ISAS Working Papers

Beginning as a single economic entity, Pakistan and India have drifted apart since their independence in 1947. The resumption of normal economic relations is now dependent upon the easing of the political stand-off between the two countries. Even though the leadership of both countries speaks of normalisation, the conditions attached by each are seemingly impossible to meet. And yet, there is a slow movement towards restoring direct trade links between the two countries. In Pakistan especially, politically-motivated opposition to the resumption of economic relations with India is particularly strong. In addition, Pakistani business houses used to making money based on an inefficient industry thwart the flow of cheaper goods from India. Consumers suffer. Following the laws of business and necessity, smuggling and third-party trade between Pakistan and India still makes up a substantial part of the two-way trade. The state loses revenue.