Any hope of gradually improving the already low volume of trade between India and Pakistan was completely shattered in 2019, with India imposing 200 per cent customs duty on Pakistani imports in February and Islamabad suspending bilateral trade with Delhi in August. Those who were ready to go through all it takes to trade across the border directly no longer had the option to trade formally. And commodities that used to be traded directly started taking indirect routes.
Take dry dates, for example. Pakistan is the source of 99 per cent of the dry dates imported by India. Nearly 500 traders who sourced dry dates from Pakistan and 1,000 women who earned a living by hand-cutting the dates have gone out of business, and prices of the ‘poor man’s dry fruit’ have gone up by almost 300 per cent. The UAE supplied no dry dates to India in 2018, but its supplies witnessed a progressive increase every month in 2019. The same period saw successive month-on-month increases in the value of dry dates Pakistan exported to the UAE. Indeed, Dubai has been an ‘open secret’ destination for routing goods between India and Pakistan.
The suspension of bilateral trade also disrupted the supply of Indian sanitisers in Pakistan and Pakistan’s ethanol, a major raw material for sanitisers, in India. For example, India was second only to China as supplier of organic surface active agents (HS code 3402), including liquid hand sanitisers, to Pakistan. Imports from China started declining after the coronavirus pandemic hit Wuhan in November 2019. Meanwhile, following suspension of India-Pakistan trade in August 2019, India’s exports to the UAE increased by 51 per cent from September 2019 to January 2020, and Pakistan’s imports from the UAE increased by nearly 2000 per cent in the same period—again implying trade of the ‘new essentials’ from India to Pakistan via the UAE.
While bilateral trade between India and Pakistan was relatively small for its suspension to have any significant impact on the national economies, local economies are taking the brunt. In Unilateral Decisions Bilateral Losses, a book I recently co-authored with Afaq Hussain, we note that more than 9,000 families in Amritsar were directly affected because of their breadwinners’ dependence on bilateral trade. Two-thirds of nearly Rs 30 crore that was being added every month to the local economy was lost.
The ban continues to push traders in both countries to seek out indirect transit routes, even at higher transport costs. However, direct trade is still of far greater significance. In our new report, The Dubai Angled Triangle, we show that the value of indirect and informal trade increased year-on-year by less than 10 per cent in 2019. The hike appears small, considering India began restricting imports from Pakistan in February 2019, and formal trade was suspended six months later. In general, items demanded in India and Pakistan from each other are traded via the indirect route only if it is logistically feasible. The items are usually low in volume, but high in value—such as jewellery, machinery, medicines and chemicals. In such cases, traders can afford to take a longer route—notably, via Dubai—as the increase in cost can be passed on to the consumers directly.
However, traders often cannot bear cost increases or delivery delays for perishables like fruits and vegetables, or freight-sensitive items such as cement, gypsum and glass. For such time- and cost- sensitive goods, direct routes are unlikely to be replaced with circuitous or informal routes.
Trade between India and Pakistan has fluctuated, but persevered over the years, surviving the jolts of the Kargil conflict in 1999, and terror attacks on India’s Parliament in 2001 and on Mumbai in 2008. Sudden surges in bilateral tension were sometimes followed by determined efforts to resume normalcy. For example, after the bombing of the Samjhauta Express—a train connecting India and Pakistan via the Attari-Wagah border—in February 2007, modalities to allow trucks to move across this border were chalked out that August, and this transit was initiated in October. The current suspension of direct trade could also be seen as a window of opportunity to revive this trade in a stronger and more organised manner. The role of open markets and free trade for economic revival in the post-Covid world cannot be overstated. Proximity is like gravity; it will be there whether we like it or not. It would be wise to invent a way to turn gravity to our favour.
(Views expressed are personal.)
Associate director, Bureau of Research on Industry and Economic Fundamentals (BRIEF), New Delhi
