Pakistan’s decision to suspend bilateral trade with India may hit its textiles and pharmaceuticals industries, which rely on imports of raw materials worth over $450 million each from India.
By comparison, India imports products valued at less than a fourth of its total exports to Pakistan, and is not expected to face a negative impact from the move, which was announced in response to the government’s decision earlier this week to end special status for Jammu & Kashmir.
In 2018-19, Pakistan imported $550.33 million worth of cotton and $457.75 million worth of organic chemicals from India, according to Commerce Ministry data. Together, the two products make up around half of the country’s total imports from India, which were around $2.07 billion during that financial year.
Provisional data for April-June 2019 shows that India has so far exported a total of $452.51 million worth of goods to Pakistan, with $127.87 of this being organic chemicals and $48.33 million, cotton. Pakistan ranks behind countries like Sri Lanka, Bangladesh and Nepal in India’s trade list with South Asian countries, according the Ministry. This is not only due to strained diplomatic relations between the two countries, but also an inability of Pakistan to cater to India’s import needs and its unwillingness to give India Most-Favoured Nation (MFN) status, according to trade experts.
India’s major imports from Pakistan, including mineral fuels and edible fruit and nuts, were about $131.29 million and $103.27 million. Its total imports from the region in 2018-19 were valued at $494.87 million, according to the Ministry. “Cotton and organic chemicals are two of the largest items India exports to Pakistan, and both of these are actually raw materials for their industries. It is a precarious situation for them (Pakistan), because it affects their textiles and pharmaceuticals industries,” Indian Council for Research on International Economic Relations professor Nisha Taneja, an expert on India-Pakistan trade relations, told The Indian Express.
“Even though the volumes of the imports were not that much, there was still a dependence,” she said. Around 82 per cent of India’s exports to Pakistan consists of raw materials and intermediates, according to her. Pakistan’s latest announcement, coupled with India’s decision earlier this year to revoke the neighbouring country’s MFN status and hike duties on its goods, are “the most drastic trade measures” taken in the souring relations between the nations to date, said Taneja. While Islamabad’s plan is more obviously aimed at showing its “dissatisfaction” with India’s moves in Jammu and Kashmir, an underlying reason for suspending trade is also to respond to the 200 per cent tariff imposed by New Delhi on Pakistani products, according to her.
Provisional data from the Commerce Ministry for India’s trade with Pakistan in April-June 2019 shows that India has so far imported only $7.13 million worth of goods from Pakistan after revoking its MFN status. Another trade expert, who requested anonymity, said Pakistan’s move is also a way for its Prime Minister to assuage his voter base by publicly expressing opposition to the development.
Diplomatic relations between India and Pakistan have always been strained, but trade between the two countries has mostly been positive and cooperative in terms of catering to instances of shortages in goods, according to experts. India may still have avenues to continue trade with Pakistan, as there are “informal channels” that are “well cemented and flourishing”, said Taneja. “It would be easy for formal trade to shift to informal channels, though it will mean higher transport costs,” she said.