INAM UL HAQ

Srinagar: The cross-LoC trade ban has affected the livelihood of 4,229 families living in the border areas of Jammu and Kashmir, says a recently released research study.

After continuing for more than a decade from October 2008, the Government of India on April 18, 2019 banned cross-Line of Control barter trade of ‘local’ goods and farm produce between two divided sides of J&K.

The study, ‘Bridging the Divide’, by the New Delhi-based Bureau of Research on Industry and Economic Fundamentals (BRIEF) says the ban has impacted the livelihood of 22,000 people or 4,229 families directly associated with the LoC trade via two Trade Facilitation Centres (TFCs) – Salamabad (Uri, Baramulla) and Chakan-da-Bagh (Poonch) – in Jammu and Kashmir.

Based on a survey and interactions with the stakeholders conducted in Poonch, Baramulla and Srinagar, the study states that the livelihood of these families, who were all directly involved in the day-to-day trade operations across the LoC, had been severely hit by the prohibition on the barter exchange. Besides, the indirect impact on manufacturers and farmers that provided the goods for the trade, as well as, end consumers, who have to pay now higher prices for the same commodities, it states. Also, several shops, restaurants, and mechanics in these border areas, who would provide the services to the people associated with trade had to face the brunt.

Trade community and associated people, mostly belonging to the border areas of Baramulla and Poonch districts, have suffered losses because of the suspension of trade.

“My family has learnt to economize after the trade suspension. We are in a very tough situation and can’t take care of our basic needs. I am unable to even pay my basic electricity bill”

– A trader from Uri

Detailing about the impact of the trade ban, the report says 2,077 families from the Kashmir division associated with the LoC trade via Uri Trade Facilitation Centre (TFC) have been directly affected. More than 246 traders in and around Uri, Salamabad with a staff of at least three each making in 984 families; 150 trader representative making 150 families; 214 drivers with equal numbers of helpers making 428 families; 100 labourers working to load and unload trucks at the TFC; 200 labourers working to load and unload at mandi.

Also 15 provision stores around the TFC with at least a helper each making 30 families; 20 godowns on the Uri-Salamabad road making 20 families; 10 local guest houses who host traders near TFC on Uri-Salamabad road; 10 Dhabas on the Uri-Salamabad road with three people employed on each making 40 families; 20 mechanic shops on the way towards the border area with 5-6 boys working in each shop making more than100 families; and three petrol pumps around the trade facilitation centre catering to the trucks carrying goods, owners of these filling stations had employed at least 5 people each making in total 15 families.

Similarly, the report says, 2152 families from the Jammu division associated with the trade via the Chakan-da-Bagh Trade Facilitation Centre in Poonch have been directly affected. They include: 380 traders in Poonch area with a staff of at least three each making 1520 families; 100 trader representatives; 150 drivers with equal numbers of helpers making 300 families; 120 labourers working to load and unload trucks at the TFC; 15 provision stores around the TFC with at least a helper each making 30 families;12 mechanic shops on the way towards the border area with five-six boys working in each shop making more than 60 families; and two petrol pumps around the trade facilitation centre catering to the trucks carrying goods, owners of these filling stations had employed at least five people each making in total 10 families.

How the stalled trade is deepening the misery of the people associated with it, the report quotes a trader from Uri: “I have converted my godown into a mini-hotel and employed three people to work in it. I have a bank liability of Rs 35 lakh. I’m on the verge of going bankrupt, from over Rs 1 lakh, I’m down to earning a few thousand rupees a month.”

“When the trade was suspended, I had six trucks of fresh bananas ready to be sent across the following day. I had to dump all the six trucks of bananas because of their short shelf life. It was a huge loss. From earning over Rs 1 lakh, I now earn not more than Rs 20,000 per month,” says another LoC trader from Poonch.

Rs 40-cr annual loss

Based on the interactions with traders, transporters and labourers, the report analyses the losses incurred due to the suspension of cross-LoC trade via the Uri-Muzaffarabad route. The monetary value of the losses calculated in the analysis substantiates the concerns of the stakeholders.

