India steps up economic pressure on Pakistan, seeks to block third-country trade

While bilateral trade between India and Pakistan has practically hit its nadir, some Indian goods do land up in the northwestern neighbour through third countries and transshipment hubs. Pakistan depends significantly on essential goods from India, including fruits, vegetables, medicines, organic chemicals, and sugar.

India’s latest plan involves engaging with key countries such as the UAE, Oman, and Qatar in a bid to choke off their backdoor channels, the people cited above said on condition of anonymity. 

In parallel, the Centre is looking to initiate discussions with major transshipment hubs—especially ports in Dubai, Singapore, and Colombo—to curb the diversion of India-made goods to Pakistan via these routes, said one of the three people cited above.

The second person said that Indian exporters, too, would also be asked to restrict goods to traders in countries that serve as transit points for ‘export’ to Pakistan.

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“Since there is no mechanism in place to enforce a ‘country of origin’ clause on goods exported to traders, it is entirely up to the trading partners to consider India’s request,” said the third person cited above.

“We are hopeful that our strong relations with these countries will help us in countering Pakistan’s terror activities,” this person added. “This is not just about trade—it’s about standing together against terrorism and upholding common human values.” 

According to a recent report by the Global Trade Research Initiative (GTRI), Indian goods worth more than $10 billion are estimated to reach Pakistan annually through such third-country trade routes. That value is more than 10 times higher than bilateral trade between the two countries.

Queries sent to spokespersons of the ministries of commerce and external affairs, as well as to the embassies of Singapore, UAE, Qatar, Oman, and Sri Lanka remained unanswered till press time.

However, implementing the plan may not be easy. “India can request third-party countries to restrict the diversion of Indian goods to Pakistan, though enforcement may be difficult as the diversion occurs through private entities in the third country,” said Pralok Gupta, associate professor at the Indian Institute of Foreign Trade.

Read this | India seeks detailed report on pharma exports to Pakistan ahead of a likely ban on all bilateral trade

India’s latest move against Pakistan follows a series of measures and counter-measures announced by both countries following the terrorist attack that killed 26 people in Jammu & Kashmir on 22 April. 

How the indirect trade works

Despite long-standing trade restrictions, indirect trade between India and Pakistan has persisted, as firms exploit alternative routes to maintain the supply of goods, the people cited above said.

Ports like Dubai, Singapore, and Colombo operate in a legal grey zone where goods from India are relabelled and re-exported to Pakistan, often at significantly higher prices.

“Indian firms first export their products to third-country ports, where independent firms offload them into bonded warehouses–these are special zones where goods can be stored without paying duties while in transit,” said Ajay Srivastava, co-founder of GTRI. 

Once in these warehouses, the labels and documentation are altered to show a different country of origin before being exported to Pakistan. 

Also read | Mint Primer | Why Pakistan’s trade ban is more sound than fury

This practice offers businesses a range of benefits, including bypassing restrictions, avoiding scrutiny, and commanding higher prices. According to GTRI, goods can be marked up by as much as 30% to cover storage and documentation costs, and for entry into a restricted market.

For example, auto parts exported from India to Dubai for $100,000 may be relabelled as ‘Made in UAE’ and sold in Pakistan for $130,000, making the arrangement profitable even after costs.

Trade with Pakistan

According to a Moneycontrol report, India’s exports to Pakistan surged by 127% to $1.21 billion in 2024, up from $530.91 million in 2023—a more than 300% jump since 2020. The last time exports were higher was in 2018, when they reached $2.35 billion, the report said, citing UNCTAD and UN COMTRADE data.

On the other hand, India imports a few items from Pakistan, including apparel, salt, sulphur, and cement. However, since the 2019 Pulwama attack, New Delhi revoked its neighbour’s most favoured nation (MFN) status and imposed a 200% import duty, causing Pakistani exports to India to plummet from $547.47 million in 2019 to just $0.48 million in 2024.

Though Pakistan suspended trade with India after the abrogation of Article 370 in 2019, it later allowed selective imports to ease domestic inflationary pressures.

India’s pharmaceutical exports to Pakistan stood at around $208 million in FY25. These include APIs, drug formulations, biologicals, and vaccines—products critical to Pakistan’s public health sector.

Tit for tat

On 22 April, 26 people, most of them tourists, were killed in a terror attack in Pahalgam, Jammu & Kashmir. The Resistance Front (TRF), seen as a proxy of the banned Lashkar-e-Taiba group operating from Pakistan, claimed responsibility.

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A day later on 23 April, India invoked Article XII(3) of the Indus Waters Treaty and sent a formal notice to Pakistan. In its letter, the ministry of Jal Shakti cited Pakistan’s alleged support for cross-border terrorism, shifting demographics, and energy demands as reasons the agreement could no longer continue “in good faith”.

The government has closed the integrated check post at Attari, and asked Pakistani nationals in India with valid endorsements to return by 1 May 2025. SAARC visas for Pakistanis have been cancelled, and defence advisors in the Pakistani High Commission have been declared persona non-grata, with a week to depart.

On 24 April, Pakistan responded to India’s decision to suspend the Indus Water Treaty and downgrade diplomatic ties by shutting its airspace to Indian aircraft and halting all bilateral trade agreements.

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