The story so far: On April 18, the government announced suspension of trade from midnight at two designated points along the Line of Control (LoC) in Jammu and Kashmir, citing concerns about “misuse” by elements from across the border to smuggle weapons, narcotics and fake currency. The Ministry of Home Affairs has said that cross-LoC trade will only be resumed after it puts in place stricter measures and systems. What does the suspension of trade mean for the two countries?
When did trade across LoC begin?
Trade across the LoC began in October 2008, as part of the Kashmir-specific confidence building measures (CBMs) that had been initiated by former Prime Ministers Atal Bihari Vajpayee and Dr. Manmohan Singh and former Pakistan President Gen. Pervez Musharraf.
The zero-duty trade of goods at the Uri trading point, along with the cross-LoC bus between Srinagar and Muzaffarabad, was meant to “soften boundaries”, allowing people of Jammu and Kashmir and Pakistan-occupied-Kashmir (PoK) to engage with one another more freely, and was soon followed by another trading point at Poonch connected to Rawalakot in PoK.
Why has trade been suspended?
Explaining the decision to suspend trade, sources in the Ministry of Home Affairs said the trade corridor was being misused by terrorists based in Pakistan, as a channel to smuggle arms, ammunition, narcotics, counterfeit currency and funds to support anti-India activities within Jammu and Kashmir. They also cited the illegal trade of goods from the United States, such as “California almonds”, while the cross-LoC system was meant exclusively for locally-sourced items. This week, the government alleged that 10 of the trading companies involved were run by Kashmiri militants who had crossed over to Pakistan. Officials referred to the National Investigation Agency’s (NIA) ongoing case of terror-funding against the former president of the LoC Traders’ Association Zahoor Ahmad Shah Watali, who is charged with funding terror groups. Finally, the Ministry of Home Affairs said the route was now being used to facilitate non-Kashmiri trade, and that after India cancelled Pakistan’s MFN (most favoured nation) status in the wake of the Pulwama attack (February 2019), traders would likely misuse the route further to evade higher duties and taxes on goods.
How is cross-LoC trade different?
Business across the LoC is different because it works on a barter system between traders on both sides of Kashmir. So far, 21 goods has been approved for barter, which include handicrafts, saffron, mushrooms, fruit, cereals, honey, spices and carpets. Since the Line of Control is disputed between India and Pakistan and not recognised as an International Boundary (IB), the goods are referred to as ‘traded out’ and ‘traded-in’, instead of exports and imports. Also, unlike regular cross-border trade between India and Pakistan at the Wagah-Attari border, cross-LoC trade takes place only four days a week.
What will be the impact?
Since it began, experts estimate that more than ₹6,000 crore worth of trade has been conducted over the LoC points, and a total of 1.6 lakh job days created because of it. Starting from a mere three crore Pakistani rupees (PKR) worth of goods traded in and 2 crore Indian rupees (INR) worth of goods traded out in 2008-2009, the cross-LoC trade in 2018-2019 was pegged at 441 crore (PKR) and 454 crore (INR) respectively. According to a study by the Bureau of Research on Industry and Economic Fundamentals (BRIEF), about 662 traders from Jammu and Kashmir are registered to trade at both points at Uri and Poonch, of which about 110 of them trade actively. The affected traders says that with uncertainty over the reopening of the trade, their livelihoods will be in jeopardy, along with those of loaders, transporters, retailers who are part of their trade, as well as their families, totalling 40,000-50,000 people. Many political leaders in Jammu and Kashmir like Mehbooba Mufti and Omar Abdullah have also protested against the move, given that the government has also severely curtailed civilian traffic on the main Srinagar-Jammu highway. This they say will lead to small- and medium-scale traders being squeezed at both ends, and result in heavy losses particularly for the fruit business; the State is renowned for its apples and cherry crops. Like on other issues, Jammu leaders like former Minister Prof. Chaman Lal Gupta said the trade had been run on an ad hoc basis, without adequate security measures, and must not be restarted in the prevailing circumstances.
Is this the first time this has happened?
In the past decade, trading at the Uri-Muzaffarabad (Chakan da bagh-Salamabad) post has been stopped thrice because of cases of narcotic smuggling, and once when a shipment of arms was seized during checks in 2017. According to the authorities, numerous seizures have been made recently of pistols, grenades, spares and ammunition, including one particularly large cache concealed in a consignment of bananas. The drug hauls have been sizeable too: in 2017, J&K police found 66.5 kg of suspected heroin worth ₹300 crore packed between boxes of garments in a truck that came from PoK, while five other seizures yielded nearly ₹1 crore in counterfeit notes. At the Poonch-Rawalakot point, trading has been suspended more frequently due to cross-LoC shelling, particularly between 2016 and 2018, when ceasefire violations rose sharply. Even so, the LoC trade was seen as one of the most resilient CBMs introduced more than a decade ago, as it had been able to continue despite major hostilities between New Delhi and Islamabad.
What lies in store?
Unlike cases in the past, the April suspension wasn’t due to any one particular incident but a series of investigations over the misuse of the cross-LoC trade service. As a result, resumption of trade is likely to be a more long-drawn out process. Traders have protested against some of the allegations levelled by the MHA, especially the case of the California almonds, which, they insist have not been traded since 2016. They have also asked why the government has been dragging its feet on the procurement of “truck body scanners” (which would ensure easy detection of contraband currency, drugs and arms) and save much time for traders who have to undergo lengthy manual searches. The case for full body truck scanners has been pending since 2010, when the government first agreed to install them.
After many false starts, the MHA and J&K announced they would complete the installation of the scanners by end 2017, but still have made no headway in the process yet. The MHA has said that cross-LoC trade will only be resumed after it puts in place stricter measures and systems, but has not specified what they may entail. It seems unlikely that the suspension will be lifted soon, especially given the security requirements during the ongoing general election and with State polls due later this year.
