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.
