It might be time to reconsider Indo-Pak trading ties

Trade with India is in our best interest. As Profit has time and time reiterated in its editorials, “there is absolutely no scenario in which Pakistan becomes a developed country, or even a middle-income country without a significant opening of trade ties with India. It is simply impossible.”

Trade ties between the two countries have been a sore spot over the decades. Any time there is a flare up in tensions or a development on the Kashmir issue, the first response is to suspend trade ties with India. The only problem is that Pakistan and India are natural trade partners. We understand that the politics of doing business with India has become more difficult in recent years, but to ignore the potential of trade with India while obsessing over dwindling exports is an exercise in lunacy.

That trade ties are the most natural thing in the world between India and Pakistan is proven by the complex networks that run through different parts of the world that make sure Pakistani products make it to India and Indian products make it to Pakistan. Back in December last year, Profit did a story on how Pakistani lawn has a massive market in India and how designer suits as well as knock-offs from Pakistan make their way to India through the Indian expat community in the gulf and Europe.

And much like there is demand for Pakistani products in India and thus ways to get it there, Pakistan also faces the reality of Indian products being high in demand and it being smuggled into Pakistan one way or the other. We look at smuggled goods coming to Pakistan from India through the eyes of the people that sell them.

The potential and the paradox

In August 2019, following India’s decision to revoke Article 370 of its constitution that granted occupied Kashmir a special status, Pakistan downgraded diplomatic relations with India and suspended bilateral trade with it. This made India, the closest neighbour Pakistan has culturally, the only country other than Israel to have no trade ties with Pakistan whatsoever. Even before this complete shutdown of trade with India, the trading relationship between India and Pakistan has been fraught with bad blood. In the wake of the Pulwama attack in February the same year, India had imposed a 200 percent customs duty on all goods imported from Islamabad. New Delhi also revoked the MFN (most favoured nation) status granted to Pakistan.

Despite all of these hurdles and challenges, trade between the two countries was estimated to be around $2 billion — with bilateral trade through formal channels tilted in favor of India. According to one report of the World Bank, this figure was abysmally low and that without artificial barriers had the potential to be as high as $37 billion a year - which would make India Pakistan’s largest trading partner.

The $2 billion trade volume that still existed was mostly agricultural produce being moved across borders. Pakistan’s exports to India include vegetable products, textiles, dry dates, rock salt, cement, leather, surgical instruments, carpets, and gypsum. While India’s exports to Pakistan consist of cotton, organic chemicals, dyes and pigments, machinery, pharmaceutical items, teas and spices, iron and steel and plastic goods. The cutting off of trade ties resulted in a while in prices for basic food items such as onions and tomatoes skyrocketing to never before seen heights.

Now, these are very basic products that the two countries have agreed on trading with each other at different points. Estimates such as the one made by the World Bank do project that trade of such products would increase, but they also argue that if trade was free between India and Pakistan, there would be a lot of consumer products that would have markets across the border. Both Pakistanis and Indians consume media created by each other, and there is demand for things like clothes, pre-packaged food items, jewelry, sporting equipment and other things on both sides of the border. Profit has already done a feature on the demand of Pakistani lawn in India, and much like that, there are numerous Indian products that are highly sought out in Pakistan.

The trade of such things has long been a pipedream. However, the massive potential of it has always been very obvious because of the informal trading network that exists between private traders of both countries. Informal trade between the two countries also takes place through smuggling via land borders or third countries, such as Thailand, the United Arab Emirates, and Singapore. From 2012-2013 informal trade between India and Pakistan was reported at USD $3.9 billion— almost double formal trade. Informal trade between the two countries further increases when formal trade is suspended. Currently, this smuggling either happens across borders in high risk situations, and if it happens through third countries as mentioned earlier, it is an unnecessary and unfortunate detour that only ends up raising prices beyond the means of a lot of people.

