Except in knowledge based services and high tech industries, there should not be much difference in manufacturing cost of most products between India and Pakistan, right? Because labor is almost as cheap in Pakistan as in India. So why do some here think Indian goods may stifle Pakistan made goods? Let them compete on merits - quality, innovation and price!
Secondly I think (just my opinion) Pakistan cannot develop level of economy without a very robust trade with all its neighbors - it is too big to be a "tourism only" economy and too little to be substantially internally driven.