Informal Flow of Merchandise from India: The Case of Pakistan

Informal Flow of Merchandise from India: The Case of Pakistan

Partner: ICRIER

Duration: October 2012 to June 2013

Locales: Karachi, Lahore, Islamabad, Bahawalpur, Azad Kashmir

Team Members: Dr. Vaqar Ahmad, Muhammad Abdul Wahab, Asif Javed

Introduction:

The study aims to focus on updating and validating the current size of informal flow of goods from India to Pakistan along with identification of product-specific issues, nature of transit, and customs related matters. Key sectors in which informal flow from India is taking place include fruits and vegetables, textile, automobile parts, jewelry, cosmetics, medicines, tobacco, herbal products, spices and herbs, paper and paper products, and crockery. These goods are channeled into Pakistan via major routes like Dubai, Kabul, Kandahar, Chaman, Bander Abbas. The minor routes include several places in the adjoining border region

Objectives:

• Validation of the current size of informal flow of goods from India into Pakistan
• Identification of product-specific characteristics, nature of transit, customs issues, etc.

Activities:

• Survey in Karachi-Lahore-Bahawalpur
• Key Informant Interviews
• Research report
• Working paper

Findings:

• Estimates show that the value of this informal flow from India to Pakistan in $4.2 Billion annually. Such flows have narrowed the demand-supply gap in various product categories besides creating livelihoods for several people in the poor regions.
• The expansion in informal trade is hurting the manufacturing community. Pakistani producers end up competing with items that are not duty paid and thus found cheaper in the local market. There is also a loss of revenue to the government as these goods are not subject to usual customs procedure. In case of foods, herbs, and pharmaceutical items such merchandise is now checked for health and safety standards posing risk to human health

Recommendations:

• The analysis towards informal flows of merchandise should become a regular feature at government level. A joint working group of FBR, Ministry of Finance, Ministry of Commerce and the central bank should have the capacity to monitor and address these flows in a manner that does not prohibit economic growth or hamper formal trade between countries
• Trade dialogue between India and Pakistan should also feature the investment departments from both sides, and there should be introspection as to why investors are still reluctant to embrace opportunities in the neighborhood
• A move towards trade expansion should take the form of increasing number of items allowed through Wagah-Attari border, opening up the remaining 9 land routes between India and Pakistan, allowing containerization via railways given that current trucking facility while necessary is unable to fulfil demand on both sides, enhanced presence of plant department officials (for agricultural and related items), and the signing of  pending trucking agreement between the two countries.