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  1. Indo-Pak trade war was liberalised in 2012, but tensions and institutional challenges have led to limited impact

Indo-Pak trade war was liberalised in 2012, but tensions and institutional challenges have led to limited impact

A new Icrier report, Emerging trends in India-Pakistan trade, finds that the impact of the trade liberalisation initiatives taken by India and Pakistan in 2012 on trade volumes between the two neighbouring nations has been very limited.

By: | Published: August 21, 2018 3:32 AM
Indo Pak trade war, india, pakistan, liberalisation, trade, Icrier report Before 1996, both countries followed a restrictive trade regime practice, whereby both maintained a short list of items that could be traded

A new Icrier report, Emerging trends in India-Pakistan trade, finds that the impact of the trade liberalisation initiatives taken by India and Pakistan in 2012 on trade volumes between the two neighbouring nations has been very limited. Before 1996, both countries followed a restrictive trade regime practice, whereby both maintained a short list of items that could be traded. In 1996, India accorded the same status to Pakistan as it does to every other nation it trades with, that of the most favoured nation (MFN). But, it wasn’t until 2012 that Pakistan accorded the same status to India, following which, Pakistan has since maintained an ever-narrowing negative list (items that cannot be traded with India).

The study finds that, despite such moves, the total volume of trade has increased only marginally, although the share of new commodities in India’s export basket has increased to 12% from 3% earlier, indicating that the narrowing of the countries’ negative lists can boost India-Pakistan trade. The findings from the report also highlight the institutional and infrastructural trade barriers persisting between the two nations. Given that the preferred route of trade between the two nations has changed from rail/road to sea, India’s Sagarmala project can plug many gaps in the country’s port infrastructure and give a fillip to trade between the two countries.

Sagarmala’s port-led development vision will establish new coastal zones, around which employment and industrial clusters can be created. The new GST regime has led to a rise in duties on imports on Pakistan compared to the pre-GST regime. But, these duties can be rationalised, keeping in mind their impact on domestic industry and political will to drive up trade. For that to happen, Indo-Pak trade must cross the biggest hurdle—bilateral relations between the countries.

Considering there has just been a change in leadership in Pakistan, it would be to the two countries’ benefit if their respective governments could foreground trade above other issues in their engagements in bilateral and multilateral fora. The countries need to maintain a healthy trade relationship, and not let political myopia get in the way—at stake is a $19.8 billion dollar bilateral trade relationship.

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