India-Pakistan Cross-LoC Trade: A Low Hanging Fruit That Can Deliver – Analysis


By Afaq Hussain and Shakti Sinha*

The people of Kashmir are hopeful the PDP-BJP government, in power in the state of Jammu & Kashmir, will take up local concerns at the national level. The “Agenda for Alliance” released by the state government in March spoke about many issues, including political and developmental concerns. We would argue that one important issue deserves more detailed attention — the largely unexplored subject of “Cross-LoC Trade”.

In 2008, barter trade commenced across the Line of Control as part of a Confidence Building Measure (CBM) between India and Pakistan. The measure is considered one of the most significant CBMs taken by the two countries in recent history. This was expected to enhance economic cooperation between the two sides of Kashmir and eventually between India and Pakistan. Though initially this trade was in the limelight and did serve its purpose, but over the last few years its benefits seem to have been clouded by other “considerations”. It is of utmost importance that government looks into cross-LoC trade from the lens of the Valley, for them to make astute policies that would deliver politically, socially and economically.

In recent years, the term LoC has often being referred to as Line of Commerce and even Line of Cooperation. This is not surprising as trade volumes have shown a substantial increase despite trade being on barter terms, lack of proper communication channels, absence of a banking system, dearth of legal enforcement of contracts and, limited number of trade days and tradable goods. LoC trade has expanded from US$0.3 million in 2008-09 to $97.2 million in 2011-12.

There is a need to build on this since the potential is immense. Interaction with traders bears this out. There is tremendous zeal amongst people on both sides to further cross-LoC linkages. Trade across the LoC would serve as a source of employment, especially for the local youth. Such linkages would also offer Kashmiris an opportunity to reunite and associate with family members and friends, despite being on opposing sides of the LoC line. The development of cross-LoC trade should, thus, be a major priority of the Peoples Democratic Party-Bharatiya Janata Party (PDP-BJP) alliance as this trade offers a host of economic prospects to the state, in terms of employment generation, revenue generation and contributions to state GDP.

In addition to basic measures, increasing the number of vehicles, increasing the tradable commodities, promoting tourism and travel, fostering communication amongst people from both sides, encouraging greater stakeholder engagement — required to give LoC trade a boost, it is important to retain and preserve the character of the initiative. Conferences, consultations and talks focused on promoting cross-LoC trade usually dwell on the aforementioned measures but overlook the need to make the people of Kashmir feel that the government recognises the importance of this trade. The optics of such recognition cannot be underestimated.

Undoubtedly, the six-decade-long Kashmir dispute has had tremendous human and economic cost. Cross-LoC trade deserves serious and immediate attention because the short and long term impact of trade across divided Jammu and Kashmir would have major implications for the region. Based on repeated interactions with numerous stakeholders, it becomes clear that if both national governments give this trade proper attention and focus, it has the potential to reap positive economic benefits to the state and, in the long run, to the two nations.

At a geo-strategic and micro level, the importance of LoC trade needs to be understood in the context of the free flow of trade raising prosperity levels of people on both sides of the LoC and enabling them to become key stakeholders in the peace process. At a macro level, the governments can use this as a means of mitigating the long drawn out conflict in the region. Economic benefits have always served as a means of powerful conflict resolution. Prime Minister Narendra Modi has been emphasizing the importance of trade and greater regional integration. The LoC trade fits in completely with his agenda. Pakistan Prime Minister Nawaz Sharif is on the same page in recognising the importance of bilateral trade. Despite the recent flare-up on the LoC, the need to build on the Ufa summit is important. A peaceful border and neighbourhood will ultimately help the development agenda of India.

Governments on both sides should use the prospering cross-LoC trade to provide the much-needed boost to the presently latent India-Pakistan relationship. It would call for courage and imagination. Recent developments in the larger neighbourhood, particularly on the subcontinent’s northwest, offers both hope and challenge. Stated positions would have to be discarded and agility shown both in taking advantage of unexpected openings and in countering adverse trends. Strengthening cross-LoC trade is a relatively low-hanging fruit that would deliver domestically and externally.

*Afaq Hussain is Director and Shakti Sinha is Chair – Policy Research Group Bureau of Research on Industry and Economic Fundamentals, New Delhi. They can be reached at [email protected]

South Asia Monitor

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