Kashmir’s Cross-Border Barter Trade
Kashmiri men sit by the main highway linking Indian and Pakistani Kashmir. Picture taken January 26, 2004.
Image Credit: REUTERS/Kamal Kishore

Kashmir’s Cross-Border Barter Trade


The relations between the two South Asian nuclear-armed countries of India and Pakistan have been frosty for over six months. Their troops have engaged in heavy firing along their borders, targeting both civilians and military establishments and resulting in scores of deaths and injuries. In Indian-administered Kashmir, people began protesting after the killing of a young militant commander, Burhan Wani, of Hizbul Mujahideen (HM), which calls for the secession of Kashmir from the Hindu-majority nation and its merger with the Muslim nation of Pakistan. Tensions escalated into attacks on Indian army facilities by militants, which India blamed on Pakistan.

But amid the hostilities, India and Pakistan continue to trade between the parts of Kashmir administered by each side, across the militarized Line of Control (LoC). However, the hostilities between the two neighbors ensure that there are no banking facilities to turn the barter trade, which started in October 2008, into a regular currency trade.

The provincial government in Kashmir is currently headed by Chief Minister Mehbooba Mufti, the president of People’s Democratic Party (PDP), which has an alliance with pro-Hindu  BJP. Mufti has asked Indian Prime Minister Narendra Modi of the BJP for the barter system to be replaced with formal currency trade. However, instead of taking steps to that end, India’s counterterror agency, the National Investigation Agency, is investigating whether the traders from Kashmir have been providing money raised through the exchange of goods to separatist political parties, which are seeking the merger of the Indian state of Jammu and Kashmir with Pakistan. The NIA has seized the records of over 350 traders from Kashmir to investigate whether any money makes it to separatists. Kashmir government officials have also sought the balance sheets of their trade transactions and the details of bank accounts from the traders, looking for any violation of legal procedures.

Enjoying this article? Click here to subscribe for full access. Just $5 a month.

In April this year, nearly two months before the killing of Burhan Wani, Mufti issued instructions to officers to work out the modalities for establishing banking facilities in order to begin trade in currency after approval was given by India’s central bank, the Reserve Bank of India. But just as Mufti’s government was looking to take up the matter with the authorities of Pakistan-administered Kashmir, the Indian part of Kashmir erupted in protests that continue even now.

In 2008, India and Pakistan had taken the step of running trucks on routes that connect the two parts of Kashmir, the Srinagar-Muzaffarabad and Poonch-Rawalakot roads. The opening to trade was seen as the biggest confidence-building measure since the two countries fought their first war over Kashmir in 1947. The decision to start trade across the LoC was taken in the follow-up of a meeting between the Indian prime minister and the president of Pakistan in April 2005. Following the meeting, Indian and Pakistani officials further held talks at the Indian capital of New Delhi in May 2006, in which it was decided that cross-LoC trade would be started through a truck service, for which a list of goods would also be identified. Subsequently in a meeting between the Indian government’s Ministry of Home Affairs (MHA) officials and the provincial government officials in Kashmir held on June 16, 2008, it was decided to develop the facilities in two places, at Uri and Poonch, to start the trade. After identifying land and creating other facilities, cross-LoC trade formally started between two countries in October 2008.

Currently only 21 items have been approved for trade between the two parts of Kashmir. Based on the prices of goods being provided by the traders, in the three years up to the end of the 2015-16 fiscal year, commodities worth nearly 15 billion Indian rupees ($220 miillion) were exported to Pakistan on the Uri-Muzaffarabad and Poonch-Rawalakot routes. Imports of nearly Rs 13 billion ($190 million) were made during the same period.  That’s up from 2011-12, when exports to Pakistan-administered Kashmir (PAK) were worth Rs 3.2 billion ($44 million), while imports were at Rs  5.31 billion ($78 billion).

