Cementing over the India-Pakistan rift

(Fortune Magazine) -- India and Pakistan split nearly 60 years ago. Now cement may bring them together - even as General Pervez Musharraf's grip on power is slipping.

In April ships carrying Pakistan's first bulk consignments of cement started reaching India's shores. There were initial hiccups, but shipments were expected to clear customs by mid-June. Pakistan has a cement surplus of six million tons - while India's building boom has led to a 12-million-ton shortfall.

Current trade, like that at this checkpoint at Waga, India, is just a fraction of what it could be.

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"It is being done in the hope of making inroads into the lucrative Indian market," says Pakistani Food and Agriculture Secretary Ismael Quereshi. The cement shipment was followed in early May by 500,000 tons of wheat.

Annual cross-border trade between the two countries has long been hampered by tensions and limited to small shipments of approved items like pharmaceuticals and foodstuffs. Annual trade has grown from $200 million to $1 billion over the past five years - far short of what the World Bank believes is a potential for $9 billion.

Pakistan's trade stance is linked to resolving the dispute in Kashmir. But it would love to serve as India's gateway to the landlocked, resource-rich Central Asian republics, as well as to Iran.

Pakistan is negotiating two gas pipelines, one with Turkmenistan and another with Qatar, and in April agreed to allow Iran access to countries with which Islamabad has trade agreements, such as China.

Such opportunities are mouthwatering for India, which is energy poor. Prime Minister Manmohan Singh said in April that a "harmonious neighborhood and a reconciliation with Pakistan are important to realize the vision" of the future of South Asia. Translation: It's time to stop fighting and reap the huge economic gains to be had from resolving Kashmir. But with Musharraf fighting for his political life, a concrete solution is not yet in sight.