The heightened political tension between India and Pakistan since the past one year has adversely impacted border economy, according to the Bureau of Research on Industry and Economic Fundamentals (BRIEF) report.
• Over the last five years, the bilateral trade trajectory has been volatile. From a high of $2.70 billion in 2013-14, it fell to $2.40 billion in 2017-18. During this time, while Pakistan’s exports to India were (and have been) fairly consistent, India’s exports decreased.
• Overall, India still manages to have a significant trade surplus with Pakistan (about $1.4 billion in 2017-18). Interestingly, these figures reflect only the direct trade between the two countries.
• Indirect trade (largely routed through a third country like the United Arab Emirates) is estimated by much research to be up to 10 times more — exemplifying the existence of a huge bilateral trade potential, provided the tariff and non-tariff barriers are addressed and steps taken towards increasing awareness and building confidence among the trading communities.
At least 9000 families, in Punjab and about 900 families in Kashmir have been directly impacted by the shutdown of trade between India and Pakistan across the Wagah-Attari border and the Line of Control (LoC) involved in small trade, handicrafts sellers, truckers, labourers, and hotel owners.
After the Pulwama terror attack in Kashmir in February that prompted India to carry out airstrikes on a terror camp in Pakistan’s Balakot, New Delhi withdrew the Most Favoured Nation (MFN) status to Islamabad. It subsequently raised customs duty to 200% on all goods received from across the border.
Exports to Pakistan “mainly” go through the sea route (about 80%), while imports, including rock salt, dry dates, cement and gypsum, come largely through the land route in Punjab.
The trade potential between India and Pakistan according to the World Bank, is $37 billion will help in elevating poverty.
Trade ties between the two countries hit rock bottom when Islamabad, recklessly, suspended all trade ties after the Article 370 decision in August. Earlier, India had unilaterally increased custom duties on all Pakistani products to 200%, post the Pulwama terror attack in February. On its part, Pakistan did not honour its most favoured nation obligation towards India for a very long time
Unlike national economies, border economies generally experience a sudden boom-bust cycle on account of political changes, trade bans, price and exchange rate and tax fluctuations. It is the local economies that will suffer the most
India-Pakistan relations have always been viewed through the prism of Kashmir. But the opening of the Kartarpur corridor has unlocked the possibility of looking at bilateral relations through the prism of Punjab.
Alternative sources of livelihood can be generated to keep border economies afloat.
Given the present situation in J&K, it is imperative that India plans an outreach connecting all stakeholders from across the spectrum. However, there is need for a revised strategy towards re-initiation of cross-LoC trade.
Other steps such as clarifications on harmonised system codes to avoid misrepresentation of commodities, rules of origin to avoid third country goods, GST rates and inter-State taxation rules to avoid tax evasions, and a trader registration policy to ensure credible traders are involved in this trade.
Digitisation of systems and procedures at the trade facilitation centres.
Bureau of Research on Industry and Economic Fundamentals (BRIEF) is a research and consulting organisation with focus on policy research, diagnostic studies, program implementation, industry and market research as well as assessment of various schemes and interventions in the socio-economic domain.
Its past engagements have spanned across areas such as international trade facilitation, infrastructure and policy aspects among others, with special emphasis on India and other countries in South Asia and the Middle East and North Africa (MENA) region.