India’s Trade Ties with Afghanistan Affected by India-Pakistan Tensions
Afghanistan sent its first shipment of exports to India in February 2019. (Photo: Wikimedia Commons)
By Tridivesh Singh Maini

India’s Trade Ties with Afghanistan Affected by India-Pakistan Tensions

Aug. 28, 2019  |     |  0 comments

After India revoked Article 370 to withdraw special status of Jammu and Kashmir and bifurcate the region into two union territories — Jammu and Kashmir and Ladakh, Pakistan was quick to announce the downgrading of diplomatic ties with India. Apart from making it clear that it would take the issue to the UN, Pakistan also expelled India’s envoy in Pakistan and said that it would be calling back its envoy.

A number of important Confidence Building Measures (CBM), which carried on even in midst of earlier tensions, were suspended. This included the Samjhauta Train service, one of the oldest CBMs between the two countries. The bi-weekly train service, connecting Delhi with Lahore, commenced in 1976 under the Simla Agreement. India ran the train service from Delhi to Attari (Indian side of the border), while Pakistan ran it from Attari to Lahore. While Pakistan announced it was cancelling the train service from Lahore to Attari on August 6, 2019, India also decided to cancel the Delhi-Attari service on August 9.

Thar Express, which played a crucial role in connecting separated families of Rajasthan and Sindh, was also suspended. The train ran post partition till 1965, was suspended after the 1965 war and resumed in 2006. Ever since its resumption, an estimated 400,000 passengers have traveled on this train. Apart from rail services, the Lahore-Delhi bus service, which commenced in 1999, was also snapped.

Pakistan made it clear however that the Kartarpur Religious Corridor would go ahead as planned. The religious corridor seeks to connect Dera Baba Nanak in India with Darbar Sahib in the town of Kartarpur, founded by Guru Nanak, the first Guru of the Sikhs, in 1522. It is especially significant given the fact that Sikhs the world over will be celebrating Guru Nanak’s 550th birth anniversary in November 2019.

Pakistan Foreign Minister Shah Mehmood Qureshi as well as Pakistan Foreign Office Spokesperson Muhammad Faisal stated that work on the corridor would not be disturbed in anyway. Chief Minister of Punjab (India) Captain Amarinder Singh also made the point that paying obeisance at the historic shrine was the dream of every Sikh, and he hoped that Pakistan would go ahead with this very important initiative.

Bilateral trade between Wagah-Attari (the only land crossing open for bilateral trade between the two countries) was also stopped, with Pakistan suspending trade ties with India and banning all imports and exports. In terms of numbers, this was not significant, as bilateral trade between both countries hovered between USD 2 and 2.5 billion. Symbolically it was important, as it kept hopes of the business communities in both Punjabs alive that one day economic linkages between both countries in general and the Punjabs in particular may witness a significant rise.

A World Bank report, published last year, estimated that the actual potential for bilateral trade between the two countries was USD 37 billion, provided tariff and non-tariff barriers were effectively addressed. There was a glimmer of hope when India set up an Integrated Check Post at Attari in 2012; and bilateral trade did witness a sudden rise. However, this was not to last for long as the relationship went downhill post 2013.

In 2018-2019, bilateral trade between both countries was estimated at USD 2.55 billion. India’s exports to Pakistan were estimated at a little over USD 2 billion, while imports were estimated at less than USD 0.50 billion. India’s main exports to Pakistan include petroleum products, cotton yarn, dye, chemicals, tires, rubber, tomatoes and sugar. Pakistan’s exports to India include cement, fruits, chemicals and fertilizers.

New Delhi needs to find a way to ensure that economic ties and connectivity with Afghanistan are strengthened and the ambitious vision of trilateral connectivity among India, Iran and Afghanistan is accomplished.

After the Uri attack in 2016 and the Pulwama terror attack in February 2019, the business community on both sides has come to terms with the fact that trade between both countries is like a pipe dream. Post the Pulwama attack, India removed the Most Favored Nation status which it had accorded in 1996 to Pakistan and imposed tariffs of 200 percent on certain goods. These steps compelled Pakistan to look at alternative markets for both exports and imports. For chemicals, dyes and etc., it has been looking at Chinese market and the Far East, though the prices are higher. For imports of commodities like cement and dates, it has been looking at other markets.

When questioned about the impact of bilateral trade, businessmen on both sides stated that the suspension of bilateral trade would not have a big impact in the long run. Some Indian businessmen stated that Pakistan would be affected more by the suspension. Pakistani traders agreed that in the short run they would have to face economic hardships. They also made the point that post February 2019, they had begun to look at other options. One of the outcomes of Pakistan’s decision would be a rise in indirect trade through Dubai and Singapore, currently estimated at USD 5-10 billion.

More than bilateral trade between India and Pakistan, it is India’s trade with Afghanistan which is important. Under the APTTA (Afghanistan Pakistan Trade Transit Agreement), Afghan goods could enter the Indian market with off loading at Wagah (Pakistani side of the land crossing), but Indian goods could not go back into Afghanistan. After the Kashmir revocation, Pakistan had also decided to suspend the import of Indian goods to Afghanistan under the Pakistan-Afghanistan transit treaty.

In 2017, to overcome Pakistan’s intransigence with regard to providing India land access to Afghanistan, India launched a direct air freight corridor. Flights commenced between New Delhi and Kabul in June 2017 and between Mumbai and Kabul in December 2017. In March 2019, another air corridor was set up connecting New Delhi with Herat. Post the Pulwama attacks, Pakistan stopped flights originating from or transiting through India. As a result, some carriers such as Air India and Spice Jet stopped their flights to Kabul. This disruption had a major impact on the level of bilateral trade. Afghan imports of commodities, such as dry fruits, vegetables and handicrafts, witnessed a drop of 30 percent. It is not just trade, even Afghan patients and students have suffered as a result of these restrictions.

It is not just India-Pakistan tensions which will play spoiler, but also the uncertainty with regard to the Chabahar Port project as a result of US-Iran tensions. The India Global Ports Limited took over operations of the port in December 2018. Afghanistan sent its first shipment of exports to India, which included dry fruits, textiles and carpets, in February 2019. The port is also technically kept outside the purview of sanctions. However, Afghan exports to India and China have been facing problems in carrying out transactions as a result of US sanctions on Iran. New Delhi and Kabul will need to address this issue soon.

While trade linkages and people to people contacts between India and Pakistan have been short lived, New Delhi needs to find a way to ensure that economic ties and connectivity with Afghanistan are strengthened and the ambitious vision of trilateral connectivity among India, Iran and Afghanistan is accomplished. This is likely to be India’s main challenge in the near future given the complex geo-political dynamics within South Asia, as well as the tensions between Washington and Tehran.

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