The shopkeepers’ tales

All throughout the oldest markets of Lahore, products from across the border can easily be spotted. In fact, with regards to some products, there is a clear demand for Indian products over their Pakistani counterparts. According to a shopkeeper of Karachi Lee Market, there are many old streets and chowks in Karachi where fans of Indian products flock. “For example, in Lee Market, Bolton Market and Motan Das, Indian products are available at higher prices than Pakistani products and people buy them with great enthusiasm despite the extra cost,” says the shopkeeper.

This is not necessarily always because they are products that are only available in India or are of a better quality, but also because these products have great marketing in Pakistan. Despite the ban on Indian movies and television shows (yes that is still a thing), Pakistanis get around this and consume Indian media regularly. This means they see advertisements for their products and see them in use in film and television, which results in them wanting to buy the products.

The number of shops selling Indian products on the outskirts of the city have persisted, and these products are now available in all the supermarkets located in different parts of the city. Currently, there are hundreds of brands of Indian products available across the city.

Everything from shampoo sachets, to sarees and banarsi clothes are sold here. Salt, sesame, biscuits, chowder, oils, shampoos, soaps, toothpastes, medicines, make-up products, coconuts, pineapples and other fruits, betelnut, tobacco, challah, puddings, dyeing colors and even medical equipment, computers, and magazines can be found here. These products and brands are so popular that even the majority of children will know them by name.

This is a picture of two countries that should be at trade. It makes sense to import and export to each other both economically and culturally. Despite Indian products being banned in Pakistan for trading, Pakistanis still manage to find ways to get their hands on these products. Go deep into the winding streets of Karachi and you will even find traders and agents exchanging currencies and trading in both Indian and Pakistani rupees. The question is, how? And the answer lies at the same doorstep - expat populations in Dubai and other countries.

On the evening of Sunday, July 4, a large truck entered Lahore and its destination was a warehouse on Band Road. There was a driver and two helpers in the truck and they were bringing a truck loaded with goods from Faisalabad. Customs intelligence officials were already waiting for them on the closed road

Asad Raza Jaffri, Director of Customs Intelligence

How Indian products get here

There is a massive population of both Indians and Pakistanis in both the Middle East and in Europe and America. These expats go to these countries for work and better lives, but once they are there, they miss their homeland. This is why there is a significant export of both Pakistani and Indian products to places like Dubai. From here, Pakistani expats are freely able to buy Indian products and Indian expats are able to buy Pakistani products - creating a small version of the trade harmony abroad that could exist between India and Pakistan at home.

However, it is also from here that these products are then smuggled back to India and Pakistan. Naturally this means a higher cost since instead of trade happening directly across the border, products first have to go to Dubai and then be brought back. Some Indian travellers come by train and sell their luggage as soon as they get off at Lahore. But Lahore is only the second busiest city in this regard - the busiest is Dubai. And being a free port, the products are then easily brought into Pakistan and Karachi through Dubai.

Lahore’s Anarkali Bazaar and its ‘Paan Mandi’ is the largest market for smuggled goods from India, which is probably why buyers call it ‘Mini India’ or ‘Little India’. Traders here are also unaware of the strain in bilateral relations. A shopkeeper from Pan Mandi informed Profit that Pakistan-India relations affect their business and when the situation worsens, they have to import Indian products from Dubai.

“Indian goods have a market here and Indians also give us concessions. What sells for Rs 10 in India, exporters get at Rs 8. Although India is a big country, its products are still manufactured there and the manufacturing companies and factories make so much that all of it cannot be sold in India, which is why they give us goods at a cheap rate,” explains one shopkeeper.

On the other hand, Baniyamin, a wholesale dealer in Shah Alam Market in Lahore, believes that it is not cheap to order or smuggle goods directly from India. “At least 90 percent of the products smuggled from India are expired. For example, almost all cosmetics products from India are expired. There are many items that are not included in the direct trade list and reach Pakistan from India via Dubai. Even if direct trade between Pakistan and India is stopped, the things that are in demand come from Afghanistan and Dubai. For example, Indian cloth comes to Pakistan from Dubai. In Dubai, they stamp the clothes as manufactured in China and sell them to Pakistan. This has been going on for years and is expected to continue uninterrupted,” he said.Baniyamin added that smuggling of Indian products into Pakistan takes place in two ways, one which we can call direct smuggling and the other which is indirect. “Direct smuggling means that people whose relatives live in India and they visit them bring different things from India with them when they return.”

