Could this moment between Narendra Modi and Nawaz Sharif be the start of big things? Photographer: Udit Kulshrestha/Bloomberg
Could this moment between Narendra Modi and Nawaz Sharif be the start of big things? Photographer: Udit Kulshrestha/Bloomberg

At his inauguration as India’s prime minister Monday, Narendra Modi scored an international political coup. In the audience sweltering atop Delhi’s Raisina Hill, where the British once presided over their Indian empire, stood leaders of the various nations that had once made up that empire. Modi’s unprecedented decision to invite them to the ceremony was deft public relations, signaling his confidence, impatience with hoary tradition and conviction that India’s fortunes depend on those of its immediate neighborhood. The presence of Pakistani Prime Minister Nawaz Sharif, in particular, and Modi's hourlong meeting with him Tuesday have raised hopes for a thaw in relations between the subcontinent’s two nuclear powers.

India and Pakistan have witnessed many moments of hope and optimism since their twinned birth in 1947 -- all of which have been dashed. To really reset relations with Islamabad, Modi will have move fast to exploit the current bonhomie.

The most obvious front to move on is trade. Here the ball would seem to be in Pakistan’s court. Islamabad still hasn’t fulfilled a two-year-old pledge to reciprocate India’s grant of “most favored nation” trading status. (Pakistani negotiators can’t even say the words; they talk only of offering India “nondiscriminatory market access.”) But India, for its part, maintains various nontariff barriers, from domestic agricultural subsidies to product-labeling requirements, which complicate the import of Pakistani goods.

If barriers were lowered on both sides of the border, trade between the two countries, now less than $3 billion annually, could grow to $40 billion. India stands to gain at least as much as Pakistan would, not least because of the potential to ship Indian goods through Pakistan to Afghanistan and the rest of Central Asia. An effort by Modi to lift some of India’s unofficial trade restrictions might give Sharif some political leverage with his government. At the same time, Modi’s big infrastructure plans should include improvements to ports, roads and border facilities that link the two countries, which the World Bank suggests would exponentially increase the gains from most-favored-nation status.

Even if it is too soon for Modi to visit Pakistan, he could revive back-channel talks over the status of Kashmir -- the issue that has bedeviled the region since Partition. Modi will probably never have more political strength to negotiate a lasting deal on Kashmir than he has at this moment, when his huge electoral mandate is still fresh. If reports are to be believed, the previous Congress government came very close to agreeing on the outlines of just such a grand bargain -- one that would soften the border between the Indian- and Pakistani-controlled halves of Kashmir to allow the free flow of local goods and people.

Delay only gives the jihadi groups fighting to wrest Kashmir from Indian control a chance to dictate events. And while Modi controls his Hindu nationalist Bharatiya Janata Party now, even he couldn’t resist the backlash that would greet anything like another Mumbai terrorist attack. Indian hardliners argue that, before relations between the two countries can improve, Pakistan first needs to rein in its extremist groups, some of which are backed by elements in the Pakistani military. But the most realistic way for Sharif to tame his own hardliners is to point to the real prospect of a deal on Kashmir.

Modi and Sharif should start talking as well about their mutual roles in Afghanistan after most U.S. troops withdraw at the end of the year. Abdullah Abdullah, the front-runner to become Afghanistan’s next president, is seen as friendly to India. The last thing Afghanistan needs is a suspicious Pakistani military bulking up the Taliban as a counterweight to the Kabul regime.

Finally, Modi needs to reach out to Indian Muslims. Until he does, doubts about his Hindu prejudices will linger, undermining relations with Pakistan. Modi has been smart to start off by tamping down fears that he would heighten tensions with India's neighbor. Still, it will take work to erase them completely.

To contact the editor for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.