Forex and Stability on the Indian Subcontinent

Often times the factors that drive currency rates do not start with pronouncements by heads of central banks or the US Federal Reserve. Sometimes a peaceful meeting of heads of state of adversarial nations is a first step to prosperity. Thus we wonder about Forex and stability on the Indian subcontinent after a welcome meeting of the president of Pakistan with the Prime Minister of India. The first visit of the leaders of these two in seven years occurred recently in India. Asif Ali Zardari, president of Pakistan, came to India to visit a holy Muslim shrine. Along the way he met for half an hour with India’s Prime Minister, Manmohan Singh. These leaders met after months if not years of behind the scenes talks aimed at normalizing relations between their nations. The sad fact is that these two nations have engaged in three wars and have been at the brink of a nuclear war during the decades since they were created from the breakup of Colonial India. As events move toward more normalized relations finance, trade, Forex and stability on the Indian subcontinent hold great promise.

The World’s Most Populous Democracy

India is the world’s most populous democracy with 1.2 Billion people. It has the world’s tenth largest economy but, if measured in purchasing power parity it ranks number 3 due to its lower cost of living than the economies of Europe and North America. With nearly 180,000 million people, Pakistan has the sixth largest population in the world. These two nations’ populations combined exceed that of China. As trade groups visit between the two nations and talks for normalizing relations continue there is the chance that this could become the most populous single economic zone in the world. Forex and stability on the Indian subcontinent are intertwined as the Indian rupee and the Pakistani rupee are can be expected to increase in value as trade prospers and tensions settle down.

Economic Growth Machine of South Asia

Prior to the Pakistani president’s visit to India the Pakistani government granted “most favored nation” status to trade with India. This helps Forex and stability on the Indian subcontinent and is a great improvement over threats of nuclear war! Both nations have promised not to let the issues of rights to Kashmir, terrorism, and more get in the way of a steadily improving relationship. Unlike Japan, China, North America, and Europe, both India and Pakistan have young and increasing labor pools. Education and skill levels in trades and engineering are steadily improving and a growing middle class in both nations is helping grow the consumer market. India is well known in the West for its call centers and tech support. Its history as a British colony has left it with ample English skills and strongly democratic political institutions. These factors and an increasingly free market economy are expected to bring India to an economy with purchasing power parity equal to the USA by the middle of the 21st century. Pakistan has seen impressive industrial and technical growth. Its agricultural sector has shrunk as a percentage of its economy but Pakistan still produces more wheat that all of Africa combined and nearly as much as all of South America combined in a given year. India is considered one of the next economic super powers along with Brazil, Russia, South Africa, and China. Pakistan is considered one of the “next 11” with an economy that is expected to grow in par with India so long as regional differences do not reemerge as impediments. Traders will be wise to keep track of Forex and stability on the Indian subcontinent as relations between India and Pakistan move forward.