UPSC MAINS 2019 : India suspends cross LoC trade in J&K

India suspends cross LoC trade in J&K

Topic :  India suspends cross LoC trade in J&K

Topic in Syllabus: General Studies Paper 3: Security Issues



India suspends cross LoC trade in J&K

MHA has issued orders to suspend the LoC trade in Jammu & Kashmir.


More about on news:

  • India has suspended cross LoC trade between Jammu & Kashmir and Pakistan-Occupied-Kashmir (PoK) with effect from April 19 on grounds that the trade routes were being misused for funnelling illegal weapons, narcotics and fake currency.
  • This action has been taken as the Government of India has been receiving reports that the Cross LoC trade routes are being misused by the Pakistan based elements for funnelling illegal weapons, narcotics and fake currency
  • It may be recalled that the LoC trade is meant to facilitate exchange of goods of common use between local populations across the LoC in Jammu & Kashmir.
  • The Ministry of Home Affairs has issued orders to suspend the LoC trade in Jammu & Kashmir with effect from 19-04-2019,”


The reasons for Suspension:

  • Reports have been received that the LoC trade is being misused on very large scale
  • The Ministry of Home Affairs said the trade corridor was being misused by terrorists based in Pakistan, as a channel to smuggle arms, ammunition, narcotics, counterfeit currency and funds to support anti-India activities within Jammu and Kashmir.
  • 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.
  • The illegal trade of goods from the United States, such as “California almonds”, while the cross-LoC system was meant exclusively for locally-sourced items.
  • Unscrupulous and anti-national elements are using the route as a conduit for Hawala money, drugs and weapons, under the garb of this trade.
  • The government alleged that 10 of the trading companies involved were run by Kashmiri militants who had crossed over to Pakistan.
  • The National Investigation Agency’s (NIA) ongoing case of terror-funding against the former president of the LoC Traders’ Association Zahoor Ahmad Shah Watali, who is charged with funding terror groups.


About Cross-LoC trade:

  • Cross-LoC trade, started on 21 October 2008, is one the most successful Confidence Building Measures, along with cross-LoC travel.
  • The trade, barter in nature, has been conducted on a mutually agreed list of 21 items, based on zero tariffs with the modalities highlighted in a Standard Operating Procedure (SOP) signed between India and Pakistan.
  • LoC trade takes places four days a week, wherein the traders are allowed to send 140 trucks per week with a restriction on the maximum weight of trucks.


What did a decade of cross-LoC trade look like?

  • Cross-LoC trade was initiated by the NDA government under then prime minister AtalBihari Vajpayee.
  • Although it commenced officially only in 2008, it was part of Confidence-Building Measures (CBM) that would kickstart trade relations between the two Kashmirs.
  • The trade has taken place four days a week, thus far, at two trade facilitation centres: at Salamabad in Baramulla district and Chakkan-da-Bagh in Poonch.
  • It was based on the barter system and zero duty.
  • Over two years ago, the NIA began to probe suspicious trade and violation of norms in cross-border dealings.
  • Cross-LoC trade over the last 10 years through both trade facilitation centres stood at $1.2 billion, according to local chambers of commerce, suggesting it is dying a slow death.

Line of Business


How is cross-LoC trade different?

  • Business across the LoC is different because it works on a barter system between traders on both sides of Kashmir.
  • So far, 21 goods has been approved for barter, which include handicrafts, saffron, mushrooms, fruit, cereals, honey, spices and carpets.
  • Since the Line of Control is disputed between India and Pakistan and not recognized as an International Boundary (IB), the goods are referred to as ‘traded out’ and ‘traded-in’, instead of exports and imports.


Four-point proposal:

This cross-LoC trade 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

  • The LoC will stay but Kashmiris on both sides will be allowed to move freely back and forth;
  • self-governance or autonomy to the region, but not independence;
  • gradual demilitarization on both sides;
  • A joint supervision mechanism with India, Pakistan and Kashmir represented on it.


