|Demand of the question |
Introduction. Contextual Introduction.
Body. Impact of face-off on trade. Is it a serious situation?
Conclusion. Way forward.
The India-Pakistan face-off in the recent period has impacted trade on both sides. In the wake of the Pulwama attack, India withdrew the Most Favoured Nation (MFN) status to Pakistan. The government of India had suspended cross-LoC trade in 2019, on receiving reports that cross-LoC trade routes were being misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency. Subsequently, it imposed 200% customs duty on all Pakistani goods coming into India. More recently, post the Jammu and Kashmir Reorganisation Bill, Pakistan cut off diplomatic and economic ties with India.
Impact of recent face-off on trade:
- In 2018-19, bilateral trade between India and Pakistan was valued at $2.5 billion. In this period, India’s exports to Pakistan accounted for $2.06 billion and imports from Pakistan were at $495 million. Both has declined.
- India’s decision in regards with the withdrawal of MFN status and imposition of 200% duty has hurt Pakistan’s exports to India. The exports fell from an average of $45 million per month in 2018 to $2.5 million per month in the last 4 months.
- With Pakistan deciding to completely suspend bilateral trade, cotton exports from India to Pakistan might get affected the most, eventually hurting Pakistan’s textiles.
- Border economies owe their existence to cross-border economic opportunities. These economies are hurt most by India-Pakistan face-off. E.g Amritsar is land-locked, and traditionally has no significant industry. Since 2019, 5000 families have been directly affected in Amritsar because of dependence on bilateral trade.
Is it a worrisome situation for India?
- On a deeper analysis, it appears that Pakistan’s decision to temporarily suspend trade ties will not have much impact on both the nations. Trade between both nations had stood at just $2.4 billion in 2017-18, accounting for a mere 0.31% of India’s total trade with the world.
- Pakistan currently exports , cement, fertilisers, fruits, chemicals and leather and allied products to India. However, a larger look at trade activities between India and Pakistan reveals that import and export between India and Pakistan has been declining since 2014-15.
- The major reason for the nominal impact of the trade suspension on India’s businesses and economy is that a large part of the trade between the two countries takes place through the informal route, which means that the trade takes place through a third country.
- In the case of two countries, India-UAE-Pakistan is the primary channel for informal trading. In this process, trade is recorded between India and UAE and between Pakistan and UAE, but is not directly recorded between India and Pakistan.
Given the situation, it is highly unlikely that the trade suspension between the two countries would in any major way impact India and its businesses. Further, India already has revoked the Most Favoured Nation tag given to Pakistan, which snatches away the trade benefits Pakistan used to get. However, it is the local economies that will suffer the most and are already perishing. Alternative sources of livelihood that can be generated to keep border economies afloat should be found with high priority.