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“Improved India-Pakistan 

relations will fundamentally alter Pakistan’s strategic 

outlook, dismiss the relevance 

of militant proxies and allow 

India and Pakistan to work 

jointly in tackling terrorism.”

July 15, 2011

Optimism and Obstacles in 

India-Pakistan Peace Talks

Summary

•	 Following March 2011’s “cricket diplomacy,” there is reason to be optimistic about progress on 

South Asian normalization as India and Pakistan have resumed bilateral dialogues.

•	 Improved relations are critical to U.S. interests in South Asia with respect to the stabilization 

of Afghanistan, reduction in Pakistan-based militant threats, and alleviation of regional 

nuclear tensions. 

•	 Terrorism and the Kashmir issue remain the most toxic points of divergence which could derail 

progress as in past bilateral talks. 

•	 Bilateral economic agreements should be pursued in order to enable commercial progress to 

facilitate political reconciliation.

•	 With the looming drawdown of international forces from Afghanistan in 2014, and the subsequent shift in the regional power balance, it is imperative that the international community 

utilize its leverage to ensure that Pakistan-India talks progress. 

After a prolonged hiatus following the November 2008 Mumbai terrorist attacks, India and 

Pakistan have reinitiated bilateral dialogue. Both have been candid in their admission that peaceful 

coexistence is critical to their interests. Though these new rounds of secretary level talks present a 

moment of optimism not seen since the collapse of bilateral talks in 2008, questions remain over 

the feasibility of successful outcomes, particularly in light of continual sticking points such as the 

territorial dispute over Jammu and Kashmir and terrorism. Answers to these questions are crucial 

not only for India and Pakistan, but also for the U.S.’s interest in ensuring stability in South Asia.

One Step Forward, Two Steps Back 

Since partition, peace between India and Pakistan has been challenged by territorial disputes 

and competing state narratives. With the Kashmir issue at the heart of their mutual animosity, 

India and Pakistan fought three wars in the first quarter century of their existence. In 1989, the 

rivalry experienced a paradigm shift when Pakistan chose to support an insurgency in Indian 

Kashmir through militant proxies. This shift saw further escalation in 1998 when India, followed 

by Pakistan, tested nuclear weapons. These nuclear tests heightened international anxiety, leading to imposition of international sanctions on both countries. In seeking to ease international 

pressure, India and Pakistan initiated talks which resulted in the “Lahore Declaration,” signed 

by the two countries’ prime ministers on February 21, 1999. The declaration committed India 

Stephanie Flamenbaum

E-mail: sflamenbaum@usip.org

Megan Neville

E-mail: mneville@usip.org

peaceBrieF98
© USIP 2011 • All rights reserved.

Optimism and Obstacles in India-Pakistan Peace Talks

page 2 • PB 98 • July 15, 2011

and Pakistan to “intensify their efforts to resolve all issues.”1 Three months after Indian Prime 

Minister Vajpayee’s symbolic ride on the inaugural bus trip from New Delhi to Lahore, however, 

the promises of the declaration were abandoned when Pakistani-backed infiltrators triggered a 

limited war in the Kargil region of Kashmir. 

When tensions peaked again in 2001-02 following a terrorist attack on the Indian parliament, 

prospects for resuming talks seemed unattainable. Nonetheless, the potential for a stalemate 

in the protracted crisis and international pressure for resolution once again led the two sides to 

the negotiating table in 2004. The resulting Composite Dialogue lasted five years, during which 

the public diplomatic gestures of Indian and Pakistani leadership facilitated discussion and 

softened attitudes among civil society and the media on both sides. More importantly, closeddoor dialogues made substantial progress in drafting the conditions for peace. In addition to 

confidence building measures (CBMs), including the resumption of New Delhi-Lahore bus service 

and a number of concessions on the Line of Control (LoC) in Kashmir, comprehensive backchannel negotiations launched in February 2004 brought India and Pakistan close to agreement on 

Kashmir, the Siachen Glacier, and Sir Creek, the key outstanding issues. In the New Yorker article, 

“The Back Channel,” journalist Steve Coll argues that these talks signified “an end to covert wars 

and suspicion” which could have established a “transformational peace.”2

True to the oscillatory nature of the India-Pakistan relationship, the progress of the Composite 

Dialogue was derailed after the 2008 Mumbai terrorist attacks. It was not until the emergence of 

“cricket diplomacy” between the Pakistani Prime Minister Gilani and Indian Prime Minister Singh at 

the March 2011 Cricket World Cup semifinal between India and Pakistan that the two sides agreed 

to resume negotiations. Currently, secretary level talks suggest that the driving forces may once 

again favor a settlement between the two long time rivals. 

The U.S.’s Stake in Normalization 

Normalization of relations is critical to the U.S.’s foreign interests and domestic security concerns. 

