Context:

• The India-Pakistan face-off is having more repercussions than intended, with border economies the worst hit

Concerns:

• In February 2019, in the wake of the Pulwama attack, India decided to withdraw the Most Favoured Nation (MFN) status to Pakistan; subsequently, it imposed 200% customs duty on all Pakistani goods coming into India
• In April, India suspended trade across the Line of Control in Jammu and Kashmir citing misuse of the trade route by Pakistan-based elements
• More recently, post the Jammu and Kashmir Reorganisation Bill, Pakistan cut off diplomatic and economic ties with India — expelling the Indian envoy, partially shutting airspace and suspending bilateral trade.

The impact :

• In 2018-19, bilateral trade between India and Pakistan was valued at $2.5 billion — India’s exports to Pakistan accounted for $2.06 billion and India’s imports from Pakistan were at $495 million. 
• India’s decision vis-à-vis withdrawal of MFN status and imposition of 200% duty has hurt Pakistan’s exports to India, falling from an average of $45 million per month in 2018 to $2.5 million per month in the last four months.
• The quantum of loss that has been incurred by traders in both India and Pakistan has varied according to the nature of trade and the trade route

Example: Amritsar is land-locked, is not a metropolis and traditionally has no significant industry. Hence, any decision on India-Pakistan trade has a direct impact on the local economy and the people of Amritsar. Since February, according to estimates on ground, 5,000 families have been directly affected in Amritsar because of breadwinner dependence on bilateral trade. Traders and their staff members, customs house agents (CHAs), freight forwarders, labour force, truck operators, dhaba owners, fuel stations, and other service providers are closing shop and going out of business.

• With Pakistan deciding to completely suspend bilateral trade, exports of cotton from India to Pakistan are expected to be affected the most, eventually hurting Pakistan’s textiles;
• The lawn industry which will now have to source pricier cotton from alternative markets in the United States, Australia, Egypt or Central Asia
• There is a high possibility that Indian cotton, along with other products, will be routed through third countries such as the United Arab Emirates and Singapore, thereby increasing the share of indirect trade which is estimated to be more than double the direct trade between India and Pakistan.

Conclusion:

• While the overall economies of the two countries may very well manage to stay afloat despite the suspension of economic ties, it is the local economies that will suffer the most and are already perishing. In this connection, there has been a loss in business, rise in prices, lack of alternative sources of livelihood, as well as an expected increase in bank defaults. 
• In the spirit of nationalism, the trade fraternity on both sides, by and large, has stood by their respective governments. But locals in border economies on both sides have mouths to feed, which calls for a solution.