This is usually a small scale operation. A passenger is allowed to bring a certain amount of luggage with him to Pakistan and the purpose of this permission is that the luggage will be for the personal use of the passenger and not for sale. What happens is that people with between four and eight family members benefit greatly. They take orders from vendors selling Indian products in Pakistan. These people take their luggage to India and bring back clothes, cosmetics, jewelry and other products. The staff of our customs employees at the borders also cooperate with them and these things cannot come to Pakistan without their consent.

The second way is that some people who go to Dubai from here or come to Pakistan from there bring Indian products with them but the price of Indian products coming through Dubai is higher and they are sold at higher prices in the market. The open sale of Indian products in Lahore, Karachi, Peshawar, Rawalpindi and other major cities continues even in these circumstances. So when travel between India and Pakistan is easier and trade restrictions are fewer, goods flow more freely across the border and at very cheap rates. When things are bad, however, they have to come through places like Dubai which makes their prices rise.

Clothes and accessories galore

Similarly, if an investigation is carried out on clothes smuggled from India, hundreds of containers of clothes arrive at the Rang Mahal market in Lahore almost daily. Most of these containers contain Indian cloth. In these markets, the smuggled clothes are sold so openly that many retailers do not even bother to remove the Indian labels on their stock. Most of the cloth that comes from India is unstitched, and is hidden in the basements of these markets for a while before being sold openly. In recent times, there has also been rising demand for readymade Indian clothes, particularly the Banarsi Sarees that India is famous for. These saris sell for between Rs 5,000 and Rs 15,000 and people love them greatly. Similarly, Indian jewelry is considered a high end commodity particularly their jewelry designs that people see actresses wearing on television. In fact, even when it is not being imported, goldsmiths in Anarkali copy the designs from the jewelry worn in Indian dramas, serials, and such.

A dying proposition?

Indian products are readily available in Pakistan from clothes to biscuits. However, recent trends in the markets are indicating that they may not be as popular as they once were. For example the people that come to Pan Market to shop for Banarsi Sarees do always ask to see the India cloth, but they do not buy it as readily as they once would, both because of price and because as access to Indian media lessens, their products fall out of fashion. Then there is also the fact that cheaper

local options have become more readily available, and since goods are only coming through Dubai these days, Indian products have become particularly pricey. The same goes for cosmetics, which often have expired by the time they get here from India. As people are becoming more and more aware of cosmetics, women choose cosmetics more wisely which come from Dubai and other foreign countries.

Ibrar Mian, a trader at Lahore’s largest wholesale market named Shahalam Market, says that there are some Indian products that are in demand in the market, such as hair oil, which are still very popular. However, he also says this is not sustainable. “Those who do business of Indian products, if they import through Dubai, the prices of these products will be so high that no one can buy them. As is the case with other items. So they bring these products here illegally and use the Afghanistan channel,” he explains.

“But now that the security situation is very tight, the goods reach the market very slowly and that is why many items expire. But still people change the label and bring it to the market. There are only two reasons for doing business with so much risk: one is that some people do something special from the beginning and they have created a market so they want the goods to reach their customers. The second is that smuggled goods are cheaper and people take such risks in the lure of getting rich quickly. But there are very few taking this risk nowadays.”

Where does the government come in?

Aftab Bhatti, a trader in Akbari Mandi who deals in Indian hot spices, said that hundreds of items including chemicals, hot spices, dried fruits, herbs and crop seeds were imported from India. “Our family has been doing business in Akbari Mandi for the last 65 years. We have experienced putrid conditions before, but never have we had to face anything like we are facing right now,” he says. According to him, people are getting poorer and prices are increasing meaning no one has the luxury to buy things from India anymore.