However, according to government officials, trade has remained particularly low in the last six months. Trade remained suspended on the Uri-Muzaffarabad road until September 28, nearly 87 days, due to the shutdown in Kashmir, preventing any vehicular movement. Along the Poonch-Rawalakot route, trade also remained closed for nearly a week as traders from PAK protested the civilian killings in Indian-administered Kashmir (IAK).

Along the cross-LoC trade route, not a single untoward incident was reported during the protests in Kashmir, while other parts of the LoC have seen frequent exchanges of heavy mortar fire between Indian and Pakistani troops. Intermittent firing has been reported across the LoC, which was delineated by India and Pakistan after the 1971 war and replaced an earlier ceasefire line.

Dr. Sheikh Showkat Hussain, a noted expert in international law and the Kashmiri conflict, said that the LoC was the outcome of the Simla agreement between Indian Prime Minister Indira Gandhi and Pakistan’s President Zulfikar Ali Bhutto. “In 1948 the line that was created was a ceasefire line and after [the] 1971 war the areas which were occupied were retained by [the] two countries,” he explained. “Indira Gandhi suggested keeping the areas and that was incorporated in the Simla agreement.”

However, Hussain continued, “Immediately after the agreement India asked United Nations that there was no need for the Observer Mission, which was to monitor the ceasefire line. The UN Observer Mission existed in Srinagar, Delhi, Rawalpindi, and Muzaffarabad. [The] UN refused, arguing that deployment of the Mission was decided by the Security Council. Though the Observer Mission is here, but India is not cooperating.” The mission, he said, was supposed to monitor cross-LoC firing, but “India doesn’t cooperate with them.”

Both Gandhi and Bhutto pledged to honor the LoC, but the division has long been plagued by violence. According to Hussain, even though the Simla agreement specifies that “all outstanding issues including Kashmir will be resolved bilaterally, the LoC has been turned into a bloody line.”

The uncertainty impacts the trade environment. For one thing, Pakistan insists that the LoC is not an international border, so the trade along the line can’t be conducted as international trade. But Hussain argues that the legal status of the LoC would remain “unchanged if basic facilities like banking are provided to traders.”

Recently, ties between India and Pakistan have gotten even worse. India blames Pakistan both for the civilian protests and for a militant attack at an army base in Uri in Kashmir that left 17 soldiers dead. In response, India claimed to have conducted cross-LoC “surgical strikes” in Pakistan. The chain of events has left the relations between India and Pakistan at their worst in recent memory.

Political commentator Professor Gul Wani said that given the circumstances between India and Pakistan, it is not surprising that strengthening cross-LoC trade has not remained a priority for both nations. “The 2003 ceasefire between India and Pakistan has been flagrantly violated, due to which the cross-LoC trade has taken a backstage [seat],” Wani said. “There shouldn’t have been any problem in expanding the trade. It was a big confidence-building measure which couldn’t be carried forward.”

Wani added that starting the LoC trade itself signified that Kashmir remained an unresolved dispute. “The LoC across which the trade is taking place is not an international border. It was due to this that India and Pakistan agreed that no passports are required for travel and trade… The travel is allowed on local documents and the trade was also started in a manner keeping in view [the] sensitivities of India and Pakistan.” Despite the current tensions, he said, “The trade has not stopped, which is a positive indication. Otherwise the ceasefire is gone after the surgical strikes. There is frequent exchange of heavy gunfire along the border.’’

Wani said that the Hindu-nationalist party BJP-led government at the center in New Delhi was shying away from starting a dialogue on Kashmir. Kashmiri separatists have been arguing that Prime Minister Narendra Modi should follow the policy of former prime minister, A. B. Vajpayee, who took the initiative to extend the hand of friendship to Pakistan and visited Lahore in February 1999 to de-escalate tensions. During his visit Vajpayee had said that India was serious about establishing “friendly” ties with Pakistan. Under Modi, the “expectation was that there would be dialogue,” according to Wani. “There was some understanding during [the] time of Pakistani President Pervez Musharraf and Indian PM Manmohan Singh… the back channels were working and relations were somewhat cordial.” Today, however, “There is still no indication that the two countries will resume dialogue … [The] entire regional diplomacy is in reverse gear. There is no formal, structured dialogue process happening. The trade can’t be isolated from [the] larger India-Pakistan bilateral process,’’ added Wani.

