Key challenges from Pakistan are no different from the past. In fact, these have become more acute. Three of them stand out as the most obvious at the present juncture. One is the existence of anti- India terrorist groups in Pakistan and the freedom with which these groups have been allowed to operate and plan hate campaigns and terrorist activities targeting India and its interests in the neighbourhood. Equally important is Pakistan's debatable role in promoting the return of the Taliban to Afghanistan. Third is the cost of opportunities lost in terms of India's broader strategic interests and objectives in its neighbourhood because of its fractious relationship with Pakistan.

The cyclic nature of these problems has stymied attempts to achieve a breakthrough. Bold initiatives, like the Lahore Declaration, incidentally with Sharif in the driving seat with the then Indian Prime Minister Atal Bihari Vajpayee, run headlong into dead ends. Good intents are superseded by rhetoric of suspicion and hatred. These ghosts of the past must be laid to rest. There are reasons why it must be done now.

Pakistan's compulsions are more immediate. Years of inept governance, economic failures and military adventures have brought the country to the brink of ruin. While other countries in the region have climbed the economic ladder with impressive growth rates, Pakistan has lagged behind with less than marginal growth for the last several years. A GDP growth hovering between 2 and less than 4 percent for the last two years has brought economic activity to a halt with soaring unemployment rates and plummeting foreign exchange reserves. 

The International Monetary Fund (IMF) has forecast a growth rate of 3 to 3.5 percent in 2012-2013. A major reason for this crippled economic state has been the energy crisis brought about by bad policies and lack of investment in infrastructure. Power failures of up to 12 to 18 hours a day affect even some of the major urban centres like Lahore and Islamabad. The energy crisis has shaved off at least 2 percent of its potential GDP growth, a significant number. For instance, the textile industry, which contributes nearly half of the total export earnings, lost Rs. 200 billion in 2012 due to power shortages.

Prime Minister Sharif also inherits a worsening security situation in his country. Terrorists and extremists, once patronised by some state elements in Pakistan, are increasingly targeting the state and its people in different parts of the country. The state has no writ in an expanding zone of “no go areas” in the west. Terrorists in the mainland pose an even bigger challenge. Persistent violence against minorities including Shias and religious minority groups has assumed grave proportions, threatening in many ways Pakistan's social and religious fabric.     

out of the economic mess through greater and easier access to one of the biggest markets in the world today. Trade figures draw a clearer picture. The formal bilateral trade grew from US $144 million in 2001 to US $2.67 billion in 2010-2011. The informal trade and trade routed through a third country, on the other hand, are well over US $10 billion. Trade restrictions force both countries to import certain materials, available in the neighbourhood, from distant markets at a higher cost. Benefits to Pakistan are obvious from the following table:

Terrorism has by far been the most difficult problem to deal with. There is no uncertainty about the presence and activities of several terrorist groups inimical to India and its interests in Pakistan. Many of them enjoy overt and covert support of the Pakistan Army. Terrorist attacks in the recent past have been traced to these groups and their patrons in Rawalpindi. It is also indisputable that Pakistan has been more than lax in preventing these groups from carrying out terrorist attacks and in prosecuting them despite credible evidence. The possibility of these groups targeting India in future cannot be discounted either.

For India, the terrorist threat from groups based in Pakistan is serious and cannot be overlooked. It is also more or less clear that the Pakistan Army is unlikely to give up patronising these groups given their utility in different theatres, including India. The fact that Lashkar-e-Tayyeba (LeT) teams have been deployed in Mohamand Agency bordering Afghanistan's Kunar province to oust Tehrik-e- Taliban Pakistan (TTP) in the last week of June this year underlines the army's reliance on these groups to supplement military campaigns. The civilian support for such groups is fairly deep and widespread. The Punjab government, led by Prime Minister Sharif's Pakistan Muslim League-N (PMLN), has been doling out grants worth several million to educations institutions run by LeT's charity front, Jamat-ud Dawa (JuD). The PMLN government in Islamabad may not openly come out in support of these groups but will remain shy of taking hard decisions. Taking on anti-India terrorist groups is therefore not high on the priority list of the Sharif government.

Impressing Pakistan to sever ties with terrorist groups, not only for a stronger relationship with India but for also a greater good of the people of Pakistan, can be frustrating but is a noble goal to pursue. For the time being, there is a need for India to review its current approach to the subject. New Delhi should subsume the focus on LeT in the broader discussion on terrorism. Pakistan is acutely aware of the pitfalls of supporting extremist and terrorist elements. More people have died of terrorist and extremist attacks in Pakistan than India since 2007. India also needs to persuade Sharif and his advisors to ensure an effective investigation and a fair trial of the Mumbai terror accused. India must resist from setting a deadline or stipulating conditions that are seen as interfering with the judicial process in Pakistan. Instead, it must extend all possible help to Pakistan's investigating agencies and judiciary to complete the legal process.

India also needs to take Sharif at his word and allow him breathing space.

Furthermore, the growing belief across Pakistan about the gravity of the terrorist threat, and the fact that Prime Minister Sharif's next big challenge to prevent further economic meltdown is to stem the rapidly deteriorating security situation, gives India a rare opening to work with the political leadership in Pakistan. There is an opportunity to convince the new government in Islamabad about the grave consequences of supporting terrorist and extremist groups. The benefits of reigning in these instruments of violence are mutual. India must be firm in informing Islamabad that future terrorist attacks will be met with strong retribution and that India will take all measures to pre-empt and prevent such attacks. These parleys must be held behind close doors and not aired in public.

Both India and Pakistan have considerable stakes in the stability of Afghanistan. They also harbour deep suspicions about each other's role and intentions. There is clearly a greater need to talk to each other on these issues. It will not be difficult to convince Prime Minister Sharif that a stable Afghanistan is critical to Pakistan's stability more than perhaps India's.

India is committed to the sovereignty and integrity of Afghanistan and supports the political process. Its economic engagement in Afghanistan is a key enabler of this objective. India is aware of Pakistan's anxiety about the Durand Line. Much of the suspicion about India's role in Afghanistan springs from this anxiety. India is willing to work with Pakistan in easing some of these apprehensions, specifically about the possibility of conflict with Afghanistan over Durand Line and even the greater fear of a Pashtun consolidation. In fact, India's engagement with Afghanistan will benefit from an improved relationship with Pakistan in many ways.

India and Pakistan need to open more channels of communication on dealing with the consequences of the US military drawdown by December 2014. India can play an important role in fostering a better relationship between Kabul and Islamabad. India has already clarified that it is not averse to an Afghan-led reconciliation process with the Taliban. Prime Minister Sharif can be persuaded to play a more active role in establishing a regional framework for helping Afghanistan to mature as a viable nation-state. A trilateral summit between Prime Minister Manmohan Singh, Sharif and President Hamid Karzai in late 2013 or early 2014 could be a helpful starting point for this process to mature and expand to eventually include Iran, Uzbekistan, Turkmenistan and Tajikistan.A greater engagement of the civilian government in Pakistan with India on Afghanistan could be a game changer.