Future of India – Pakistan Trade Relations

Synopsis:

The Economic Coordination Committee (ECC) of Pakistan put forward a proposal to import sugar, cotton, and cotton yarn from India. Although the proposal was rejected by Pakistan’s government, it is definitely an indication of improving the future course of India-Pakistan trade relations.

Background:

• The two countries are undergoing restrictive trade since 2019. The Pulwama Terror attack in Kashmir and cross-border airstrikes in 2019 induced India to impose trade restrictions. It withdrew the Most Favoured Nation (MFN) status of Pakistan and imposed a customs duty hike of 200% on imports.
• Similarly, Pakistan imposed a complete ban on trade when India revoked the special status of Jammu and Kashmir.
• The Pakistani ECC’s recent proposal of importing Indian goods shows a softness in attitude. Thus, it would help in improving the future course of trade relations. 

Factors indicating future improvement in India-Pakistan Trade Relations:

• First, the past precedent shows that trade restrictions are lifted after some time for mutual benefit. 
  • For instance, the protocol on resumption of trade was invoked in 1974 after a suspension of nine years due to the 1965 war. The trade was started for essential items like agricultural commodities and expanded over the years.
• Second, Pakistan deviated from the complete ban within a month of suspension. It lifted the ban on the import of medicines and raw materials from India. The aim was to avert any crises and ensure that there is no shortage of essential drugs.
  • Similarly, now its own Economic Coordination Committee (ECC) is suggesting to import sugar, cotton, and cotton yarn from India.
• Third, Indian trade data shows that despite a ban from Pakistan’s side, the trade has been ongoing. During 2020-21 (April-February), the recorded bilateral trade was $280 million. Out of this, India exported goods worth $278 million and imported goods worth $2 million.
  • The biggest component of export (77%) were vaccines and pharmaceutical products. After this, the second position was occupied by sugar at 15%. 
• Fourth, there exists a significant cost of refraining from the trade. A healthy trade allows both countries to stabilize domestic prices and take care of seasonal shortages in the home country.
  • Further, a severe restriction allows the trader to shift to informal channels of trade that reduce the potential tax revenue of the government. 

Way Forward:

• The countries should cooperate on creating a positive list for trade as the first step towards normalisation.
• Business organisations on both sides can create a strong lobby. This could be used to build momentum in opening channels and influence the shaping of the India-Pakistan trade policy.

Source:The Hindu