As India-Pakistan relations ease, limited trade between the two nations could resume

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After hostile face off since the Pulwama attacks, the easing of relations between India and Pakistan could set the ball rolling on the trade front. Sources familiar with the development said that initial talks have begun.</p>
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While Pakistani textile exporters have already urged Islamabad to allow import of cotton from India, sources said that other key raw materials such as chemicals and plastic could also be shipped to the south Asian country.</p>
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Indications are that Pakistan may even start imports of cement and steel, sources said.</p>
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Since the Pulwama attack, relations between the two countries nosedived and all trade activities had come to a halt.</p>
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“The Pakistan economy has been severely impacted due to the Coronavirus pandemic and the country’s debt level has surged. It only makes sense for Pakistan to start imports from India as it gives a huge freight advantage,” an analyst said.</p>
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In a major shift of policies, Pakistan’s Chief of Army Staff General Qamar Javed Bajwa said that New Delhi and Islamabad must “bury the past and move forward”.</p>
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Though Bajwa brought up the Kashmir issue, he said that cordial and stable relations between the two countries were critical for the region.</p>
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After the Pulwama attack, India retracted the Most Favoured Nation (MFN) status accorded to Pakistan. </p>
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“Bilateral trade between India and Pakistan had come to a halt since the Pulwama incident but now India could once again start exporting certain items to Pakistan. There is demand from Pakistan,” Ajay Sahai, director general, Federation of Indian Export Organisation told India Narrative</p>
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According to data, in 2018-19, Pakistan’s exports to India was just 2 per cent of its total exports. Similarly, only 3 per cent of its overall imports were sourced from India. India’s imports and exports in relation to Pakistan was less than a per cent.</p>
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Though trade between the countries has always remained “limited”, it does have an overall bearing for several industries especially when Islamabad’s battered economic condition. </p>
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Informal trade has always existed between the two countries.</p>
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An earlier PHDCCI report said the informal exports from India to Pakistan constituted readymade garments, cosmetics and jewellery, spices, livestock, drugs and pharma, machinery mainly textiles, chemicals, tyres and informal imports from Pakistan to India includes mainly cloth, tobacco products, dry fruits, leather products mainly footwear.</p>
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“It makes economic sense for trade to resume, it is known that a lot of indirect trade takes place between the two countries,” the analyst said.</p>
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<strong>Why this change in stance</strong></p>
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Another foreign policy expert pointed out that within Pakistan, there is growing impatience with the deterioration of the economic and social indicators amid apprehensions that the country may be slipping into a debt trap. However, Shakti Sinha, director, Atal Bihari Institute of Policy Research and International Studies, MS University and a former bureaucrat said that Pakistan cannot be taken “very seriously” since it continues to bring up the Kashmir issue.</p>
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“Though there have been indications from Pakistan that it wants strike a chord with India and move on it has also brought up the Kashmir issue. It is possible that this change in stance is due to the new US administration and also its own economic condition,” Sinha said.  </p>
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There is also a growing feeling among the Pakistanis that it is time for Islamabad to focus on the “right issues,” another analyst added.</p>
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“The issue of Kashmir, for Pakistan, has always remained at the core, it has been the driving force for all political parties. It is beginning to haunt the people of the country,” the analyst said, adding that the common people there want peace and prosperity.</p>
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What has also dealt a blow to Pakistan Prime Minister Imran Khan is the decision of the anti-money laundering watchdog Financial Action Task Force (FATF) to retain Islamabad in the grey list.</p>
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The South Asian country along with 18 other countries including Zimbabwe, Yemen, Syria, Ghana, Myanmar, Albania among others, feature in FATF’s grey list. This has hit Pakistan’s economy further as foreign investments have been thin.</p>
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Disappointment has hit home even more as Bangladesh, which was part of Pakistan until 1971, has chalked out a different path with focus on the economy. Islamabad, on other hand, decided to focus on Kashmir. Besides, the perception that the country is a breeding grounds for terrorism continues to stick. Pakistan’s handling of the accused in the US journalist Daniel Pearl’s brutal murder is a point in case.</p>
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The country’s debt to GDP ratio has soared to over 107 per cent prompting many economists to believe that the current problem has arisen due to the reckless execution of the China Pakistan Economic Corridor—Beijing’s mega infrastructure project, which has been undertaken without proper planning and is laced with high level corruption.</p>
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Debt to GDP ratio is a barometer of measuring the country's repayment capacity in relation to its economic output.</p>
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Though Beijing has denied that Pakistan’s rise in dent is due to the CPEC, it has slowed down financing towards CPEC, something that has caused embarrassment for Khan.</p>