Pakistan and India are very populous and major economies in the South Asian. They both have a huge potential for intra-regional trade. Presently, trade between Pakistan and India is taking place through three networks. The formal business, illegal trade and through third countries like Dubai and Singapore.
Till today, the scale of official trade between Pakistan and India is much lower than their respective global trade volume. Both economies neither fall in the category of top ten trading partners of each other. More importantly, their poor political abrasions have prejudiced their mutual trade relations.
According to a 2018 World Bank report, India-Pakistan trade can increase from $2 billion to $37 billion if both countries can take steps towards removing tariff and non-tariff barriers. These barriers include sensitive lists, strict visa policies, strict quality standards and lengthy procedures and waiting periods at the border. However, very old animosity and mistrust have also contributed to regular hindrances and significant barriers to regularizing trade relations.
The major trade barrier between India-Pakistan is their fragile relationship. Past events have intensified two-sided tensions, leading to hard stances. Both countries are now fixed in a corner where even small steps to normalize ties can lead to challenges.
Another issue that hinders trade activities is that the region’s improved trade connectivity will damage the other regional economic players.
Similarly, both in India and Pakistan, politically influential traders are battling against the growth of e-commerce. This approach leads to the violation of the policies made with international investors who brought billions in foreign direct investment to these countries.
The recent shockwave to India-Pakistan trade resulted from India’s withdrawal from Jammu & Kashmir’s special status on August 5th. In retaliation, Pakistan suspended trade activities with India. It is assessed that this suspension causes a loss of $4.2 million to the neighboring.
Similarly, Pakistan’s exports to India declined sharply from $213 to $16.8 million. Imports from India also fell from $865 million to $286.6 million in the same period.
If trade barriers are removed amicably, then the trade has the potential between the two countries will be beyond their existing potential. Both India and Pakistan can also turn away their defense budget towards tenacious issues, such as health, education, and residence for the poor by improving economic cooperation. Increase in the streamline trade will reduce smuggling. Similarly, Pakistan can also charge transit fees by providing access to Indian goods to Afghanistan through Pakistan. Besides, the business also has the potential to create jobs for millions of people. Bilateral trade can reinvigorate economic growth of both neighboring nuclear states.
Following China and Taiwan, Pakistan and can also enhance their trade and improve bilateral relation. Both countries also share history, culture and language. These factors can help to strengthen trade and investment between the two countries.