The study estimates the annual loss of Rs 40 crore via Uri-Muzaffarabad route due to the suspension of LoC trade from March 2019.

“Estimates of cross-LoC trade in 2008-19 and interactions with merchants at Uri suggest that about 12,312 trucks would have been used to transit goods via the Uri-Muzaffarabad route for one year after 8 March 2019 in the absence of the trade ban,” says the report, adding, 5,032 vehicles would be used for the trade-in of goods and 7,280 for the trade-out of goods.

This way the report has estimated loss of Rs 9 crore potential earning from the freight on Srinagar-Chakoti route for a year.

“Assuming that traders average a profit of Rs 20,000 per truck, potential profit of Rs 25 crores for the 12,312 trucks that would have crossed LoC, could not be realized by the traders in Uri,” as per the findings of the study. “In addition, they faced losses on account of barter balances; damage to perishable goods that remained in transit; and market-price fluctuations after the cross-LoC trade was suspended.”

Besides the trade and transport, an estimated annual loss of Rs 1.45 crore was incurred by concerned support staff, daily-wage labourers, middlemen and agents, according to the study findings. Similarly, the labourers lost an estimated Rs 2.7 crore – wage loss of Rs 1.6 lakh by the labour at the Salamabad TFC and nearly Rs 1.1 crore foregone in labour wages at the Srinagar mandi, where many trucks are loaded and unloaded.

The LoC trade ban has not just affected the wages of these labourers, but has rendered most of them unemployed amid few alternative job opportunities, it says.

The study points out that cross-LoC trade being a barter, the financial implications—including disturbed payment cycles—from not closing barter balances between traders on either side of the LoC make shifting to completely new business avenues difficult for these merchants.

“When the governments of India and Pakistan decide to begin talks over cross- LoC CBMs, putting forth stronger and more transparent cross-LoC trade mechanisms could give greater economic incentive to find amicable solutions. Cross-LoC trade in this improved framework could continue to affirm the liberal economic theory of peace-through-trade”

The impact of trade closure is not only visible but very harsh for some of the people involved in it. “I am the father of six children. I used to earn around Rs 800 a day before the trade suspension. Since I currently don’t draw anything, the financial constraints have pushed my son to quit his studies to work in a hotel,” the study quotes a labourer from Uri.

Another person from the same area, who was earlier working as a labourer at the TFC Salamabad, has said that after the closure of the trade he cannot even afford a testing strip of Rs 25 for her diabetic sister, who is dependent on him.

A decade of LoC trade

Infograph credit ‘Bridging the Divide’ by BRIEF

Despite intermittent suspensions and ceasefire violations, cross-LoC trade and bus service had survived more than a decade, until this trade was suspended by the Union Ministry of Home Affairs on April 18, 2019. Between 2008 and 2019, trade worth Rs 7,500 crore was recorded across the LoC. It generated more than 1.7 lakh job days, and freight revenue of about Rs 66.4 crore for transporters in Jammu and Kashmir, on account of more than 1.11 lakh trucks exchanged so far and Rs 90.2 crores paid to labourers. “While these numbers may be only a minuscule part of India’s overall economy, the impact of such CBMs go beyond standard metrics; the cases of thriving businesses and reunited families on both sides of the LoC stand testimony to the effectiveness of these measures,” opines the study.

The economic activity of cross-LoC trade, the report says, also enhanced the connectivity of these otherwise isolated border areas in far-flung Poonch and Uri particularly. “It connected them not just across the LoC, but also to other local districts such as Jammu and Srinagar.”

The sudden and indefinite suspension of cross-LoC trade, the study says, might eventually weaken the bridges gradually built through the exchange of goods and people to people contact.

After the cross-LoC bus service, which was aimed to connect the divided families on two sides of the divided Jammu and Kashmir, the intra-Kashmir trade was considered the biggest people-centric confidence-building measure or CBM.

Infograph credit ‘Bridging the Divide’ by BRIEF

It was in 2008, the governments of India and Pakistan decided to open the LoC for trade. The routes connecting Uri- Muzaffarabad and Poonch-Rawalakot were established as trade routes for cross-LoC trade.

