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

What’s the state of trade between India and Pakistan?

It’s been stopped. After the 24 April Pahalgam terror attack that killed 26 tourists, India announced five steps targeting Pakistan for its role in abetting cross-border terrorism. These included shutting down the Attari check post, a key land route through which most trade happens between the two nations. A day later, Pakistan responded by suspending all bilateral trade. In 2024, trade between India and Pakistan grew by 127% to touch $1.2 billion. That’s tiny by any standard, but in comparison, in 2023, it was just $0.53 billion. Recent measures are a setback to formal bilateral trade. Experts believe that it will now come to a grinding halt, dropping the curtains on economic ties.

How has India-Pak trade fared in recent years?

Bilateral trade has always been the first casualty in the frosty relationship that exists between India and Pakistan. Trade between the two nations hovered between $2 billion and $3 billion in the decade before 2019 (see chart). After the Pulwama attack of February 2019 that killed 40 security personnel, India snapped diplomatic ties, revoked Pakistan’s most favoured nation status and imposed a 200% tariff on all imports. In response, Pakistan stopped bilateral trade but allowed selective imports from India. In 2020, trade fell to $0.3 billion. India’s trade with Pakistan is just 0.06% of its total trade.

What do the two countries trade in?

As part of bilateral trade, Pakistan typically imports pharmaceuticals, active pharmaceutical ingredients (APIs), sugar, automotive components and fertilizers from India. India, in turn, imports figs, basil, and rosemary herbs from Pakistan. The bilateral trade is tilted heavily in favour of India. Of the$0.5 billion trade conducted between April and January in this financial year, India’s exports were $0.48 billion while Pakistan exported just $0.02 billion. However, official data does not entirely reflect the demand that products manufactured in India find in Pakistan.

How is demand for Indian goods fulfilled?

Border closures and bans may halt formal trade but not demand. According to Global Trade Research Initiative, a think tank, trade worth $10 billion happens between India and Pakistan but through third countries such as UAE, Singapore, and Sri Lanka. Pharmaceuticals, chemicals, cotton, tea, coffee, dyes, onions, tomatoes, iron, steel, and salt are repackaged in these nations and exported to Pakistan. Similarly Himalayan pink salt, spices, dates, almonds and dried apricots find their way into India. To a large extent, demand for Indian goods is met through other countries.

How will the latest steps impact trade?

Pakistan depends on India for essentials such as fertilizers, drugs, and raw materials to produce drugs. They will now have to be re-routed through third countries. That will make these products costly. Pakistan’s pharmaceutical sector, experts say, could take a hit. In comparison, India is less dependent on its neighbour. But Pakistan, apart from suspending bilateral trade, has imposed a transit ban. This may affect India’s trade with Afghanistan to some extent. This means while formal trade between India and Pakistan will come to an end, informal trade may see a sharp spike.