A new study by the Sustainable Development Policy Institute in 2013 estimates that the value of informal flow of trade from India to Pakistan is $ 4.2 billion annually

At a time when Pakistan has deferred granting Most Favoured Nation (MFN) status to India, a new study by the Sustainable Development Policy Institute (SDPI) in 2013 estimates that the value of informal flow of trade from India to Pakistan is $ 4.2 billion annually. On the other hand while such flows have narrowed the demand-supply gap in various product categories and created livelihoods, the study observes that this expansion in informal trade is hurting the manufacturing community.

The study says given the large volumes of informal trade, it is in the interest of the Pakistan government to move fast and adopt measures that lead to formalisation of trade. Pakistani producers end up competing with items that are not duty paid and are cheaper in the local market. There is also a loss of revenue to the government as these goods are not subjected to usual customs procedures. Food, herbs and pharmaceutical items, are not checked for health and safety standards, posing a risk to human health, the study says. The survey based study found that the key sectors in which informal flow from India is taking place include fruits and vegetables, textile, automobile parts, jewellery, cosmetics, medicine, tobacco, herbal products, spices and herbs, paper and paper products, and crockery. The major routes from where these goods are channelised into Pakistan include Dubai, Kabul, Kandahar, Chaman and Bander Abbas. The minor routes include several places in the adjoining border region.

The survey interviewed importers, exporters, wholesalers, retailers, transporters, custom clearing agents, smugglers and “khepias” or the special agents hired by businessmen for the supply of goods. For fruits and vegetables, there are four trading days at Chakoti border per week during which around 30 trucks pass through the line of control. On average a single truck contains 750 cartons of fruit and at least 15 per cent of total cartons have no official record. The average price of a single carton upon entry into the first Pakistani market is $ 5. In the case of textiles, in the wholesale market in Karachi, Lahore and Rawalpindi there are around 400 shops which are dealing in Indian cloth, fancy suiting, and bridal wear. The price of a sari dress ranged from $ 50-150 and the price of an Indian bridal dress ranged from $ 800-1600.

The daily turnover in Indian medicine reported in Khyber Pakhtunkhwa province and tribal areas on the Afghan border is $ 0.15 million and the daily turnover in Indian medicine reported in Lahore is $ 15,000. The monthly turnover in spices is reported at $ 0.7 million and the monthly turnover in Indian black tea coming through Afghanistan is calculated at $ 0.1 million. Even betel leaf comes from India and on an average the monthly consumption of betel leaf is reported at 0.3 million kilogram in Lahore only, while the monthly turnover in banned items like ghutka and 'Pan Parag' is reported at $ 0.40 million.

There are a number of shops dealing in Indian auto parts in Karachi, Lahore and Rawalpindi. The average monthly turnover of each shop is $ 0.1 million in Karachi, $ 0.25 million in Lahore and $ 0.12 million in Rawalpindi. The market share stands at around 30 per cent. The total annual turnover in tyres is around $ 243 million and market share of retreaded Indian tyres in local market is around 70 per cent i.e. $ 170 million. Informal trade with India in automobile sector has just started in the past 8-10 months, the study says. The major engine parts are already imported from China whereas from India, traders are mainly importing gear boxes of different cars through the Wagah-Attari border. The auto parts imported from India are cost effective and better in quality as compared to China, the study notes.

The monthly turnover in Indian cosmetics items is $ 40 million. Indian herbal products too find a place with 41 shops in the main markets. Indian made alcohol is also coming to Pakistan through informal channels and available in Karachi and Lahore. Traders claim that there are unnecessary delays in customs procedures involving clearance in shipment and documentation processing. This makes informal trade a cheaper option even for the items formally allowed to be imported in Pakistan from India under the negative list based trading regime, the study points out.

However, on the flip side, this informal trade in items such as auto parts was crippling the local industry, the survey found. The study says when granting MFN status to India, Pakistan should ensure that both tariff and non-tariff barriers come down to a level where formal trade becomes more attractive. Trade normalisation could increase volumes from $ 1.9 billion in 2012 to an estimated potential of around $ 15 -20 billion depending upon the extent to which various tariff and non-tariff barriers are addressed, according to another study.