“On the one hand, the purchasing power of the people has decreased and on the other hand, the government policies are beyond comprehension. Last year, sales of our hot spices dropped by 70 per cent on Eid-ul-Adha. However, Eid-ul-Adha is the biggest season for selling hot spices and such a big drop in sales was a big blow to our business. Akbari Mandi is one of the major markets in Lahore where billions of rupees are traded in a day and it is one of the markets that is directly affected by trade or not from India.”

As an example, Bhatti tells us about a chemical called ‘Ringolate’ which is imported from India. Its price was Rs 22,000 but now it is Rs 35,000. “Smuggling is taking place in India and Pakistan through two routes, one directly through the border and the other through Afghanistan. When the winter season begins, many Indian goods will reach Pakistan through Dubai through regular trade, but their volume will be less than that of the smuggled goods. Now, the products that reach Pakistan via Dubai are not more expensive than the smuggled products in the market. One of the main reasons for this is that whatever the market forces are, they have pushed commodity prices to a place where they had to reach after trade via Dubai, so it won’t make much difference,” he explains.

On top of all this keeping an eye out are 22 departments in the country that monitor the trade process and clear the goods. Despite this, smuggling continues, which is badly affecting the real traders and causing huge losses to the government. This is not because of the closure of trade with India, but because of the government’s import policies and new taxes. “What is the use of such a trade embargo when the same goods are being smuggled in? If you look at it emotionally, there is no need to open trade at all considering what India is doing to the Muslims in its own country and in Kashmir. The rationale is that governments on both sides are politically treacherous and they deliberately link political issues to each other’s economic issues. In this whole process, the people on both sides are depressed. Do you think that the Indian traders who used to sell their goods to Pakistan are not cursing their government? So I think trade is the backbone of our countries. The better the trade environment, the better the living standards of the people. I am in favor of a trade embargo with India. But what is the use of such a ban if the same goods are coming from smuggling and making trade with other countries extremely difficult?” he said.

Meanwhile, Director Customs Intelligence Asad Raza Jafari informed that during the last one month, Customs Intelligence has seized a large consignment of Indian products from Lahore in two separate operations. “On

Lahore’s Anarkali Bazaar and its ‘Paan Mandi’ is the largest market for smuggled goods from India, which is probably why buyers call it ‘Mini India’ or ‘Little India’. Traders here are also unaware of the strain in bilateral relations. A shopkeeper from Pan Mandi informed Profit that Pakistan-India relations affect their business and when the situation worsens, they have to import Indian products from Dubai

the evening of Sunday, July 4, a large truck entered Lahore and its destination was a warehouse on Band Road. There was a driver and two helpers in the truck and they were bringing a truck loaded with goods from Faisalabad. Customs intelligence officials were already waiting for them on the closed road,” he said.

“As the truck approached the warehouse, customs officials seized the truck and arrested the driver and two helpers. The truck was full of Indian products. It contained similar items, including cosmetics, shampoos, hair oils and perfumes and they can be valued at a minimum of RS 3.2 million. It was all smuggled. The majority of the products were expired. They were also re-labeled. We are now investigating through which network it reached Faisalabad and then Lahore. We have some links that led to this intelligence and we got to this stuff. The rest of the details cannot be shared with the media yet.”

Another Customs Intelligence official told Profit that there were almost no Indian products in the market and that those available were regular imports via Dubai.

“Similarly, there are some spices and chemicals sold in Akbari Mandi which are made in India, so they are definitely getting expensive but they are not illegal. Prevention has been made but goods are still being brought to Pakistan from Afghanistan through under-invoicing and incorrect labeling but now it is not so easy. The job of the customs intelligence is that if someone misguided officials and brings the goods into the country, then our work starts again and the result is in front of you,” he said.

Elaborating on government measures to curb smuggling from India, a Federal Board of Revenue (FBR) official said that strict measures have been taken to curb smuggling on both Pakistan’s borders with India.

“Due to restrictions on the Wagah border and the Khokhra cross-border, traffic is also low, so the chances of smuggling are very low. Informal trade takes place in Dubai through Jabal Ali and the labels of the goods are changed and sent to Pakistan. Pakistan has also taken up the matter with the Dubai authorities to prevent this,” he added. n