Conventionally, the easiest market access for most finished goods should be countries that lie within close geographical proximity; but history, political instability, colonial rules and a plethora of other reasons often prevent neighbouring states from seizing this natural advantage, which has to be nurtured with transport infrastructure and appropriate policies. This article discusses the stagnancy in trade between India and Pakistan, and the factors that can be attributed to this perennial slump in economic relations.

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By Saira Banu,

The international environment has been swept by the phenomenon of globalisation that has quantitatively and qualitatively increased the interdependence of countries on each other. This interdependence is said to facilitate an environment of peace and consequently reduce conflicts. Despite being described as “natural trade partners” by The Economist, India and Pakistan have not been able to cultivate this climate of mutual dependency and the peace that follows. Trade often generates dependency, and this could in turn act as a catalyst for vulnerability and coercion, thus leading to cautious exposure with regard to nations that share an already precarious relationship. The extent to which international political relations affect trade clearly varies across states. Leaders of states do not make foreign economic policy in a vacuum; existing studies have proven that conflicting interests at the political level have translated into reduced levels of trade. This is the very scenario in India and Pakistan, where current estimates of trade is a mere $2 billion, but the potential trade is calculated to be 15 times more, at $37 billion (Kathuria 2018). Foreign Direct Investment (FDI) flows between both states too are non-existent. In fact, Indian policy debars investment from Pakistan.

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Saira Banu is a Research Intern at CPPR-Centre for Strategic Studies. She can be contacted at sairabanu323@gmail.com. Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.

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