The Pakistan Prime Minister, Imran Khan, recently suggested that poverty in the subcontinent could be reduced through dialogue and trade. The economic relationship between India and Pakistan, however, paints a complex picture. Despite a significant surge in bilateral trade between 2000 and 2006, progress has stalled over the last decade.
Current State of India-Pakistan Trade
From reaching an annual volume of $869 million in 2005-06 from just $251 million in 2000-01, trade between India and Pakistan has seen only marginal growth. As of FY17, this figure stood at a modest $2.29 billion, accounting for around 0.35% of India’s total trade. Still, informal trade continues to thrive, with an estimated value of $4.71 billion per annum. This robust flow of unofficial trade is often credited to persistent political tensions, harassment by customs officials, and the relative ease of routing goods via third countries, such as those in West Asia and border nations.
Barriers to Growth
Multiple factors inhibit the development of harmonious trade relations between India and Pakistan. These include poorly developed logistics, ineffective customs processing, and technical barriers like sanitary or phytosanitary (SPS) restrictions. In addition, recent visa restrictions reflecting political and military tensions between the two nations have obstructed trade. Other challenges include a lack of financial support, poor telecommunication connectivity, and an infrastructure deficit. While both countries have made some efforts to improve conditions, real-world progress has been limited.
Missed Opportunities and Unfulfilled Potential
In an analysis by the ICIER, the export potential between Pakistan and India was identified to be substantial – $2.2 billion per annum from Pakistan to India and $9.5 billion in the opposite direction. Unfortunately, even of the top 50 potential exports from Pakistan, India currently imports 45 from other countries. The enactment of Article 1 of the General Agreement on Tariffs and Trade (GATT) in 1994 mandated that all WTO member countries grant Most Favoured Nation (MFN) status to each other. While India granted Pakistan MFN status in 1996, the gesture has not been reciprocated.
Future Possibilities: The Unfulfilled Roadmap
In an attempt to facilitate trade, in 2012, India announced a 30% reduction in its SAFTA Sensitive list for Non-Least Developed Countries (NLDCs), including Pakistan. This allowed for the tariff on 264 items to be reduced to 5% within three years. A roadmap towards full normalisation of bilateral trade was also proposed but has yet to be implemented due to Pakistan’s hesitancy in permitting import of all allowable items via the Wagah-Attari land route.
The Role of the South Asia Free Trade Agreement (SAFTA)
SAFTA, signed by SAARC members – Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka – replaced the previous SAPTA agreement. Its objective is to lessen tariffs to stimulate intraregional trade among SAARC nations. There remains hope that this agreement can serve as a catalyst for smoother and more substantial trade between India and Pakistan in the future.
