KARACHI, Aug 24: The Indian decisions on restricting imports could lead to smuggling through Pakistan, with a possible repercussion being a jump in the US dollar demand.

The move by the government of India has already set an apprehensive tone amongst businessmen and currency experts in Pakistan who fear further devaluation of Pak rupee.

The burgeoning current account deficit of India forced to increase import duty on gold and silver up to 10 per cent and the immediate impact was felt in the currency market of Pakistan.

The smuggling of gold to India from Pakistan increased gold imports in the country by 100pc in just four months, siphoning off dollars from the market and eroding the rupee value.

The Indian government is expected to increase import duties on what it calls non-essential luxury items, including air-conditioners, refrigerators and expensive watches while it has banned duty-free imports of high-end flat screen plasma television sets, which will now attract a levy of 36pc.

Though the trade between the two neighbouring countries remained limited to $2bn, the volume of smuggling is believed to be substantial.

“India is such a big market that Pakistanis could hardly feed it but still smuggling to the country could put pressure on dollar demand,” said Anwar Jamal, a currency expert and dealer.

India recorded a current account deficit of about $88bn last year ended on March.

The huge deficit drastically devalued the Indian currency.

Pakistan is hub of smuggled goods mostly from China, India and Far Eastern countries. If smuggling begins to feed Indian market, it would have double negative impact on Pakistan. The smuggled goods could be routed to India that means more dollars would be required.

On the other hand, the difference in import duties of the two counties could also cause smuggling, another pressure on dollars demand.

Bankers said the current account deficit which was just $2.3bn in FY-13 could see a significant rise as many imported items could be smuggled.

The new government wants to improve trade ties with India while the balance of trade is in favour of India. Pakistan exported goods worth Rs$328 million while it imported goods of $1.67bn in FY-13 from the country.

Commodity prices have sharply increased in India and Pakistan has started selling commodity like onions to India where the price of onions went up by 400pc to Rs60 per kg from Rs15 per kg. However, it is believed that smuggling also continued due to large profit of margin. Local prices of onion went up in local market by 80pc to 100pc.

Analysts said that the consequences of Indian decisions regarding the import would be felt in the coming months while duties would be raised on non-essential luxury items. They said the first impact was felt severely when gold found route to India through Pakistan and the government put a ban on gold import.

However, no strategy was announced by the Pakistan government to prevent the possible negative impact of Indian decisions on the country’s economy, particularly on foreign exchange reserves and exchange rate regime.