India, Pakistan must work out ways to revive trade ties
NEARLY 77 years after Independence, diplomatic, political, and economic relations between India and Pakistan remain marred by enmity and hatred. They have fought two low-intensity wars (the Kashmir conflict in 1947-48 and the 1999 Kargil War) and two full-fledged ones (in 1965 and 1971). However, the contentious issues of Kashmir and cross-border terrorism remain unresolved. While political leaders from both nations have occasionally attempted to find mutually acceptable solutions, rational efforts have repeatedly been thwarted by irrational barriers. This cyclical pattern resembles a game of snakes and ladders, where progress is often undone by setbacks.
With the installation of new governments in India and Pakistan, there is a renewed glimmer of hope. Pakistan Prime Minister Shehbaz Sharif and former premier Nawaz Sharif congratulated Narendra Modi last month when he took oath as the PM for the third time. Shehbaz emphasised that peace in the region was unattainable unless the Kashmir dispute was resolved. And Nawaz called for replacing hate with hope and seizing the opportunity to shape the destiny of two billion people in South Asia. PM Modi reminded them that the people of India had always stood for peace, security and progressive ideas. However, External Affairs Minister S Jaishankar reiterated that terrorism could not be a policy of a good neighbour and, hence, it needed to be curbed.
While India insists on halting cross-border terrorism first, Pakistan demands that the Kashmir issue be addressed on priority. Both countries, however, understand that resolving these vexed issues requires mature and sustained politico-diplomatic dialogue, which, as yet, is not coming from either side. Sharat Sabharwal, a former High Commissioner to Pakistan, suggests managing the relationship at the lowest possible levels of violence and volatility, combining dialogue with deterrence, and nudging Pakistan in the right direction. He suggests that converting the LoC (Line of Control) into an international border could be a feasible non-military solution to the Kashmir issue.
The prolonged delay in reaching a mutually acceptable and mature solution has complicated the issues further, with new factors — such as China’s involvement — adding to the complexity. Both countries have incurred significant financial and human losses because of their acrimonious relations. It has impacted crucial development issues — such as education, health and poverty eradication — especially in Pakistan, which is currently facing a severe economic crisis. India had granted the most favoured nation (MFN) status to Pakistan in 1996 for trade purposes under the World Trade Organisation. But Pakistan did not reciprocate. This needs to be reviewed. Further, India revoked Pakistan’s MFN status following the 2019 Pulwama attack. India should restore the neighbour’s MFN status, and Pakistan should return the favour.
Notably, there is huge potential for India-Pakistan trade. According to a World Bank study, it can reach $37 billion. If the potential is fully exploited, it would also have a positive impact on trade through the integrated check-post (ICP) at Attari. The strained relations, however, have blocked India’s access to Central Asia and beyond and hindered SAARC (South Asian Association for Regional Cooperation). Of late, India has strengthened its ties with Iran and signed a 10-year agreement for the management and development of the Chabahar port, which provides access to Central Asia, including Afghanistan, bypassing Pakistan. The proposed India-Middle East-Europe Economic Corridor (IMEEC) is also aimed at bypassing Pakistan and Afghanistan. While this would benefit Indian states near major ports, it is less advantageous for border and landlocked states like Punjab. Paradoxically, informal trade between India and Pakistan has always been through other countries, even during trade embargoes. But trade originating from and destined for Punjab and its neighbouring states becomes economically unviable as a result of the increased transport and trans-shipment costs in the absence of trade through the ICP-Attari.
Punjab suffers whenever the India-Pakistan relations deteriorate. As trade through the ICP-Attari is the first casualty, the state is the hardest hit. As the battleground of two major India-Pakistan wars, Punjab has experienced significant economic losses, exacerbated by the nine-year trade embargo from 1965 to 1974. The current trade embargo, imposed by Pakistan since August 2019, is the latest blow to stakeholders dependent on trade activities through the ICP-Attari.
Before the current trade embargo, 26 per cent (Rs 4,063 crore) of India’s total trade (Rs 15,408 crore) with Pakistan happened through the ICP-Attari. Our empirical study, ‘Economic Implications of Trade Curbs between India and Pakistan through Wagah Border’, revealed that the stakeholders (exporters, importers, manufacturers, truck operators, porters, roadside eateries, filling stations, weighing bridges, retailers and wholesalers, private schools, health clinics, repair shops, auto-dealers, liquor shops, etc) in Punjab have suffered huge losses in income and employment because of the closure of the ICP-Attari for trade.
According to our study, moderate estimates indicate that Punjab has suffered an income loss of Rs 7,013 crore over the last five years owing to the trade embargo. This does not include financial losses to manufacturers-cum-exporters and transporters whose investments have become idle, besides maintenance costs. The direct employment of nearly 12,000 workers (including 2,500 porters and 1,000 drivers and cleaners) and substantial indirect employment have been lost, thanks to trade curbs. Thousands of families have been deprived of their livelihoods. The investment deficiency in the border districts is another serious drag on development. The resulting operation of the inverse multiplier and missing linkage effects aggravates the losses.
Punjab and its neighbouring states must collectively address the issue with the Centre; MPs from these states should raise it in Parliament to persuade the Indian and Pakistani governments to initiate dialogue. Despite the alternative route through the Chabahar port and the IMEEC, the strategic significance of the land route through Pakistan and Afghanistan to Central Asia and Eurasia remains vital. This necessitates strengthening the ICP-Attari as a dry port and initiating dialogue to open the Hussainiwala (Ferozepur) border for trade. Given Punjab’s location and India’s national security concerns, developing its border districts and Punjab as a whole is in India’s strategic interest. It is time to transcend past enmities and work towards cooperative development.
Views are personal