“The beginning of trade across the most controversial de facto border was considered to be a paradigm shift in the India-Pakistan relations. Given the underlying conditions, trade was seen as a ray of hope to establish peace,” the study opines.

The measure was aimed at converting the social interconnectedness into commercial interdependence of the two similar yet separate sides of LoC, presuming that trade would flourish on the basis of ‘the emotional capital’ of the people living on both sides. LoC, according the study, saw hope in the virtuous cycle between trade, trust, and people-to-people connectivity.

Most importantly, there has been loss of goodwill, confidence and cooperation gradually built over the decade because of cross-LoC trade. Confidence Building Measures like the cross-LoC trade are critical to promoting peace and regional cooperation in South Asia

However, the Union Ministry of Home Affairs on April 19, 2019 issued an order for suspension of LoC trade from both routes citing ‘misuse of trade routes by Pakistan-based elements’. “This misuse involves illegal weapons, narcotics and currency,” read the MHA order.

The order further said that to ensure only bonafide trade takes place for the benefit of the people of Jammu and Kashmir, the trade will remain suspended until a stricter regulatory regime is put in place.

The BRIEF study has also carried a SWOT analysis of the trade and has suggested certain measures for reviving and making the LoC trade more transparent.

The strengths of the trade, as per the study, are employment generation, peacebuilding and regional cooperation. Whereas, inadequate infrastructure, lack of proper roadways, lack of communication, no dispute settlement mechanism, limited list of tradable items, the issues of a barter system, and lack of clarity on GST have been worked out as its weaknesses.

It sees the expansion of trade, an increasing number of tradable items, the introduction of new trade routes and the introduction of a value-added chain as an opportunity.

However, the misuse of the trade, like smuggling instances of narcotics, illegal weapons or fake currency, are the threats that have already hampered the LoC trade. The supply of third-country goods instead of local items is also a challenge. While the frequent suspension of trade on account of security concerns and other reasons adversely affects the traders as their stock of goods, mostly perishables, go waste or the balancing out becomes difficult if consignment from one side has already been traded.

‘Bridging the Divide’

The study authored by Afaq Hussain and Nikita Singla, director and associate director of BRIEF, recommend a revised strategy for re-initiating the cross-LoC trade and addressing the concerns around the transparency of the trade.

Based on the direct interview with stakeholders, on-ground research and analysis of trade models, the study has recommended infrastructure reforms, digitisation of trade, establishing trade talks, dispute settlement mechanism, expanding trade constituency and revision of SoP guidelines.

Arguing that the concerns over transparency have plagued cross-LoC trade over the last decade, the study advocates that the apprehensions need to be addressed across the complete trade ecosystem, including enhancing transparency in the standard operating procedure, invoicing, GST norms, and trader registration.

Clarifications on HS codes to prevent misrepresentation of commodities; setting up rules of origin framework to avoid the import of third-country goods; devising rules about goods and services tax rates and inter-state taxation to prevent evasion; and trader-registration policies to ensure credibility of the traders involved are immediate steps that need to be taken to address long-standing concerns over cross-LoC trade, it states.

Digitization of systems and procedures at trade facilitation centres is an important step that can help boost cross-LoC trade. “And today, more than ever before, there is an increasing focus on improving the ease of doing business ranking in India. Hence, similar steps are needed with respect to cross-LoC trade as well. Digital platforms to monitor invoicing, traders’ records, barter balancing and truck information, among other details, will enable real-time check by the authorities, leaving lesser room for misuse,” say the authors.

They believe the current suspension of cross-LoC trade could be seen as a window of opportunity to address these issues and revive the trade in a stronger and more organised manner.

“When the governments of India and Pakistan decide to begin talks over cross-LoC CBMs, putting forth stronger and more transparent cross-LoC trade mechanisms could give greater economic incentive to find amicable solutions. Cross-LoC trade in this improved framework could continue to affirm the liberal economic theory of peace-through-trade.”