Friday, Dec 02, 2022

Suspension of J&K LoC trade is a regressive step and a lost opportunity

The essence of LoC trade was to extend the familial and social interconnectedness into the arena of business and commerce. To start with, this trade was meant to result in interaction between people and help build partnerships across the two parts of J&K.

jammu and kashmir, Lin of control, LOC, cross-loc trade, india-pakistan trade Trucks moving across LOC. (Express Photo: Shuaib Masoodi/File)

The trade between the two parts of Jammu and Kashmir, across the Line of Control (LoC), which started in 2008, was stopped last week. The suspension of the cross-LoC trade, announced by the Union Home Ministry, is part of a larger change in the strategy for dealing with Kashmir at the policy level. It is no longer about doves and hawks; it is now about bulls and bears. Except that the bulls are in the china shop of Kashmir, not in the stock markets of Mumbai!

Even though the trade survived major political crises during the last decade, it has faced an existential crisis right from the day it was started. Was it an India-Pakistan trade? For that matter, was it even trade or merely an exchange of goods? If it was trade, was it foreign trade or domestic trade? What was received from across the LoC, was it an import? What was sent over the LoC, was it an export? Was it an open barter or a blind barter? Ten years in operation and these questions were never addressed.

Yet, the suspension of cross-LoC trade is a regressive step not only for what it was but also for what it represented. Even with complete apathy, if not downright hostility, from both the governments of India and Pakistan, the annual trade volume cranked up to Rs 3,500 crore last year. This was almost evenly split between goods “traded out” and “traded in”. This with a truncated list of barely two dozen commodities. The business potential stands well established.

Indeed, it is a model of regional economic integration that could have been replicated in the Subcontinent. For instance, Tamil Nadu could develop similar trade links with Sri Lanka, the two Punjabs could build a mutually beneficial economic interdependence, as might West Bengal and Bangladesh or parts of Rajasthan and Sindh.

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As against regional cooperation between governments, this one is a process that binds the societies and economies of neighbouring countries together much more closely. Going beyond economics, the essence of LoC trade was to extend the familial and social interconnectedness into the arena of business and commerce. To start with, this trade was meant to result in interaction between people and help build partnerships across the two parts of J&K. In the second phase, it would have progressed into an economic and commercial interdependence between the two parts of J&K.

Finally, it would result in a network of institutions like banks, trade bodies, and regulators across the LoC aligning with each other. An institutionalisation of relations would automatically happen. In this process, a constituency of commerce for peace and normalisation of relations between India and Pakistan would be built. These new stakeholders would exercise “bottom up” pressure on their respective governments emanating from enlightened business self-interest.

The three progressions — interactions, interdependence and institutionalisation — would, over time, make the LoC less of a barrier by forging a functional unification between the two parts of J&K; a de facto unification without disturbing the sovereignty claims and the de jure political status of either side.


Compared to this thought-through initiative, guillotining the trade appeared a thoughtless action. On second thoughts, it is not. If anything, the timing and method suggest a hidden agenda. It is linked to the issue of Article 35A. For this trade was meant only for locally-produced goods to be traded by local traders; in other words, “state subjects”, a category that the present dispensation wants to get rid of.

Of course, the stated reasons for the drastic action are that the trade was being “misused” for fake currency, weapon supply and narcotics. Incidentally, as soon as the trade was started, traders from Amritsar and Lahore started the bogey of LoC trade being a conduit for fake currency and hawala operations. Be that as it may, assume for a moment that the LoC trade was being “misused”. Does the remedy lie in stopping the trade? Does it mean the activity itself is “terrorised”?

Of course not.

It is like saying that there is bogus voting, booth capturing and black money used in the ongoing national elections, so the Election Commission should call off the elections till they put in place a stricter system.


If indeed there has been weapons and terror funding through the LoC trade, it points to the flawed and under-baked modality of trade and regulatory framework within which it is operating. The solution is to put in place a proper framework and a robust mechanisms. As the old timers would quaintly say, don’t throw the baby with the bathwater.

Back in 2008, I had formally proposed to the Union government as well as the state government a policy framework for making the LoC trade a viable self-sustaining economic activity. It predicted the likelihood of this trade being derailed in the absence of five basic networks — financing, communication, regulatory logistics, and a dispute resolution mechanism for the traders operating in the two parts of J&K.

A financing mechanism comprising of a banking arrangement and payments system is complex but the most critical of the five networks. A creative solution, which avoids the minefields of sovereignty, political control, medium of exchange, its risk, and credit arrangements has to be worked out.

In addition, what is needed is a communication system for reliable transmission of information as a decision support system, a transport and logistic network for offtake and delivery, a regulatory framework for ensuring legitimate transactions and banning contrabands, and a legal mechanism for dispute resolution and settlement. None of these was put in place. Had it been done then, the trade would not have got derailed now.

The big lesson from the cross-LoC trade experiment is that symbolism should not be given precedence over substance. While it was a major CBM, and a step towards the resolution of the impending issue, that objective in itself is not enough to make it sustainable. Trade is embedded in politics but trading should not be made a political activity. That is precisely what happened resulting in the trade being killed for political reasons.


This article first appeared in the print edition on April 25, 2019, under the title ‘Symbolism over substance’. The writer is former finance minister of J&K.

First published on: 25-04-2019 at 12:05:24 am
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