Pak Suspends Trade
By Shivaji Sarkar
Suspension of trade by Pakistan in the wake of J&K being stripped of its special status by scrapping Article 370 matters little to India being a mere 0.1 per cent of the total trade. But it is China’s trade war or currency manipulation with the US that singes India more.
Recall, India had suspended trade effectively since the February terror attack in Pulwama that killed 44 CRPF jawans. The trade on LoC was suspended to stop terror funding. Besides, the most-favoured nation (MFN) treatment to Pakistan was withdrawn too and import duties hiked to 200 per cent. So what Pakistan has done now to suspend trade and diplomatic ties has little surprise. It does not hurt India though those trading on the LoC have been hit on both sides of the borders. Many traders were reportedly funding the terrorists out of the profits say from Californian almonds. It fetched them a profit of Rs 800 to 1000 per kg.
The President of LoC traders’ body, Zahoor Ahmed Watali was arrested in terror funding cases. The Enforcement Directorate has attached his property worth crores of rupees. He was stated to have been funding the terrorists and other subversive elements in the Kashmir Valley.
The balance of payment has been in favour of India though trade with Pakistan is barely 0.1 per cent of India’s total trade. In 2018-19, exports to Pakistan were at $ 2.06 billion and imports at $ 49 million. India imports fruits, salt, sugar, rice, sulphur, limestone, ores, slag, rawhide, leather, glass and glassware, cement, bulk minerals, petroleum products from Pakistan and exports cotton, yarn, organic chemicals, plastics, paints and machinery.
There’s been no customs duty on cement imports from Pakistan since 2007, making it competitive in comparison to the Indian product, especially in the States bordering Pakistan. Out of the total imports, industry sources say, 76 per cent — around 12.72 lakh tonne — was purchased from Pakistan.
Interestingly, despite tense relationship, the volume of bilateral trade between July-January 2018-19 increased by 4.96 per cent to $1.122 billion from $1.069 billion during the same period a year back. But interestingly trade continues through third countries despite official closures.
Far more devastating is the Chinese devaluation of yuan. It has made Chinese products cheaper even with high duties imposed by US President Donald Trump. Devaluation of the yuan is believed to be the beginning of a currency war. It could lead to higher trade tensions.
Currency devaluations are used by countries to achieve economic policy. Having a weaker currency relatively helps boost exports, shrink trade deficits and reduce the cost of interest payments on its outstanding government debts. China’s manipulations have hidden and powerful influence. China’s central bank uses a modified version of a traditional fixed exchange rate.
China is aggressively doing this, inviting sharp criticism from the US but measured response from India. It hurts India more and the tariff barriers created are likely to crumble. It may flood Indian markets with Chinese goods. The balance of payment may get further twisted in China’s favour.
India is being singed by the Sino-US trade war as many other economies are being hurt. China is likely to be more vituperative against India. The Doklam issue may have been a good Indian diplomatic move, but for Beijing it subverts its territorial ambitions. And its reaction after declaration of Ladakh as union territory is sharp and shows its rigidity in holding on to the 14,000 sq km area of Aksai Chin. It has also not taken kindly to the new status of Jammu and Kashmir. It occupies sizeable part of POK that was ceded to it by Pakistan.
Further, there is an economic angle. If Indian pressure succeeds, its ambitious corridor to Gwadar port in Pakistan would be in danger. It is upping its ante for protecting its and Pakistan interests. Its aggressive economic postures may cause many problems for India such as jeopardising India’s move to check Chinese imports and hurt ‘Make in India’ campaign. Thus, it is more than a diplomatic problem.
China is trying to create closer ties with Sri Lanka, Maldives, Myanmar and even Bangladesh. Because of the sheer size of its landmass, economy and military, India is being seen as a regional power. But its small neighbours seek to protect their interests. Beijing misses no opportunity to exploit this resentment. Pakistan is also being used by China for its terror mechanism and its continuous attitude of antgonising India.
Somewhere in its move to check China, India has stopped many good quality affordable imports such as spectacles and other accessories from South Korea and other Southeast Asian countries. India has been trying to improve ties with S-E Asia but sometimes over obsession with China treats them with the same yardstick. This needs to be lowered for creating a larger umbrella and wider Indian reach.
The Chinese moves have fangs. India needs to gear up its policies both domestic and external. India’s trade balance with China is also huge — it exported items worth $16.75 billion and its import with China stood at $70.32 billion in 2018-19.
The Reserve Bank of India is also sharply watching its move as the rupee lost its strength against sweeping Chinese actions. It has targeted the dollar and the US economy as the entire world economy and currencies are hit by it. The economic aggression and currency manipulation may hit further Indian manufacturing and production. It is also adding to inflation, The RBI in its monetary policy review has indicated that by lowering its growth estimates to 6.9 per cent from 7 per cent.
In view of increasing ante by Pakistan, borders would demand more attention. India has the daunting task of managing two adversaries and thus has to take a tough call. Pakistan has lost its plea in the UN against move on Article 370. Its jingoism needs to be crushed and China needs a careful but critical economic move to defang it.
So Pakistan’s move on trade is not an issue. But when it closes down the air space, it adds cost to India. That may be a pinprick. India has to take a multi-directional approach to counter Sino-Pak belligerence and ensure path for its progress.—(INFA)