U.S. efforts to stabilize Afghanistan, address larger counterterrorism pursuits and strengthen 

bilateral relations with India are unlikely to succeed fully unless India and Pakistan make progress 

toward rapprochement. 

The U.S. could benefit doubly from an improved India-Pakistan relationship. First, Pakistan’s 

strategic mindset, often singled out by policymakers in Washington as a key impediment to 

America’s ability to achieve its objectives, remains intrinsically linked to Pakistan’s perception of a 

threatening India. Although officially denied, many contend that the security establishment still 

views some Pakistani-based militant organizations as assets to their India policy. Neither monetary 

inducements nor concerns about growing internal instability over the past decade have forced 

the Pakistani military establishment to rethink its affinity for strategies condoning militant activity. 

The current regional theater affirms that the only path capable of sustaining a transformation in 

Pakistan’s security calculus that will engender resolve to eradicate militant forces and to eliminate 

concerns about a hostile government emerging in Kabul travels through New Delhi. Improved 

India-Pakistan relations will fundamentally alter Pakistan’s strategic outlook, dismiss the relevance 

of militant proxies and allow India and Pakistan to work jointly in tackling terrorism. The July 13, 

2011 Mumbai bombings, believed at the time of this writing to have been carried out by the 

Indian Mujahideen, indicate that India is not immune to domestic terror threats. The bombings 

subsequently highlight the need for India and Pakistan to cooperate rather than quarrel over 

terrorism as it remains a regional challenge.
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Optimism and Obstacles in India-Pakistan Peace Talks

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Second, developments that assuage tensions will allow the U.S. to forge more substantive 

and advantageous partnerships with India and Pakistan. As a result of India and Pakistan’s 

deeply rooted mutual suspicion, U.S. diplomatic, economic and political outreach attempts 

are inhibited by South Asia’s zero sum framework. The onset of the U.S.-India strategic alliance 

which has included expanded economic cooperation, a civil nuclear deal, and defense contracts 

has left Pakistan discontented. Pakistan sees the U.S. as having tilted in favor of India and in the 

process having upset the regional India-Pakistan balance. India, on the other hand, continues to 

see Pakistan’s importance in Afghanistan as dissuading the U.S. from pressing Pakistan sufficiently to tackle anti-India militants on its soil. In essence, even though the U.S. has consciously 

moved away from a zero sum approach towards these two countries, India and Pakistan have 

not. As long as the rivalry dominates Indian and Pakistani mindsets, the U.S. will never be accepted as a neutral party and any outreach attempt will be interpreted negatively in the 

South Asian context. 

Key Challenges to Normalization 

Despite whisperings of progress, there remain two keys sticking points that could derail the current momentum that the current round of talks between Indian and Pakistani leaders have begun 

to generate. First, resolution on Kashmir faces staunch political roadblocks despite Pakistani and 

Indian leaderships’ backchannel acknowledgment of a mutually agreeable basis for a settlement. 

Since the Mumbai attacks, the public sentiment in India is hostile, and Pakistani political parties 

have disowned the progress made in the Composite Dialogues, contending that frameworks 

agreed upon were authorized by a military dictator seen to lack the mandate for such unilateral 

decisions. Moreover, the Kashmir-related CBMs that sought to enhance interaction between Indian 

and Pakistani Kashmir have only been partially successful owing to their limited scope and bureaucratic hurdles, a reality which has prevented Kashmiris from developing genuine interdependence 

despite a desire to move forward. 

The second point of divergence is terrorism. Pakistan’s inability to curtail militant activities and 

prosecute terrorists in a sincere manner is a serious concern of India. India suffered tremendous 

‘reputational’ costs following the 2001 and 2008 terrorist attacks by Pakistani-based militant 

organizations as its inaction in the face of these attacks brought into question the utility of India’s 

nuclear deterrent against subconventional attacks.3

 As a result, India has vowed to move forward 

on normalization only following demonstrated Pakistani commitment to countering terrorism. 

For reasons grounded both in will and capacity, Pakistan is unlikely to fully satisfy Indian demands. 

India is likely to remain wary of Pakistani intentions and lack the confidence that would allow 

both sides to forge ahead without continuously pointing to past failings. Without this confidence, 

the dialogue process will continue to be held hostage to the threat of another terrorist attack on 

Indian soil traced backed to Pakistan-based militants. 

