After a prolonged sickness, trade across the Line of Controltrade (LoC trade), 2008-2019, died a rather sudden, though not entirelyunexpected, death. The diagnosis: death caused by design. The prognosis: seriousailment of stagnation which afflicts economic activities with no state support orpolicy framework.
Having midwifed the initiative as Economic Advisor to theGovernment of J&K, it is a hard to be writing its obituary so soon.
Strictly speaking, it is not a case of infant mortality. Itborders on infanticide. No doubt that the underlying cause of death was persistent”malnutrition”, primitive “neo-natal care” and absence of critical infrastructure.But the immediate reason for killing the LoC trade is the change in thestrategy for handling Kashmir at the policy level. This move is a part of alarger plan that is yet unfolding.
All major political parties and stakeholders in the valley havemourned the demise. But if the LoC trade was itself asked over all these years,it would have sought euthanasia! So terrible was its existence.
Indeed, from the day it was born, October 21, 2018, it had beenin an existential crisis: was it trade or merely an exchange of goods? If itwas trade, was in foreign trade or domestic trade? What was send from there,was it an import? What was send across from here, was it an export? Was itbarter or blind barter? Ten years in operation these questions were neveraddressed.
The untimely death is unfortunate not only for what it wasbut also for what it represented. It was an economic activity. Even withcomplete apathy, if not downright hostility, from both the Governments of Indiaand Pakistan, the annual trade volume cranked up to Rs 3,500 crores last year.This was almost evenly split between “traded out” and “traded in”. This with atruncated list of 21 odd commodities! The pure play business potential has beenestablished.
Beyond being an economic activity, the essence of LoC trade wasto extend the familial and social interconnectedness into the arena of businessand commerce. First, this trade would result in interaction between people and helpbuild partnerships. Second, this would graduate into an economic and commercialinterdependence between the two parts of J&K. Third, it would result in anetwork of institutions like banks, trade bodies, and regulators across the LoCaligning with each other. An institutionalization of relations wouldaxiomatically happen.
In this process a constituency of commerce for peace and normalizationof relations between India and Pakistan would be built. These new stakeholderswould exercise “bottoms up” pressure on their respective governments inenlightened business self-interest which transcends politics.
All the three – interactions, interdependence andinstitutionalization — would overtime make the line of control less of abarrier by forging a functional unification between the two parts of J&K; ade facto unification without disturbing the de jure political status.
Compared to this thoughtful and thought through initiative,guillotining the trade appeared thoughtless in action. On second thoughts, itis not. If anything, the timing and method suggest a devious design. It is linkedto the issue of Article 35-A. For this trade was restricted only to “locallyproduced” goods by “state subjects”, a category that the present dispensationwants to get rid off! So stopping the trade is aimed at trimming the tree of35-A which in the last 70 years has branched out into many operatingarenas.
Initially non-state subjects came in an invisible partnersand goods were procured from other parts of the country and traded across theLoC. Overtime state subject traders were getting elbowed out by the moreresourceful neighboring state players. This caused a lot of operational stresson the ground and resulted in the LoC trade being transport mafia dominated.The non-state subjects were profiting from it more than that the state subjectfor whom it was meant.
Of course, the statedreasons for the drastic action are that the trade was being “misused”for terror funding, fake currency, and narcotics. Incidentally, as soonas the trade was started, traders from Amritsar and Lahore started the bogey ofLoC trade being a conduit for fake currency and hawala operations!
Be that as it may, assume for a moment that the LoC tradewas being “misused” is correct and not contestable.Does the remedy lie in stopping the trade? Does it mean the activity itself is”terrorized”? Of course not. It is likesaying that there is bogus voting, booth capturing and black money used in theongoing national elections, so the Election Commission should call off theelections till they put in place a stricter system. It is laughable.
Instead, the Election Commission as the regulator tries to putsin place mechanisms to ensure that there is no bogus voting, booth capturingand use of black money to bribe voters. No one thinks of stopping elections! Ifindeed there has been weapons and terror funding through the LoC trade, it pointsto a flawed and under-baked modality of trade and regulatory framework withinwhich it is operating. The solution: put in place a proper framework and a robustmechanism. As the out of fashion old timers would quaintly say, don’t throw thebaby with the bathwater!
Way back in 2008, I had formally proposed to the Uniongovernment as well as the state government a policy framework for making theLoC trade a viable self-sustaining economic activity. It predicted thelikelihood of this trade being derailed in the absence of a regulatorycontrols, communication networks and dispute resolution mechanism.
The late Shujaat Bukhari made this proposal famous callingit the “Drabu Formula” (see “Bumpy Ride, Frontline, January 30 – February 12,2010). Even earlier, when the trade started floundering within a year of itslaunch, A G Noorani reminded the governments of my prediction and proposalsthus: “When the trade began the problems were anticipated and accuratelypinpointed by Dr Haseeb A. Drabu, Economic Adviser, J&K Government andChief Executive of J&K Bank at a meeting in Srinagar of representatives ofthe Government with those of the federation of Chambers of Commerce of AzadKashmir.
He correctly quoted me as saying; “For the cross-LoC tradeto become a viable, self-sustaining economic process will require establishingfive basic networks between the two parts of J&K.”(See, A G Noorani:Trading in Kashmir, February 14, 2009, Dawn).
A financing mechanism comprising of a banking arrangementand payments system is complex but the most critical of the five networks. Acreative solution, which avoids mine fields of sovereignty, political control,medium of exchange, its risk, credit alignments has to be worked out.
I had fleshed out a full proposal (see, “Haseeb A Drabu: LocTrade: A framework for financing, March 14, 2015, Greater Kashmir). In fact,much earlier, in 2009, I had formally send this financing framework proposal tothe Union Finance Minister.
In addition, a communication system for reliabletransmission of information which will be the decision support system, a transportand logistic network for offtake and delivery, a regulatory framework forensuring legitimate transactions and banning contrabands, and a legal mechanismfor dispute resolution and settlement. None of these was put in place. Had it beendone then, the trade would not have got derailed now.
There are generic as well as specific lessons to be learnedfrom this experiment. First, reaffirmation of the received wisdom of notputting the cart before the horse! Second, symbolism should not take precedenceover substance. While it was a major CBM, and a step towards the resolution ofthe larger problem, that objective in itself would not make it sustainable. Tradeis embedded in politics but don’t making trading a political activity. That isprecisely what happened and resulted in the trade being killed for politicalreasons.