Pakistan suspends trade with India; effect on India to be minimal

Pakistan said it was suspending all trade with India, including through third countries.

Pakistan on Thursday said it was suspending all trade with India, including through third countries, a move officials and industry analysts said was unlikely to have a material impact on this side of the border given the minimal inflows and the existence of unofficial lines via third countries that are hard to crack down on.

In the 2023-24 financial year, India imported some goods, particularly agricultural commodities worth $3million only from Pakistan.

Most of the steps unveiled by Pakistan after a meeting of the National Security Committee chaired by Prime Minister Shehbaz Sharif in Islamabad were tit-for-tat responses to measures announced by India on Wednesday.

“Islamabad’s move to suspend trade with India will hit the inflation-ravaged Pak citizens only because India imports nothing from Pakistan. Our import from Pak is absolutely zero, whereas Pakistan imported Indian merchandise of about $500 million for the first nine months of the last financial year,” a government official said requesting anonymity.

During this period (April-January of FY25), Pakistan imported goods worth $448 million from India, he added, listing commodities such as essential medicines, sugar, chemicals, auto components and petroleum products.

In the 2023-24 financial year, India imported some goods, particularly agricultural commodities worth $3million only from Pakistan. At the same time, Pakistan imported Indian goods worth $1.2 billion in FY24.

Indo-Pak bilateral merchandise trade fell sharply after 2018-19. India revoked the most favoured nation (MFN) status accorded to Pakistan in February 2019 following the Pulwama attack and imposed high tariffs on Pakistani merchandise because of Islamabad’s anti-India activities. India had accorded MFN status to Pakistan in 1996 without having a reciprocal arrangement that allowed Pakistani goods at concessional tariffs.

In August, 2019, Pakistan too took several measures to downgrade the bilateral relations with India. One of those was to unilaterally suspend the bilateral trade. However, months later, Pakistan relaxed the ban by allowing imports of few items such as therapeutic products, a second official said.

“Bilateral trade was hit since then and it deteriorated further because of Pakistani support to terror activities in India,” he said. In financial year 2018-19, India exported goods worth $2.07 billion to Pakistan and imported Pakistani merchandise worth $495 million. In the following financial year, Indian exports to Pakistan fell by 60.5% to $817 million and Pakistani exports to India plunged by 97.2% to $14 million.

India used to import mineral oil, copper, edible fruits and nuts, salt, sulphur, plastering materials, cotton, raw hides and skins. It exported cotton, chemicals, prepared animal fodder, vegetables, plastic articles, dairy products, pharmaceuticals and sugar to Pakistan.

Pakistanis also purchase Indian goods such as medicines, chemicals, sugar and food items through informal channels via third countries, such as the United Arab Emirates (UAE) or Singapore because of quality and cost factors. UAE and Singapore markets do not keep Indian products only for Pakistanis, the officials said.

“They [UAE and Singapore] will continue to import Indian goods to cater to their markets. Price-conscious, inflation-hit, Pakistanis may anyway find ways to smuggle Indian goods from third countries,” the second official said.

A trade analyst said “an estimated $10 billion” trade by value survives through this “re-exports” route. “Border closures halt formal trade—but not demand. Pakistan will continue sourcing Indian goods, just at a higher cost and through third countries,” Global Trade Research Initiative (GTRI) founder Ajay Srivastava said.