Indian exporters do not enjoy any special benefits; imports from the Pakistan are a mere $0.72 billion; most of the trade is informal, a whopping $4.71 billion against $2.67 billion formal trade.
In the aftermath of the Uri attack, the country has decided to reconsider the unilateral grant of Most Favoured Nation (MFN) status to Pakistan. However, experts believe that the interests of India would not be hurt if MFN status to the neighbouring nation is revoked.
Meanwhile, a meeting called by Prime Minister Narendra Modi to discuss the issue been postponed for the next week. The meeting was slated to happen on Thursday.
Imports from Pakistan mostly include items like oils, dates and cement, together comprising 50% of formal trade between two neighbouring countries, whose relations are currently tested following terror attack at Uri, as per data provided by Indian Council for Research on International Economic Relations.
While these items can be sourced within India, exports to Pakistan would not get hurt as India does not enjoy any special benefits.
"Pakistan never reciprocated the MFN status to India and as such our exports like tea attract normal duties," said Monojit Dasgupta, Advisor to Federation of All India Tea Traders.
Dasgupta, as Secretary General of Indian Tea Association, was instrumental in conducting visits to Pakistan by tea producers and traders and hosting similar visits to India as well.
Another reason for withdrawal of MFN not impacting the trade is that most of it happen through informal channels, believes Dasgupta.
In fact, Pakistan's long negative import list has led to heavy informal trade with India, an extensive study conducted by New Delhi-based think tank Indian Council for Research on International Economic Relations has found.
The negative list of 1209 items has been serving no real purpose as more than 50% of the products being exported informally from India to Pakistan were on the negative list, the survey found out.
The study that was carried on the basis of an extensive survey conducted in India and Dubai estimates informal trade to be a whopping $4.71 billion against $2.67 billion formal trade.
Of this, India's exports to Pakistan are estimated to be $3.99 billion against $2.17 billion through the formal route.
Imports from Pakistan were found to be $0.72 billion.
So, while official trade with Pakistan was equivalent to 0.41% of India's global merchandise commerce, the reality is something else due to varied factors as revealed by an extensive survey of traders.
"The survey revealed that 89% of traders in India found Pakistan's negative list of 1209 items as the most important factor behind India's informal exports to Pakistan," the report authored by Nisha Taneja and Samridhi Bimal said.
A total of 247 respondents were covered across 8 Indian cities of Ahmedabad, Amritsar, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, Surat and Dubai for this survey.
These 1209 items on the negative list are not allowed to be imported from India. Moreover, there is a restriction on the Wagah road route where only 137 items are allowed to be exported from India.
"These restrictions give a strong incentive for negative list goods to be traded informally from India to Pakistan largely through third countries. The survey showed that more than 50% of the products being exported informally from India to Pakistan were on the negative list," the report said.
The second most important factor for informal exports to Pakistan, identified by 58% traders, was the ease of sending goods via a third country.
The irony is India and Pakistan share a long land border but trading is allowed only by road and rail along the Attari/Wagah border in Punjab.
"This reflects the weakness of the infrastructure supporting formal trade which often results in high transport costs in the region and creates a strong incentive for trade to take place through informal channels."
In the absence of road route, exports at a much higher cost by sea are resorted to. Even there, 100% security check is conducted making trading through the direct sea route more cumbersome.
Restrictions on goods movements have forced traders resort to roundabout routes involving mostly Dubai and also Iran and Afghanistan, the report said.
Other factors encouraging informal trades are a lack of payment mechanism due to an absence of banking channels leading to hawala transactions.
Fear of trading directly was also reported as a reason for the informal trade.
"This is linked to the strained political relations between the two countries. Traders in India reported harassment and questioning from officials which prevented them from entering into a direct formal trading relationship," the survey found out.
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