Senior Kashmir government official and custodian of LoC trade Farooq Ahmad Shah said that on average the trade between two parts of Kashmir is worth over Rs 30 million ($440,000) per day: “On average we are allowing 40-50 trucks each day, four days a week from both the sides.” He said that the need for banking facilities has been brought to the notice of the higher authorities.

A senior official who monitors the trade at the Poonch-Rawalakot cross-LoC point said that every day about 30 trucks are allowed to travel from Indian-administered Kashmir to the other side, while nine trucks from PAK also carry goods in the other direction. “We, however, try and maintain a trade balance so that the payments of the traders by way of exchange of goods are not held up. We inform the PAK authorities about any debts that are incurred by their traders and regular meetings are held… We only allow the difference of 10 to 20 percent trade in the exchange of goods. The balance is maintained so that no debts are incurred,” he said.

Indeed, due to the lack of banking facilities, cross-LoC traders often confront debt-related disputes. A trader from Srinagar, Hilal Ahmad, said that he has been involved in the trade since 2008, and has encountered many difficulties. “The lack of banking facilities has ensured that the trade remains in the most primitive barter set-up. Due to the barter [system], money remains often held up with the traders from [the] other side but there is no mechanism to resolve these disputes. It runs only on trust.”

He added that the lack of telephone facilities was further compounding the problems of traders. “We can’t call up the traders on the other side of the LoC, but they can call us, which is only making the running of trade difficult. There is only [the] telephone facility at the office of the Custodian Cross-LoC trade in Uri and the Deputy Commissioner Baramulla office, which are several kilometers away from Srinagar.”

“[The] government expects us to stand up in a queue and wait for the calls from traders of other side, which is not possible,” added Ahmad. In addition, drivers have to go through the hassle of getting police permissions every time they make a trip across the LoC.

Earlier, officials said, the provincial government in Kashmir had decided to take up the matter of issuing multiple visit permits to the drivers with the central government in New Delhi, but due to the recent India-Pakistan hostilities the matter has remained held up. A multiple visit permit would have ensured that the drivers could go to the other side of the LoC many times on a single permit. A senior Kashmir government official said that as of now the concerned police authorities issue permits to the drivers to travel to the other side of LoC, which must be renewed before every visit. In addition, plans to set up full-body truck scanners at Uri and Poonch, which would have replaced the manual checking of goods and helped increase the volume of trade, were scrapped due to the tensions between the two countries. Trade custodian Shah said that it was the “prerogative” of the Indian government’s Ministry of Home Affairs to set up the scanner and to issue the multiple permits for the drivers who ferry items to the other side of the LoC.

Economics professor Nisar Ali said that there are hardly any other instances in the South Asian region of trade being run on the barter system. “Today’s world trade is regulated by WTO regime. I don’t find that there is [any] provision of barter trade between the countries under the WTO regulations,” Ali said. “LoC trade is more or less symbolic in nature and in the process there are some economic misgivings… Initially only almonds and three to four other items were traded. It is not a huge trade.”

However, trade was originally supposed to grow, a process that has long since stalled. “The trade was to be revisited and banking facilities should have been established,” Ali said. “Though the Reserve Bank of India (RBI) cleared the proposal of the Jammu and Kashmir Bank to open a branch in Muzafarabad in Pakistan, that was however not cleared by Pakistan.”

For now, then, cross-LoC traders continue to exchange goods the old-fashioned way – and under the radar of a long-simmering conflict.

Ishfaq Naseem is a freelance journalist based in Srinagar.

Sign up for our weekly newsletter
The Diplomat Brief