India-Pakistan trade: The road ahead, after Lahore diplomacy

The surprise visit to Lahore by Prime Minister Narendra Modi on December 25, while returning from Russia and Afghanistan may be a game-changer in the India-Pakistan relations. In the near term, many analysts and area experts expect that improving bilateral ties will also bolster cross-border trade.

Bilateral trade

India-Pakistan trade fell from USD 2.7 billion in 2013-14 to USD 2.3 billion in 2014-15. Exports to Pakistan declined while imports from Pakistan increased. The exports declined by 18.34 percent during 2014-15 compared to 2013-14, while the imports increased on the other hand by 16.5 percent. Pakistan in 2012 shifted to a system of negative list of 1209 items that are not to be imported from India. However, among these items, Pakistan allows only 137 items to be imported through the Wagah-Attari border.

Indian exports have declined due to various factors such as the deterioration of the rail route, apart from political factors. Currently, informal trade dominates. The Indian Council for Research on International Economic Relations (ICRIER) estimates it to be about USD 4 billion in 2013-14. There is a restriction of goods to be traded bilaterally, and as a result are routed through places like Dubai, Colombo and Singapore. This is done so that the goods can be treated as exports from those countries.

Connectivity

At present, the major road route is Wagah-Attari rail road and the rail route is Amritsar-Attari-Lahore railway line. Mumbai-Karachi is the sea route which is also used. However, the trade through the sea-route is not very significant.

Across the Line of Control, India and Pakistan have permitted trade, in a selected list of 21 primary products originated in Kashmir both sides of the border, under a barter system.

MFN status

The analysts in Pakistan feel that the granting of Most Favoured Nation (MFN) should not be made a big issue in the near future. “Pakistani government would hold back this until things improve on the diplomatic and military fronts,” said Majyd Aziz, former President Karachi Chamber of Commerce and industry. “Just let matters settle and then momentum could be built up. Right now, the powerful agriculture lobby and the engineering industry are very concerned about this,” Mr Aziz said. “Furthermore, if India revisits her NBTs(Non Tariff Barriers) policy, especially with regards to Pakistan, then the possibility of an earlier decision on NDMA is likely to happen,” he stated.

The Road Ahead

The Modi-Sharif meeting has laid the ground for a positive outcome from the resumption of the comprehensive dialogue, which should kick off with the planned meeting of foreign secretaries around mid-January (2016). Pakistan now should not waste more time, and grant the MFN status to India to enhance bilateral trade.

According to S. C. Rahlan, president of the Federation of Indian Export Organisations, the exporters have faced issues of not receiving payments and political problems intermittently disrupting trade. “The biggest benefactors would be the traders in Punjab,” Mr Rahlan adds.

In a report, the Federation of Indian Chambers of Commerce and Industry (FICCI) identifies lack of cross border banking facilities as a major hurdle for formal trade and states that the current system of payment is formalised through the Asian Clearance Union. This system is inefficient as payments are often delayed. “The two countries need to expedite opening up of scheduled bank branches in each other,” the report stated.

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