nuclear-armed neighbours. Meanwhile New Delhi’s heavy-handed suppression of dissent and large military footprint in Jammu and Kashmir (J&K) alienates Kashmiris, undermines Pakistani constituencies for peace and emboldens jihadi groups and hardliners in the military and civil bureaucracies.

There are numerous other impediments. Water disputes, for example, could place the Indus Waters Treaty (IWT) of 1960, which has successfully regulated the distribution of a precious resource between the two countries for over five decades, under greater strain. India, with its larger population and mushrooming energy requirements, uses much more of the shared waters, and its domestic needs are rising, while Pakistan depends increasingly on them for its agriculture. With India constructing several dams in the Indus River Basin, the Pakistani military and jihadi groups now identify water disputes as a core issue, along with Kashmir, that must be resolved if relations are to be normalised.

Islamabad/Brussels, 3 May 2012