Pakistan-India Trade:

PoliCY reCoMMendaTions
Kalpana Kochhar and Ejaz Ghani
The results of the general equilibrium simulation indicate Pakistan’s
granting of MFN to India would generate larger benefits if supported by
improved connectivity and trade facilitation. The net economic impacts
of SAFTA along with trade facilitation are beneficial to both Pakistan
and India, and eventually would lead to stronger economic growth for
the region on the whole. Moving forward, policymakers need to give
more emphasis to two Is—integration and investment.
Recommendation 1: Integration
Trade policy remains a key instrument for greater market integration.
Although average trade tariff rates have come down in both India and
Pakistan, tariff dispersion remains high. High tariff rates still persist on
some major products. In addition to rationalizing import duties, policymakers
should eliminate regulatory duties and other para-tariffs, along
with several other restrictive measures that have limited trade in the past.
Despite the fall in average tariffs, the trade restrictiveness of both
India and Pakistan has been heavily triggered by the large volume of
non-tariff barriers (NTBs). In promoting trade between India and
Pakistan, the major stumbling block is the presence of such NTBs; a list
of such NTBs is provided below (more details are available from De,
Raihan, and Ghani 2012).
• Subsidies: India provides abundant subsidies to agricultural producers
and consumers; Pakistan provides excessive subsidies for
wheat, cotton, fertilizers, and power.
• Trade procedures: Some Indian banks do not recognize letters of
credit from Pakistani banks, and vice versa.
• Visa regimes: Very restrictive on both sides, with only one port of
entry and exit. The visa regime on India’s side is unpredictable,
city-specific, single-entry, and limited to a few days.
• Air travel: Very limited; only a few flights.
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