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In a significant move to further crackdown on terror, India indefinitely suspended cross-LoC trade in Jammu and Kashmir. The decision, came amid reports that it was being misused by elements from across the border to smuggle weapons, narcotics as well as fake currency. The official statement released by the Ministry of Home Affairs said orders have been issued for halting the trade at Salamabad of Baramulla in the Kashmir region, and Chakkan-da-Bagh of Poonch district in the Jammu region. The crackdown comes two months after India withdrew the Most Favoured Nation status to Pakistan in the wake of the dastardly Pulwama terror attack. Although the MHA statement asserts that the decision will be revisited after stricter regulatory mechanisms are put in place to ensure that “only bonafide trade” takes place, which benefits the people of Jammu and Kashmir and does not pose a security threat to the country.

The consistent violation of Ceasefire, pumping in of terrorists, the recent incident of hostage crisis of Indian Air force Lt. Commander have together resulted in this decision.



What is LoC?

  • Originally known as the Cease-fire Line, it was redesignated as the “Line of Control” following the Simla Agreement, which was signed on 3 July 1972.
  • The part of Jammu that is under Indian control is known as the state of Jammu and Kashmir. The Pakistani-controlled part is divided into Azad Jammu and Kashmir and Gilgit–Baltistan. The northernmost point of the Line of Control is known as NJ9842.
  • Another ceasefire line separates the Indian-controlled state of Jammu and Kashmir from the Chinese-controlled area known as Aksai Chin.
  • The Line of Control divided Kashmir into two parts and closed the Jehlum valley route.


Importance of LoC trade:

  • The trade survived major political crises during the last decade emphasizing the importance of economics of the people on either sides of the region.
  • The annual trade volume cranked up to Rs 3,500 crore last year despite hostility between Indian and Pakistani Governments.
  • 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.
  • 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.
  • 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.


Why do India and Pakistan resort to informal trade?

            Informal trade between countries happens through a third country. The third country will officially (formal trade) buy the goods from one country and sell it to the other country at a higher price.

This price is still lower than the price at which formal trading would happen.

For example, in the case of India and Pakistan, India-Dubai-Pakistan is the main channel for informal trading.

Trade is recorded between India and UAE and between Pakistan and UAE, but is not recorded between India and Pakistan.

The trade is allowed through two trade facilitation centres located at (1) Salamabad, Uri, District Baramulla and (2) Chakkan-da-Bagh, District Poonch.

As per a study by ICRIER, informal trade between the two countries in 2012-13 was almost double the value of formal trade, and most of this was routed through a third country.


Reasons for cessation of LoC trade:

  • Guillotining the trade appeared a thoughtless action.
  • LoC trade is being misused on very large scale. It has been revealed that the trade has changed its character to mostly third party trade and products from other regions, including foreign countries, are finding their way through this route.
  • Unscrupulous and anti national elements are using the route as a conduit for Hawala money, drugs and weapons, under the garb of this trade.
  • Significant number of trading concerns engaged in LoC trade are being operated by persons closely associated with banned terrorist organizations involved in fuelling terrorism/separatism.
  • Some individuals have crossed over to Pakistan, and joined militant organizations. Trading firms established by them are under the control of militant organizations and are engaged in LoC trade.
  • The timing and method suggest a hidden agenda 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.
  • 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.


LoC Trade: Kashmir specific confidence building measures:

Compared to the cross LoC bus service that was flagged off with much fanfare in 2005, cross-LoC trade between Jammu and Kashmir and Pakistan Occupied Kashmir got off to a low-profile start, receiving little attention at the time in India or Pakistan.

In diplomatic parlance, these two measures are categorised as “Kashmir specific confidence building measures”.

It then flowed out of backchannel negotiations between India and Pakistan on a resolution to Kashmir, in the belief that this would then give both sides legroom to “remake” India-Pakistan relations.


Cross-LoC trade  is one of the Four-point proposal:

Specifically, these measures seems to have originated in a four-point proposal for Kashmir that began to get regular airing from about 2005 from then military ruler General Pervez Musharraf. The four points were:

(i)The LoC will stay but Kashmiris on both sides will be allowed to move freely back and forth;

(ii) self-governance or autonomy to the region, but not independence;

(iii) gradual demilitarisation on both sides;

(iv) a joint supervision mechanism with India, Pakistan and Kashmir represented on it.


Potential of Loc Trade:

  • 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.
  • LoC trade was a major Confidence Building Mechanism, and a step towards the resolution of the impending issue of Kashmir crisis.


Way forward:

  • The ban should be continued till the last vestiges of terrorism are eliminated from the country, otherwise much stricter monitoring of cross LoC trade is necessary if it ever has to be resumed in future.
  • A financing mechanism comprising of a banking arrangement and payments system is complex but the most critical of the five networks.
  • Need to look at the illegal trade route that runs through Dubai and Singapore.
  • A creative solution, which avoids the minefields of sovereignty, political control, medium of exchange, its risk, and credit arrangements, has to be worked out.
  • India needs to put economic pressure on Pakistan to make it change its thought process and can even consider breaking social ties.
  • A communication system for reliable transmission of information as a decision support system.
  • Fight against terror should be a national approach.
  • A transport and logistics network for off-take and delivery, a regulatory framework for ensuring legitimate transactions and banning contrabands.
  • A legal mechanism for dispute resolution and settlement.



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.

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