Indo-Pak Trade Embargo Bleeds Punjab

The ban on trade between Pakistan and India since the aftermath of the Pulwama blast and subsequent Balakot and Nowshera bombing has taken a heavy toll on both economies. Worst affected is trade between the two Punjabs, which used to be conducted through the Wagah border and Integrated Check Post at Attari.

This trade having come to a grinding halt, government revenues have been badly hit and non-government stakeholders are also paying a heavy price. Now voices are being raised on both sides of the border to initiate Track 2 parleys to put pressure on both governments to keep politics and economics apart.

The impact of the ban, particularly on trade through the Attari-Wagah border, is explained in detail by economists Ranjit Singh Ghuman and Haqiqat Singh of the Centre for Research in Rural and Industrial Development in a landmark study titled ‘Indo-Pak Trade Embargo: Impact on Punjab Economy’.

The authors recount that “trade relations between India and Pakistan have always been governed by political relations which for most of the time since independence have been subject to hostility and enmity… In the past, too, there was a nine year trade embargo between them during 1965-1974, nearly unparalleled in the history of world trade.

“As a consequence, the two countries have lost the opportunity to reap enormous amount of benefits (both in terms of comparative cost advantages and lower transport and transhipment costs) of actual and latent trade potentialities,” say Ghuman and Singh.

It is felt that trade can pave the way for normalising political relations since there are a large number of Indians and Pakistanis who want peace: manufacturers, traders, businessmen, exporters, importers, farmers, consumers, civil society. The ongoing trade embargo has eclipsed these possibilities.

“The average annual trade between India and Pakistan during 2014-15 and 2018-19 was to the tune of ₹16,05,710 lakh. This trade came to a grinding halt after the imposition of 200 per cent custom duty by India on all imports from Pakistan with effect from February 16, 2019 and subsequently August 9 when Pakistan imposed complete trade embargo on its trade with India,” the study reports.

A full quarter of this trade was through the Wagah-Attari land route. Dry dates, cement, gypsum, aluminium ore, soda and limestone are some of the major Indian imports from Pakistan through Attari, accounting for nearly 79% of imports from Pakistan. India’s major exports through Attari included cotton yarn, vegetables, straw reapers and high-density polyethylene.

Before the Government of India imposed a 200% custom duty, its revenue from custom duty was ₹4,160 lakh per month during 2018-19. But after the hike, between March and December last year the monthly average plummeted to ₹1,980 lakh, because of the huge decline of imports from Pakistan.

This duty also includes a custom duty on imports from Afghanistan, which was not affected by the trade embargo.

The earnings of the Plant Protection, Quarantine Storage Department also fell by nearly 90% and those of the Central Warehousing Corporation fell to zero from a monthly average of ₹444 lakh in 2017-18.

Stakeholders besides government agencies adversely affected by the trade curbs include: transporters, porters, dhabas, auto repair and spare part shops, filling stations, weigh-bridges, wholesalers, retailers, wine shops, two wheeler agencies and many more, all of whom are located in the Amritsar district of Indian Punjab.

The authors estimate a loss of income to truck owners at ₹930 lakh per annum. Annually between 52,000 and 80,000 truck rounds would transport goods through Attari. But after the trade curbs the monthly average has crashed to 500 truck rounds per month, most of which are to transport goods imported from Afghanistan.

Consequently about 1,000 drivers and their helpers have been dismissed from their jobs, causing an income loss of ₹1,200 lakh per year. Besides the recurring income loss, capital investments have also suffered. For example, of about 500 trucks engaged at Attari, 50% were sold under distress at a huge financial loss.

Importers and exporters in Pakistan too have suffered heavy losses, and the authors stressed the need to better study the impact of the trade embargo in Pakistan.

Moderate estimates suggest that between 8,000 and 10,000 workers in Punjab have lost their direct employment and livelihood because of the trade curbs. Indirect disemployment may be of the same magnitude.

“Being a landlocked state this trade route is of strategic importance to Punjab. Besides Punjab, the other states of northwest India also benefit from this trade route because of lower transport and transhipment costs,” the authors state.

At a recent cross-border webinar organised by Dr Ghuman, experts and stakeholders from both sides were supportive of the recommendation: “As far as possible, political rationality or irrationality should not be allowed to circumvent economic rationality.”

Former Indian High Commissioner to Pakistan Sharat Sabharwal dwelt at length on how things had moved forward at a good pace in the last two and a half decades. “Trade should never be linked with political issues,” he said, but stressed that without a degree of stability it will be very difficult to move forward on the trade agenda.

Participants disclosed that the relationship had progressed to the level that even the possibility of opening banks across the border was being discussed, besides opening dedicated trade gates between the two Punjabs.

A stakeholder from Pakistan, Afzal Rizvi, was candid in saying, “The ban on trade is the biggest casualty in Indo-Pak relations. It is time to sit across the table as no one has gained anything from it.”

It was pointed out that the embargo has forced trade to be conducted through a third country. Experts also called for exploiting the opportunities available through e-commerce.

This was underlined by Dr Waqar Ahmed of the Sustainable Development Policy Institute in Islamabad, who said policy interventions were required in e-commerce. He also called for cooperation in the tourism sector, which would help people on both sides, as seen with the establishment of the Kartarpur corridor.

“There is a need for resumption of dialogue and reviving SAARC is important. The damage need assessment has not been done. There should be an assessment from traders’ point of view,” said Ahmed.

Ghuman and Singh recommend that the state/provincial governments whose development is impacted by trade must persuade their union governments to give due attention to the economic rationale. Given the benefits of lowered prices, transport and transhipment costs, there is a strong case to be made not only for resuming trade but expanding it.

They also said it is necessary to bring informal and illegal trade between the two countries into the formal and legal channels.

Suggesting that both governments should give most-favoured-nation trade status to each other, the authors also say both countries should establish a good banking network that would help curb payments through hawala and other illegal means. They also advocate a liberal visa regime.

Eminent economist Sucha Singh Gill said there was a need to understand the regional context of Indo-Pak relations, saying that Wagah trade has a sociocultural context as well. He said a recent study showed that despite seven decades of Partition, 99 % of those surveyed had expressed their desire to visit their ancestral places across the border.

“Trade between the two Punjabs is natural. There is a lot of goodwill and it opens cultural bonds. We need to educate local politicians to put pressure on union governments,” said Gill.