Few bilateral relationships matter more for the long-term stability of Asia than that between New Delhi and Islamabad. But few, too, are as seemingly intractable.India and Pakistan were born out of mutual hostility to one another; during the Partition of British India, many hundreds of thousands of religious minorities felt compelled to flee to either Hindu-majority India or Islamic Pakistan, and policy elites in both countries viewed the success of their own political project (a state for South Asian Muslims or a South Asian democracy) as proof of the fact that the other was illegitimate. Wars in 1965 and 1971 Kashmir further antagonized the two countries. While New Delhi generally sought security in a close relationship with the Soviet Union, the generals in Rawalpindi looked for a closer strategic relationship to China after they concluded that the United States – formerly one of its largest providers of military aid – would not come to its defense in an existential war against India. The two countries have a nuclear rivalry since India acquired weapons in 1974 and Pakistan in 1998, while more recently Islamabad has sponsored and sheltered terrorist groups that have carried out murderous attacks on both its own as well as Indian civilians. The ghastly November 2008 terrorist attacks will come to mind for most readers, but only a week and a half ago militants killed two Pakistanis in a senseless bombing of Lahore’s train station. All in all, the region’s mix of Islamist politics, high levels of illiteracy in both countries, and nuclear weapons, and the worst-case scenario is terrifying.Via Meadia is, like many, concerned about the future trajectory of South Asia, but as a recent report by the International Crisis Group on Indo-Pakistani relations based on dozens of interviews in both countries earlier this year reminds us, there are many factors shaping this relationship, and not all the dynamics are bad. The report, subtitled ‘Beyond Kashmir?’ is hardly naïve about the myriad problems preventing a normalization of relations between the countries. The Pakistani military refuses to stop sponsoring anti-India terrorist groups like Lashkar-e Taiba, whose leader, Hafiz Saeed, lives and speaks openly in Lahore after organizing the Mumbai terror attacks. The regulation of the water rights to the Indus River has been suprisingly unproblematic since a 1960 treaty between the two countries, but with India’s population growing to 1.5 billion by 2035 and the Pakistani economy highly dependent on agricultural exports, one Lahore analyst worries that water disputes could become ‘another Kashmir-like rallying point for Pakistani jihadis.’ Lashkar-e Taiba has already held rallies on the issue; the Financial Times reports that the organization has issued statements noting that ‘India is trying to hatch a deep conspiracy of making Pakistan’s agricultural lands barren and economically annihilating us’, while Mr. Saeed, when not plotting how to kill hundreds of innocent civilians, has agitated that ‘The government must take practical steps to secure Pakistani water. It is a matter of life and death for Pakistan.’Here we go again? That’s probably the case. But the report also provides some room for the one resource scarcer in the Indus Basin than water, optimism. The legacy media’s coverage of Indo-Pakistani relations usually takes place through the lens of Kashmir, militaries, and terrorism, but, the Crisis Group report emphasizes, there has actually been significant improvement in trade relations between the two countries. The ruling Pakistan People’s Party (PPP) government agreed to grant most favored nation (MFN) status to India in November 2011, to be implemented by the end of 2012, a decision that the largest opposition party, the Pakistan Muslim League-N (PML-N) also supported. This decision ‘is not merely an economic concession but also a significant political gesture. Departing from Pakistan’s traditional position, the current government no longer insists on linking normalization of relations with resolution of the Kashmir dispute. India no longer insists on making such normalization conditional on demonstrable Pakistani efforts to rein in India-oriented jihadi groups, particularly the Lashkar-e-Taiba, responsible for the 2008 Mumbai attacks and hence suspension of the composite dialogue.’This matters. Decoupling trade from other contentious issues could have significant consequences. Pakistan’s current trade with India represents only one percent of its total balance, while Indian exports to Pakistan accounted for only 0.93 percent of its total exports. ‘India-Pakistan trade is a win-win situation’, says former Pakistan State Bank Governor Ishrat Hussain. Says a Pakistan economist, Asad Sayeed, ‘Economic growth can take place either through major structural transformation or through trade. Since Pakistan’s economic structure has remained the same for at least the last 40 years, the only way to ensure growth is regional trade and investment.’ Pakistan’s two largest industries, textiles and food processing, are sophisticated enough to compete well in Indian markets, while energy-hungry India would benefit from access to the world’s second-largest coal mines in the Thar Desert in Sindh Province.Unfortunately, economic benefits aren’t the only considerations shaping Pakistani calculations. What analyst Ayesha Siddiqa calls MilBus, the hybrid regime between the Pakistan Armed Forces and big business, may have little interest in liberalization for its own reasons.Pakistan’s version of the military-industrial complex is a force that cannot be ignored. Huge tracts of the country’s most desirable real estate in Islamabad, Karachi, and Lahore are owned either directly or indirectly by the military. Between the military’s power in the government and its vast economic presence, Pakistan’s clannish, weak and corrupt civilian political parties are not going to be able to change the country’s orientation without military buy-in.Foreign direct investment – whether from India or anyone else – would help grow the economy and stabilize the country, but as one interviewee in Islamabad says, ‘Locally, nobody is investing in Pakistan, so why would anyone in India do so? For example, we have not built a new hotel in Islamabad for 40 years. This is not because we need someone from India to build us a hotel; it is because the military and civil bureaucracy does not want us to build hotels, because it wants to appropriate the city for itself – for its luxury homes and gardens and clubs.’ Liberalizing visa regimes and granting MFN status is one thing; but don’t be surprised if the military sees fit to declare the civilian government ‘incompetent’ and depose it if either the PPP or the PML-N attempts to seriously alter the investment and property rights regime.More, in addition to the deep distrust of India that shapes the outlook of most Pakistani military officials, the need to defend the country against a supposedly implacable foe justifies the Pakistani military’s budgets and its power in the country. Real peace with India would weaken the political and economic power of those who in most respects have been the true rulers of Pakistan through decades of disaster. Why those rulers would give up the keys to their power is not clear.Finally, the rise in religious radicalism in much of the Pakistani public (and in some cases also among Indians) should not be ignored. A rise in radical religion generally also means a rise in hardline Pakistani nationalist sentiments thanks to the increasingly tight identification of Pakistan as an Islamic country engaged in a death struggle with a Hindu neighbor. It seems sadly obvious that a significant sector of the Pakistani security establishment values radical religious ideology as both a tool in its confrontation with India and as an instrument to cement its political power at home.The Pakistani deep state will not willingly give this up.Trying to prevent the worst case scenarios in the region while quietly working to lay foundations that could someday lead to better times is not a glamorous or exciting policy but, all told, it seems that this, or something like it, represents our wisest course. Reconciliation between India and Pakistan would make this region more prosperous, more stable and, from the standpoint of US interests, would be the best possible outcome. Our abilities to make this happen are quite limited; our policy will largely be built out of nudges and hopes.