India-Pak trade rising, but still a fraction of potential: SAARC study

Trade between India and Pakistan has been continuously rising despite recurring border tensions, but is yet to tap its estimated potential of $12 billion, according to a study compiled by the SAARC Chamber of Commerce and Industry.

According to the research report, the two nations have been trade partners since Independence, but the trade potential remains under-exploited due to conflicts.

Pakistan's gross domestic product (GDP) could increase by 2 per cent in the next three years if trade between India and Pakistan gets into full swing, the study notes.

It shows that bilateral trade was just $132 million till 1995 but increased in subsequent years after India granted the Most Favoured Nation (MFN) status to Pakistan in 1996, immediately taking bilateral trade to $180 million.

Pakistan responded by increasing the tradable items list to 600, but has refused to give MFN to India due to political and economic reasons.

At present, of the total 7,200 tariff lines, 1,209 items are on the negative list. Their trade volume stands at an improved $2.4 billion, which is just a fraction of the informal trade between the two countries.

"They indulge in informal trade to the tune of $13 billion per annum through avenues like cross-border smuggling and personal baggage," the study said.

Pakistan will greatly benefit through increased trade activities between the two countries as its exports to India will rise to Rs250 billion in a short time, an increase of 733 per cent from the current level of Rs30 billion, the study says.

Apart from these, Pakistan could save Rs100 billion in import of goods from India, which are currently sourced from other countries, mainly due to the low transport costs, the study said.

Cheap raw material imports from India could also help in boosting exports of finished goods to Rs200 billion, it said.

The study shows that bilateral trade will generate 500,000 new jobs in different sectors in three years.