The estranged relationship between Pakistan and the Indian trade

The tension between these two neighboring countries has been intact for years now. Throughout the years, after the countries gained individual independence, the trade between them started to decline slowly. The trade further gained major setbacks mainly due to political differences and wars of 1965 and 1971. Notably, following the gruesome 2019 Pulwama attack, the Indian government took rigorous actions against their neighboring nation, which resulted in the revoking of Pakistan’s most favored nation trade status. This was granted to Pakistan in the year 1996.

India also surged the custom duty to 200%, which affected the trade of Pakistani apparel and cement. Pakistan decides to launch an attack as well on the bilateral trade relations. Pakistan Prime Minister Imran Khan decided to suspend trade relations with India in a five-point plan. This was a repercussion to India’s move to end special status for Jammu & Kashmir and split it into two union territories.

Though both the countries have a tumultuous relationship which is pretty much evident in their trade deals, the recent status has been a little comforting. Pakistan is set to allow the import of cotton and sugar from India. This is a partial reversing of a two-year-old decision to suspend all trade with India. The decision to cancel trade was taken by the Pakistan government in August 2019, days after the Indian government amended Article 370 and reorganized Jammu and Kashmir.

An insight on Pakistan’s trade ban with India:

The bigger blow to Pakistan was the fallout with India based on the constitutional amendments made by the latter on the pretext over the much-disputed land of Jammu and Kashmir. This wasn’t taken up pretty well by the Pakistani government in power. This was followed up by the cancellation of bilateral trade with India in August of 2019.
There’s more to the other side of the story as this cancellation was believed to be a result of the 200% tariff imposed by the Indian government on Pakistani goods import as an aftermath of the tragic Pulwama attack. Pakistan’s Most Favoured Nation (MFN) status was revoked by the Indian government. This was done instead of the scary terror attacks. They were unstringing a blow to the rendition of various other previous terror attacks as well.
This was a stiff blow to the trade between the two neighboring countries. It’s estimated that India’s exports to Pakistan dropped nearly 60% to USD 816.62 million. Whereas its imports fell 97% to USD 13.97 million between the year 2019-20.

An insight into the trade relationship between India and Pakistan before the trade ban:

Though the countries have always had a pretty strained relationship, trade was probably a few of the left-out things that were often settled without much tension. Though trade as well had a political tie-up to it, India as a country saw massive growth in its exports as compared to the imports. The trade was surplus for India and pretty beneficiary on both accords.
A dive into the much recent history shows some falling out of the statistics. As of 2016-2017, there was reportedly a fall in India’s exports to Pakistan from around 16% to USD 1.82 billion. This was an aftermath of the ever-faltering relationship shared between the two countries. What triggered it was the Uri terror attack on the Indian Army, followed by the Indian Army’s critical surgical strikes on militant launchpads in Pakistan-occupied Kashmir in 2016.
Despite all these internal turmoils, the trade between India and Pakistan saw a steady shift and grew marginally in the subsequent years.
- Indian exports saw a modest rise of nearly 6% to USD 1.92 billion in the following years of 2017-18. In the years between 2018-19, there was a reported increase of about 7%.
- On the other hand, though, the Imports from Pakistan were not as profound as the Indian ones and were much less in volume. Even then, they witnessed an increase by 7.5% to USD 488.56 million in the years between 2017-18 as compared to the earlier 2016-17.

An account of the products traded between the two countries:

It might not be a shocking revelation, given that Pakistan is a neighboring country of India. The political tension and the heat of the terror attacks did hinder a lot of trading opportunities, yet Pakistan managed to beg a spot among the top 50 of India’s trading partners in the year 2018-19. But as more tension began to build up, Pakistan was finally pushed out of the loss in 2019-20.
It is anticipated that a trade ban between the two countries would be more detrimental for Pakistan since it relied heavily on India for key raw materials that aided in its textiles and pharmaceuticals industries.

A dive into the exports made by India to Pakistan:

As mentioned earlier, India has had the upper share when it comes to the export market. Around half of the Indian export to Pakistan encompassed cotton and organic chemicals in 2018-19.
Other major items that were exported by India included plastic, tanning/dyeing extracts, nuclear reactors, boilers, machinery, and a tonne of various mechanical appliances.
After the ban, there was a sharp decline in imports, whereas the import of cotton was put on a permanent halt. But the only steady increase in import via Pakistan had been in the field of pharmaceuticals. India has proven itself to a force in the pharmaceutical field on the global platform. This has given the country an upper hand over Pakistan. Especially given the times of covid where Pakistan has ensured that there are enough drug products and organic chemicals imported for sufficient supplies of medicines during the ongoing Covid-19 pandemic.

Indian imports from Pakistan:

India’s major imports from Pakistan in 2018-19 areas listed below :

mineral fuels and oils
edible fruits and nuts
salt
sulfur
Stone and plastering materials
ores
Slag
Ash and rawhides
Leather

Trade analysts have explained that such goods have a ready market in South Asia and the Middle East, and a trade ban through Pakistan shall be of no such great harm. Also, this step shall enable India to divert such exports immediately without much cost. As famously quoted, the trade ban was termed as a unilateral loss contributed by a unilateral move.

Propelling factors that led Pakistan to choose to remove the trade ban :

There have been many contributing factors that let Pakistan finally remove its trade ban with India. Some of these reasons are short-listed below:

Shortage in Raw Material: Pakistan was finally forced to lift the ban on cotton imports as there was an undeniable amount of shortage in raw material for Pakistan’s textile industry. Lifting the ban on cotton imports had become a great topic of debate as the shortfall of raw material faced by the country’s textile industry was almost at an all-time high. The country’s textile section has suffered quite a lot due to low domestic yields of cotton, and this was a major propelling factor in the lifting of the trade ban.
High domestic demands and the surge of prices :

The country’s decision on sugar was driven by the high demands followed by the almost uncontrollable surge in the prices. They had to give in to import sugar from India to stabilize their skyrocketing market prices.

A scope for cheaper imports :

India provided the option for a cheaper import source. Cotton and sugar imports from distant countries like the USA and Brazil were deemed much costlier and time-consuming.

What can be expected after the trade ban lift?

For both countries, the lifting of the trade ban can be a celebratory moment that can somehow help in mending broken relationships by some margin.

It is believed that the lifting of a trade ban for certain items can help bring bang some amount of normalcy between the two neighboring countries.
Pakistan has been known to lack a great economic structure. The reestablishing of trade relationships, especially via imports, is termed highly essential. A blow to the imports can directly make the value of currency crumble for Pakistan, which shall lead to a subsequent crisis. It is also to be taken into account that in 2018-19, Indo-Pak trade was barely 0.1 pc of India’s total trade ratio. India’s exports to Pakistan stood at $2.06 billion, while its imports were valued at just $0.49.
This also may be a time for India to reconsider its decision to establish 200% import duties on products that the country can benefit from.
The move by Pakistan is a strategic one and has raised hopes for further measures. There are also hopes of being granted sports-related visas by India after almost a gap of three years. There also has been reported scheduling of a much-delayed meeting of the Indus Water Commissioners in Delhi, peace at the Line of Control (LoC). This comes after more than 5,000 ceasefire violations, as well as the exchange of salutary messages between Indian and Pakistan Prime Ministers, have been taken into public account.