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Indo-Pak border trade continues despite simmering tensions

Updated May 28, 2019

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Exports to Kabul dip 25pc. — AP/File
Exports to Kabul dip 25pc. — AP/File

KARACHI: Despite tensions following the Pulwama incident and downing of an Indian Air Force jet, the border trade between the two arch rivals did not see much change and witnessed a six per cent decline during the first 10 months of this fiscal year.

However, Pakistan’s exports to Afghanistan plunged by 25pc, damaging the country’s potential for higher exports across the Durand Line.

According to the latest report of State Bank, the trade volume of the two countries (Pakistan and India) was $1,699 million during July-April FY19 compared to $1,820m in the same period in last fiscal year, showing a decline of 6.6pc.

However, trade remained in favour of India as its exports to Pakistan were much bigger than imports. Pakistan’s exports to India declined by $39m to $298m and imports by $82m to $1,401m during the 10 months period.

Exports to Kabul dip 25pc

Meanwhile, China has emerged as Pakistan’s biggest trading partner in the last five years. During the 10 months, exports to China slightly increased but imports were drastically reduced by $989m or 10.6pc to $8.301 billion. Exports increased by $23m to $1.476bn in 10 months of this fiscal. China has increased market access for Pakistani products but the country lacks exportable products. Only agriculture products like rice saw an increase in exports.

The biggest loss was noted in trade with Afghanistan as Pakistan’s export to the country fell by 25pc in the first 10 months of this fiscal year.

Losing access to the Afghan market could cost heavily to Pakistan in future. Afghanistan opened up its market to India and China which means Pakistani exports are likely to see further decline. Imports from Afghanistan witnessed an increase and rose to $149m this fiscal year compared to $118m in the previous fiscal year.

Exports to Bangladesh slightly increased from $43m to $632m during the current fiscal while imports from the country declined to $49m against $58m in the same period of last fiscal.

Poorest trade relation was witnessed with Iran as trade remained limited to just $4.2m. Imports from the country stood at zero. Iran has been facing sanctions from the United States and other countries, hence hindering Pakistan’s economic relations with the neighbouring country.

‘India’s economy needs stimulus’

Meanwhile, India’s slowing economic growth is of serious concern and the country needs to urgently cut tax and interest rates to revive the economy, a top industrial body said on Monday in New Delhi ahead of the inauguration of Prime Minister Narendra Modi’s second term.

The economy grew 6.6 per cent in the three months to December — the slowest pace in five quarters — and the Federation of Indian Chambers of Commerce & Industry (FICCI) said the bigger worry was that domestic consumption was not growing fast enough to offset a weakening global economic environment.

“The recent signs of slowdown in the economy stem not only from slow growth in investments and subdued exports but also from weakening growth in consumption demand,” FICCI said in a statement suggesting various measures the government could adopt in the next budget expected in a month.

“This is a matter of serious concern and if not addressed urgently, the repercussions would be long term.” Modi – who won a thumping majority in the general election despite the agricultural sector’s economic woes, a shortage of jobs and the stuttering economy – takes oath of office on Thursday and will need a finance minister who can help navigate through the challenges facing the economy.

Some of the issues are slowing industrial output and manufacturing growth, slumping car and two-wheeler sales, and a drop in airline passenger traffic.

FICCI said the new government should cut corporate and individual taxes, expand a programme of handing 6,000 rupees ($86) a year to poor farmers to boost consumption demand and consider tax concessions for export-oriented manufacturers.

The Confederation of Indian Industry, another industry body, said it was crucial to reduce the income tax burden and expand the scope of investment allowance to all sectors, while higher incentives should be given to exporters.

The FICCI also called for an interest rate cut from the Reserve Bank of India (RBI), as real interest rates have remained high for a long time with commercial banks reluctant to pass on the benefits of recent cuts.

When Modi took power for the first time in 2014, global oil prices slumped. But as he gets set for a second term, rising oil prices could push the current account deficit higher.

The body also said the trade war between the United States and China could further slow down global trade and hurt India’s already sluggish exports.

“Amidst rising uncertainties and economic challenges on both the domestic and global front, there is an urgent need to re-energise the engines of growth and pump prime the economy,” FICCI said.

“The upcoming budget...is an opportunity for the government to boost consumption and investments through appropriate fiscal stimulus and policies.” Government bureaucrats have started consultations with industry bodies, such as the FICCI, before the budget.—Reuters

Published in Dawn, May 28th, 2019