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Following the recent terror attack in Pahalgam, India has officially halted all trade with Pakistan, further escalating tensions between the two countries.
However, according to the Global Trade Research Initiative (GTRI), this border closure is expected to stop only formal trade, not demand. Pakistan is likely to try to continue sourcing Indian goods indirectly through third countries, though at a higher cost. GTRI mentioned that trade relations between India and Pakistan have remained strained since the Pulwama attack in February 2019. At the time, India revoked Pakistan's Most Favoured Nation (MFN) status and imposed a steep 200 per cent duty on its imports. It said, "In short, border closures halt formal trade--but not demand. Pakistan will continue sourcing Indian goods, just at a higher cost and through third countries". In response, Pakistan suspended all bilateral trade with India by August 2019. Since then, formal trade has largely been suspended, with only a few exports from India--mainly medicines--allowed on humanitarian grounds. Despite the official trade freeze, India exported goods worth USD 447.7 million to Pakistan in the current fiscal year (April 2024 to January 2025), as per official data. These exports primarily included essential items such as pharmaceuticals (over USD 110.1 million), active pharmaceutical ingredients (APIS) worth USD 129.6 million, sugar valued at USD 85.2 million, auto parts worth USD 12.8 million, and fertilisers worth USD 6 million. In contrast, India's imports from Pakistan were negligible, amounting to just USD 0.42 million. These imports included niche agricultural items, such as figs worth USD 78,000, and herbs like basil and rosemary, valued at USD 18,856. Although formal trade channels are now completely closed, pakistan will try to continue the imports through informal routes via third countries. GTRI estimates that nearly USD 10 billion worth of trade still takes place through re-export routes, mainly via the United Arab Emirates and Singapore. Pakistan reportedly imports several Indian products through these third countries, including pharmaceuticals, chemicals, cotton, tea, coffee, dyes, onions, tomatoes, iron, steel, sugar, salt, and auto parts. On the other hand, India may receive goods like Himalayan pink salt and dry fruits such as dates, apricots, and almonds from Pakistan through similar indirect routes. The current move is expected to raise the cost of such goods in Pakistan while also complicating supply chains. (ANI)
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