The current deadlock in India Pakistan relations is fraught with grave dangers of catastrophic conflict. Yet it is also pregnant with new possibilities of peace. This is indicated by two qualitatively new changes in Pakistan's official position articulated by President Musharraf: (i) Making a break from the past, President Musharraf has offered unconditional talks with India. (ii) The offer to cooperate with India in together combating terrorism in the two countries. By contrast, only recently when the armies of the two countries were confronting each other along the border, threats of nuclear war were being exchanged. As I have argued in last week's article, the danger is all too real in a situation where: (1) India continues to accuse Pakistan of "cross border terrorism" and Pakistan claims that the militancy in Kashmir is a "freedom struggle". (2) Given the imbalance in conventional military forces, in case the existing tensions erupt into a conventional war, the nuclear threshold could be reached very quickly. Clearly therefore the current knife-edge of a no war no peace situation is unsustainable. If the two countries do not take bold and imaginative steps for a lasting peace, there is a high probability of slipping off the knife-edge into mutual annihilation. In this article we will briefly indicate the stakes for peace and the specific steps for mutually assured development, (as opposed to mutually assured destruction), that can be taken.

Let us start with the strategic dimension of the political economy facing the two countries. India's economic strength lies in the fact that having established a heavy industrial base during the Nehru period in the 1950s, its economy during the 1990s has been launched on a high growth trajectory. With a domestic technological change capability, international competitiveness in selected cutting edge sectors like software and electronics, it has developed an export capability, high levels of foreign investment and huge foreign exchange reserves. Yet, one third of its population still lives in poverty. To sustain its GDP growth and overcome poverty, India will need to establish: (i) An efficient infrastructure for the supply of oil, gas and electricity and (ii) Markets for its manufactured exports in South Asia and abroad. These key requirements for sustaining its impressive GDP growth mean that India's economic interests are best served by making peace with Pakistan so that South Asia can quickly move into SAFTA (South Asian Free Trade Area), and at the same time secure economically feasible oil and gas pipe lines and rail and road transportation routes from Central Asia through Pakistan.

Peace and economic cooperation with Pakistan is necessary for India not only to secure its strategic economic interests but also to maintain its secular democratic polity. A high growth, open economy framework for India today is inseparable from a liberal democratic political structure, as it was for Europe and the U.S. in the nineteenth century. Therefore the growing social forces of Hindu nationalism, intolerant of its minorities will undermine India's secular democratic structure as much as its economic endeavour. Continued tension between India and Pakistan, will only fuel extremist religious forces in both countries, to the detriment of their economy and polity.

Pakistan by contrast has an economy growing far below its potential, has stagnating exports, a fragile exchange rate, a major poverty problem, and incipient social forces of religious extremism that can grow rapidly if poverty persists and tension with India continues. Peace with India will mean a substantially improved environment for domestic and foreign investment. Those Pakistani industries that can achieve international competitiveness, will grow rapidly within the large regional market of SAFTA. At the same time the capital costs of investment in Pakistan will be reduced as cheaper capital and intermediate goods from India (compared to imports from Europe and the U.S.) become available, thereby accelerating GDP growth. The real incomes of Pakistan's middle and low-income groups will also increase as they get cheaper consumer goods from India. Electricity costs for Pakistani consumers will fall as Pakistan's thermal power plants achieve better capacity utilization through export of electricity across the border to India.

Thus through peace, both India and Pakistan can reap economic benefits for their people, and secure their respective democratic structures against the forces of religious extremism. The national security of both countries is threatened not by the neighbour across the border but internal social forces of violence, intolerance and poverty. A new structure of peace would reduce for their respective nations the danger of mutually assured destruction through war, and also provide them economic and political stability. Thus national security in both countries will be enhanced, by providing increased security of life and livelihood to their respective nations.

What are the steps to building a new structure of peace and development between the two neighbours who are currently locked in the syndrome of war and economic attrition? They are five initiatives: (1) Since there is contention between India and Pakistan on the issue of cross border terrorism, indirect talks through shuttle diplomacy could be initiated under the auspices of the U.S. The purpose would be in the first instance to establish a mutually verifiable regime of preventing cross border incursions of armed militants in both India and Pakistan. (2) A return to normalcy in diplomatic relations between the two countries. (3) Immediate opening up of trade relations between the two countries on the basis of granting MFN status according to the terms of the World Trade Organization Agreement. (4) To give an immediate multi billion dollar boost to the tourist industries of the two countries, visa requirements should be eased, road, rail and air transport should be opened up and group tours for holiday makers should be encouraged in both countries. (5) A structured dialogue between the two countries should be initiated to resolve all outstanding issues including Kashmir.

Mutual demonizing, fear and egotism have characterized India Pakistan relations in the past. Leaders in the two countries have been held hostage by their extremist political lobbies and narrow-minded bureaucracies. We need to open our minds and hearts to provide a better future for our people. It is time to recognize that the current no war, no peace situation is unsustainable. We can either live together in peace, or perish together in war.