India has clamped an indefinite suspension of trade on two routes along the de facto border with Pakistan in terror-hit Jammu and Kashmir state with effect from today.

The decision has been taken on grounds that the facility was being misused by persons linked to militancy for funnel illegal weapons, narcotics, fake currency and goods from third countries, our New Delhi correspondent reports quoting a statement.

Announcing the suspension of the cross-border trade which began in 2008 more as a confidence-building measure, the Indian home ministry said in a statement late on Thursday that "during the ongoing investigations of certain cases by National Investigation Agency, it has been brought out that a significant number of trading concerns engaged in Line of Control (de facto border) trade are being operated by persons closely associated with banned terrorist organisations involved in fueling terrorism/separatism".

"Investigations have further revealed that some individuals, who have crossed over to Pakistan, and joined militant organisations have opened trading firms in Pakistan. These trading firms are under the control of militant organisations and are engaged in Line of Control trade," the statement said.

The trade at Salamabad and Chakkan-da-Bagh points in Baramulla and Poonch districts respectively in Jammu and Kashmir will be suspended with immediate effect, it reads.

The Indian home ministry said a stricter regulatory and enforcement mechanism is being worked out and will be put in place for cross-border trade in consultation with various agencies. The issue will be revisited thereafter, it added.

The cross-border trade aimed at facilitating exchange of goods of common use between local populations is based on a barter system and conducted on a zero duty basis on four days a week.

Also, according to the home ministry, "it has been revealed that the trade has changed its character to mostly third party trade and products from other regions, including foreign countries, are finding their way through this route."

The annual cross-border trade in Jammu and Kashmir is estimated to be at Rs 500 crore.

The suspension of the cross-border trade came two months after India withdrew the Most Favoured Nation status to Pakistan in protest against the deadly terror attack by Pakistan-based Jaish-e-Mohammed on Indian paramilitary men in Pulwama in February that left 40 people dead and nearly brought the two nuclear-armed neighbours to a conflict situation.

Former Jammu and Kashmir Chief Ministers Omar Abdullah of National Conference and Mehbooba Mufti of People's Democratic Party have criticised the trade suspension.