Steps Forward Through Shared Economic Interests

One potential and hitherto underexplored avenue with potential to change the nature of IndiaPakistan ties is economic cooperation. As Shahid Javed Burki notes in Changing Perceptions, Altered 

Reality, the cost of ongoing conflict, particularly costs tied to military expenditures in Kashmir, has 

regularly proved capable of bringing India and Pakistan to the negotiating table. This was evident 

in the negotiation of the Indus Water Treaty of 1960, in which economic and environmental benefit 

for both sides diffused negotiating tensions, supplemented by the economic leverage held by the 

international community. 
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Optimism and Obstacles in India-Pakistan Peace Talks

page 4 • PB 98 • July 15, 2011

In more recent years, efforts to unite Indian and Pakistani Kashmir through cross LoC bus service, 

partial liberalization of visa regimes and the creation of intra-Kashmir business entities, such as 

the Federation of Jammu and Kashmir Chamber of Commerce and Industry, have symbolized an 

attempt to approach the problem of Kashmir, emblematic of larger bilateral challenges, through 

less conventional means.4 Despite limitations on the timeframe for exchanges, and inability of 

businesses to easily communicate, transfer money, or establish economies of scale, willingness on 

both sides of the LoC to seek economic avenues of mutual benefit suggest a broader willingness 

to look beyond the nationalistic and religious rhetoric of the conflict to find common ground 

capable of improving livelihoods.

Beyond Kashmir, trade ties between India and Pakistan have great potential. In the words of 

Indian Prime Minister Manmohan Singh, “If there is cooperation between Pakistan and India and 

not conflict, vast opportunities will open up for trade, and travel and development that will create 

prosperity in both countries.”6 Figures vary, but the most optimistic put the trade potential at more 

than $20 billion. In 2008, trade between India and Pakistan amounted to a mere $2 billion, representing approximately one percent of each country’s overall trade.5

 If Pakistan reciprocated India’s 

granting Pakistan most favored nation (MFN) status in 1996, and India reduced its current nontariff barriers, major impediments to the potential twenty-fold increase in trade between India and 

Pakistan could be lifted.7 This increase in trade could sow the seeds for economic interdependence, 

establishing through person-to-person interactions a strong constituency in support of peaceful 

coexistence. Pakistan’s position that trade cooperation follow progress on Kashmir has been the 

major hurdle in improving economic relations. As Pakistan weighs future options, the politicization 

of its stance on trade should be forgotten, with commercial progress seen as leading to political 

reconciliation rather than the other way round. While the mutual 2008 goal to reach $10 billion 

in trade by 2010 has been missed, Pakistan’s disengagement of commerce issues from the question of Kashmir could bring the two countries significantly closer to a relationship of productive 

cooperation on a longer path to peace. 

Avoiding Steps Back 

The necessity of encouraging India-Pakistan normalization is underscored by the dangers continued 

animosity poses for the nations’ combined one billion citizens. India assures the international community that its restraint following the 2008 Mumbai attack will not be repeated. Pakistan is equally 

adamant that any Indian aggression will see a response in kind. Thus, any crisis-triggering event could 

swiftly supplant current optimism with conventional military action, and possibly a nuclear standoff. 

As the July 2011 talks proceed, the U.S. should encourage India and Pakistan to persist with 

dialogue and to insulate the process from exogenous developments. With the looming drawdown 

of international forces from Afghanistan in 2014, the international community, and particularly the 

U.S., must utilize their leverage now more than ever to ensure that bilateral negotiations continue 

to move forward rather than repeating the backwards momentum of the past. 

Endnotes

1. Islamic Republic of Pakistan and Republic of India, The Lahore Declaration, February 21, 1999, 

Lahore, Pakistan.

2. Steve Coll, “The Back Channel,” The New Yorker, March 2, 2009.

3. Moeed Yusuf, “Banking on an Outsider: Implications for Escalation Control in South Asia,” Arms 

Control, June 2011.
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About This Brief

USIP is engaged in research 

and dialogue on India-Pakistan 

relations. In addition to facilitating 

discussion at the civil society level 

through events on the ground 

in Pakistan, USIP supports two 

Track-II dialogues on India-Pakistan 

relations, one focused on broader 

regional issues and the other on 

strategic stability, all of which 

informs USIP’s activities in Pakistan. 

This brief applies a problemsolving lens and draws upon the 

lessons provided by the Track II 

dialogue process. The authors, 

Stephanie Flamenbaum and 

Megan Neville, are respectively 

a program assistant and research 

assistant in USIP’s Center for 

Conflict Management. 

4. Moeed Yusuf, “Progress on Cross LoC Trade: an Analysis of the Joint Chamber” USIP Special 

Report, August 2009.

5. Mohsin S. Khan, “Improving India Pakistan Relations Through Trade,” East Asia Forum, 

April 19, 2010, http://www.eastasiaforum.org/2010/04/19/improving-india-pakistan-relationsthrough-trade/.

6. “India ready to walk extra mile if Pak acts against terror: PM,” The Times of India, March 1, 2010.

7. On July 11, 2011 Pakistan indicated that it would begin the process of granting most favored 

nation status to India. If this comes to fruition, the symbolic and tangible benefits to India-Pakistan 

trade relations stand to have substantial impact on the overall relationship. See Iftikhar Gilani, 

“Pak to give India MFN status, calls for South Asian Paliament,” Tehelka, July 11, 201, http://www.

tehelka.com/story_main50.asp?filename=Ws110711pak.asp.

Optimism and Obstacles in India-Pakistan Peace Talks

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