Pakistan has made headlines recently by announcing its intent to revive certain trade activities with India. This comes as a partial reversal from their previous stance, taken in 2019, that curtailed all Indo-Pakistani trade. The origins of this decision can be traced back to when the Indian government amended Article 370, resulting in a reorganization of Jammu and Kashmir.
Pakistan’s Trade Ban
The suspension of bilateral trade in August 2019 by Pakistan was a direct result of the constitutional changes in Jammu and Kashmir. An additional factor influencing their decision was a 200% tariff that India imposed on Pakistani imports. This transpired after India rescinded Pakistan’s Most Favoured Nation (MFN) status following the Pulwama terrorist attack. The negative impact on trade was apparent as India’s exports to Pakistan plummeted by approximately 60% to USD 816.62 million, whereas its imports fell by 97% to just USD 13.97 million in 2019-20.
India-Pakistan Trade Before Ban
Historically, India has always maintained a trade surplus with Pakistan. The inverse relationship between political tensions and trade was evident when India’s exports to Pakistan fell about 16% to USD 1.82 billion in 2016-17, following a souring of relations after the Uri terror attack. Despite ongoing conflicts, subsequent years saw marginal growth in trade. Indian exports rose nearly 6% to USD 1.92 billion in 2017-18, then increased by around 7% in 2018-19. Meanwhile, imports also grew by 7.5% to USD 488.56 million in 2017-18 compared to 2016-17.
Major Products Traded
In 2018-19, Pakistan ranked among India’s top 50 trade partners, but was excluded from the list in 2019-20 due to the trade ban. Among the major traded products, cotton and organic chemicals made up around half of India’s exports to Pakistan. In response to the ban, imports of many items reduced drastically. The only product that showed a rise was pharmaceutical products, mainly due to the Covid-19 pandemic.
Indian Import From Pakistan
India’s primary imports from Pakistan were mineral fuels and oils, edible fruits and nuts, salt, sulphur, stone and plastering materials, ores, slag and ash, and raw hides and leather in 2018-19.
Removal of Trade Ban by Pakistan
Pakistan’s move to lift the ban came amid a shortage of raw materials for their textile sector, attributed to low cotton yields domestically. As imports from the U.S. and Brazil proved costlier and took longer, Pakistan preferred importing from India, which also helped maintain market stability with high domestic demand and prices for sugar.
Implications
Pakistan’s decision to resume trade of certain items could signal a gradual return to normalcy. It also presents an opportunity for India to consider a reduction in its 200% import duties on beneficial products. This trade revival has also kindled hope for potential sports-related visas grant from India after three years and for a meeting of the Indus Water Commissioners in Delhi. Furthermore, peace at the Line of Control (LoC) and exchange of salutary messages between Indian and Pakistan Prime Ministers are welcomed developments.