Importance of LoC trade:

  • Benefits to the local economies: It is estimated that since the barter trade commenced along two routes across the LoC in October 2008 the volume of trade over the decade has crossed ₹6,000 crore.
  • Employment: Trade has acted as a source of employment for the local traders, for the unemployed and vulnerable youth of the border areas.
  • Symbolic and political value of cross-LoC trade: Economic integration across the Line of Control remains central to the conflict resolution process. It is considered very important for generating interest from people on both the sides of LoC.
  • Bottom-up approach to peace-building: Trade has attracted divided families and some former combatants and provided a non-violent and alternative vision for change and conflict transformation
  • Spin effect: The LoC passes not only through the regions of Jammu and Kashmir but also the Ladakh region. The success of Cross LoC trade in Kashmir region will enable opening of Kargil-Skardu route.


Informal trade between two countries:

  • Informal trade is that trade which is not included in the national income. Countries sometimes choose informal trade route over the formal trade route to avoid high tariff and trade restrictions.
  • Informal trade between Indian and Pakistan is likely to see a surge after India’s suspension of LoC trade with the neighboring country.
  • Most of the trade between India and Pakistan happens through informal channels.
  • This means the trade ban at Salamabad and Chakkan-da-Bagh in Jammu and Kashmir is unlikely to make a big impact.
  • 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.
  • As per the report, the value of informal trade between India and Pakistan was estimated at USD 4.7 billion in FY13. Of this, India’s exports to Pakistan were estimated to be USD 3.99 billion and imports from Pakistan USD 0.72 billion.
  • Most of India-Pakistan informal trade flows through third country, in particular Dubai. Similar to formal trade, the balance of informal trade is also tilted in favour of India.

Informal trading routes between India and Pakistan


Is this the first time this has happened?

  • In the past decade, trading at the Uri-Muzaffarabad (Chakan da bagh-Salamabad) post has been stopped thrice because of cases of narcotic smuggling, and once when a shipment of arms was seized during checks in 2017.
  • According to the authorities, numerous seizures have been made recently of pistols, grenades, spares and ammunition, including one particularly large cache concealed in a consignment of bananas.
  • The drug hauls have been sizeable too: in 2017, J&K police found 66.5 kg of suspected heroin worth ₹300 crore packed between boxes of garments in a truck that came from PoK, while five other seizures yielded nearly ₹1 crore in counterfeit notes.
  • At the Poonch-Rawalakot point, trading has been suspended more frequently due to cross-LoC shelling, particularly between 2016 and 2018, when ceasefire violations rose sharply.
  • The LoC trade was seen as one of the most resilient CBMs introduced more than a decade ago, as it had been able to continue despite major hostilities between New Delhi and Islamabad.


What will be the impact?

  • Since it began, experts estimate that more than ₹6,000 crore worth of trade has been conducted over the LoC points, and a total of 1.6 lakh job days created because of it.
  • Starting from a mere three crore Pakistani rupees (PKR) worth of goods traded in and 2 crore Indian rupees (INR) worth of goods traded out in 2008-2009, the cross-LoC trade in 2018-2019 was pegged at 441 crore (PKR) and 454 crore (INR) respectively.
  • According to a study by the Bureau of Research on Industry and Economic Fundamentals (BRIEF), about 662 traders from Jammu and Kashmir are registered to trade at both points at Uri and Poonch, of which about 110 of them trade actively.
  • The affected traders says that with uncertainty over the reopening of the trade, their livelihoods will be in jeopardy, along with those of loaders, transporters, retailers who are part of their trade, as well as their families, totaling 40,000-50,000 people.
  • This will lead to small- and medium-scale traders being squeezed at both ends, and result in heavy losses particularly for the fruit business; the State is renowned for its apples and cherry crops.
  • The trade had been run on an ad hoc basis, without adequate security measures, and must not be restarted in the prevailing circumstances.


Way forward:

  • The case for full body truck scanners has been pending since 2010, when the government first agreed to install them.
  • The MHA and J&K announced they would complete the installation of the scanners by end 2017, but still have made no headway in the process yet.
  • The MHA has said that cross-LoC trade will only be resumed after it puts in place stricter measures and systems, but has not specified what they may entail.
  • It seems unlikely that the suspension will be lifted soon, especially given the security requirements during the ongoing general election and with State polls due later this year.


Sample Question:

Will closing LoC trade end terrorism? Critically evaluate



India suspends cross LoC trade in J&K Mindmap