Growing (im)balance

Cross LoC trade may die a slow death in absence of exchange currency to clear balance of payment. Hamidullah Dar reports.
Cross LoC trade has increased in volume over time but the rules to govern it are yet to be charted out and formalized. Started with exchange of goods worth a few lakh rupees in October 2008, LoC trade has grown to crores, at least through the Poonch-Rawlakote route. What dwarfs the trade, however, is the lack of modalities.
Experts now warn that the failure of Indian and Pakistani governments to set modalities could force the trade vanish slowly.
“There are some bottlenecks that need to be removed immediately so that cross LoC trade takes right course. The rules for easy and hassle free transaction are not there (for cross LoC trade),” says Prof Nisar Ali of Kashmir University’s Department of Economics. “The lack of banking facilities on either side of the control line also is a big hurdle. Banks from this side should have at least one branch on other side (in Pakistan administered Kashmir) and similarly PaK banks must have the same facility in J&K. It will bring a lease of life in the currently ailing trade.”
India and Pakistan on their part have been executing many CBMs to forge reconciliation between them. “Cross LoC trade is one of them, and a vital one too,” opines Dr Mubeen Shah, president of Kashmir Chamber of Commerce and Industry. “Even when all ties were snapped in the aftermath of Mumbai attacks, trade across LoC remained in place. Had it snapped, the bilateral relations would have come to the lowest ebb.”
Traders across the LoC most often do not know each other, resulting in mistrust between trading parties. It was for this reason that the trade experienced a tremor – there was no trade from either side of the LoC on July 15 through Poonch-Rawlakote route. Poonch traders alleged that the businessmen of PaK were sending goods of much lesser value leading to blockade of their money (which they put at Rs 3 crores). The raucous was so severe that trucks were returned without unloading at intended destinations.
The next day no truck entered into Chakan-Da-Bagh at Poonch from PaK as traders from across LoC were agitated over returning of their consignments. This avenging act was the first instance since cross-LoC trade was launched on Poonch-Rawlakote route on October 22 last year. Traders in Poonch complained that they sent goods in 20 trucks to PaK carrying items worth Rs 92.09 lakh while their counterparts in PaK sent only eight trucks valued at Rs 49 lakh of Pakistani currency (only Rs 30 lakh in Indian currency).
“There is a lot of noise on part of government but nothing is done on the ground. Mistrust or misunderstanding is resolved once the two parties meet. We are not allowed to meet as hurdles are created. Pakistan government has reservations in issuing us permits to visit Muzaffarabad for face to face talks with our counterparts there,” complains Dr Shah.
A rare and brief meeting was allowed last month. Twenty four businessmen, 12 each from two parts of divided state, met on LoC at Chakan-Da-Bagh on June 09. The two sides discussed the problems arising on account of delay by the governments of India and Pakistan in issuing guidelines for use of currency. The traders from two sides complained that trade was conducted on barter system in the absence of currency by Indo-Pak governments.
Recently, some commodities were deleted from the list of tradable items which evoked a strong response from traders. On June 3, traders in both parts of divided state suddenly stopped cross-LoC trade after eight trucks loaded with coconut, kernel and brown cardamom were stopped by the Trade Facilitation Authorities in Poonch from crossing over to PaK on the ground that export of ‘out of State products’ violated the Standing Operating Procedures (SOP) under which cross-LoC trade is conducted.
A total of 38 trucks including 22 in PaK and 16 in Poonch carrying items worth about Rs 2.25 crore were stranded as traders on both sides of LoC staged a protest against the Trade Facilitation Authorities for stopping import-export of items. Earlier, the authorities had stopped import of garlic from PaK followed by ginger.
“There is no restriction on the origin of commodities anywhere in the documents. Government is unnecessarily adding to the problems of traders by reducing the number of tradable items. They are now seeking clearance from Agriculture department for item being infection free which is a lame excuse. This way the volume of the trade will go down,” says Dr Shah.
Some Kashmir based businessmen have started giving preference to cross-LoC trade from Poonch-Rawlakote route in Jammu region. The main impetus was absence of reports of any misunderstanding between the traders importing and exporting items on the barter system through this route.
A new trading company, Business Lines Trading Company Kulgam, is conducting trade with Business Lines Trading Company Muzaffarabad exporting tonnes of tamarind. Yet another firm, SAT Traders Yaripora (Kulgam) exported tonnes of pulses to Maud Trading Company Muzaffarabad. Prior to this, about half a dozen firms from the Kashmir valley had conducted cross-LoC trade from Poonch-Rawlakote route.
Trade on Salamabad-Chakoti route was mostly restricted to those items having high variation of prices in Pak and J&K. While onions and copra (dried coconut) was exported from here, a large quantity of garlic was imported from PaK. Garlic and ginger were also imported by the traders of Poonch in tonnes due to strong variation of prices before the ban on their import by the authorities due to “infection” and some technical reasons.
The most important impediment of the trade is absence of medium of exchange. Reliable sources say that India is stressing for US dollar as currency for the trade while as Pakistan refuses the same. And Dr Shah seconds this viewpoint. “We made it known at the very outset of the trade that KCCI does not want to be the reason or facilitator for converting LoC into permanent border. The inclusion of dollar into the trade will lend it an international dimension and at a later stage it can pave way for transformation of LoC into permanent border,” says Dr Shah.
Prof Ali finds another technical difficulty arising through the use of dollar as currency. “If you bring dollar as currency for cross LoC trade, it will be subjected to all those clauses which govern the international trade. Tariff barriers accruing as a result will beat the purpose of this trade. It has to be a localized trade to benefit Kashmiris,” says he.
Asked as to what should be the currency for conducting cross LoC trade in, Prof Ali says, “When India and Russia can have dual currency – Rupee and Rouble – in use with occasional usage of dollar, why cannot cross LoC trade be conducted in Indian and Pakistani Rupees at exchange rates? This is the only viable solution as far as the medium of exchange is concerned.”  
“Indo-Nepal trade is conducted in dual currency. Cross LoC trade also can emulate the procedure,” adds Dr Shah. “I don’t understand why this simple solution is not thought of or given go ahead by both the countries.”


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