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Revival of India-Pakistan Trade Relations

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May 20, 2021

What is the issue?

  • The recent trade restriction and the level of trade despite this are indicative of a possibility of resumption of India-Pakistan trade relations.
  • This gives a reason to push for the revival of trade dialogue between the two countries.

What was the recent restriction on trade?

  • In 2019, India and Pakistan undertook trade-restrictive measures against each other, perhaps the most severe in several decades.
  • The Pulwama terror attack in Kashmir in February 2019 and cross-border air strikes played a role in this.
  • After these, India withdrew the Most Favoured Nation (MFN) status of Pakistan.
  • India also imposed a customs duty hike of 200% on imports.
  • Later, when India revoked the autonomy of Jammu and Kashmir, Pakistan suspended bilateral trade.

Is this the first time?

  • Trade curbs have been applied several times in the past too.
  • But, such measures have been reversed to create a trade enhancing environment.
  • Most notable is the protocol on resumption of trade in 1974 after a hiatus of 9 years following the India-Pakistan war in 1965.
  • Both countries worked on a positive list of commodities for some years, which expanded over the years.
  • This helped stabilise domestic prices and take care of seasonal shortages and food security.
  • So, despite the current trade ban setback, the Indo-Pak history offers some optimism towards reviving the trade dialogue.

What is the present condition?

  • Trade has been recorded in the first 11 months of the financial year 2020-21.
  • During 2020-21 (April-February), the recorded bilateral trade was $280 million.
  • Of this, India’s exports to Pakistan were $278 million and imports were $2 million.
  • Nearly 77% of India’s exports comprised vaccines, pharmaceutical products and products of chemical and allied industries.
  • Interestingly, despite the trade ban, sugar was already being exported to Pakistan.
  • It was the second most important item, accounting for 15% of India’s total exports.
  • Dates were the most important item being imported from Pakistan, accounting for 31% of total imports, followed by ethyl alcohol, which accounted for 17% of total imports.

What does this indicate?

  • The overall value of trade with Pakistan may not be significant.
  • But the number of items traded is certainly significant.
  • Within a month of suspending bilateral trade with India, Pakistan lifted the ban on the import of medicines and raw material from India.
  • This was to avert any crises and ensure that there is no shortage of essential drugs.
  • In essence, there is more concrete evidence of trade between the two countries even after the imposition of restrictions.
  • Thus, even under restrictive trade conditions, there are interdependencies between India and Pakistan.

What is the way forward?

  • Governments of both countries need to recognise that there are significant costs of non-cooperation.
  • Restrictions also shift trade to informal channels, which have functioned for decades and are a ready option for traders from both countries.
  • Initiating a positive list for trade is the right move towards normalisation.
  • Business organisations and chambers of commerce can play an important role.
  • They should create a strong lobby that could build momentum in opening channels and influence the shaping of the India-Pakistan trade policy.


Source: The Hindu

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