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International Relations

Trade Between India and Pakistan

  • 01 Apr 2021
  • 5 min read

Why in News

Pakistan will allow the import of cotton and sugar from India, partially reversing a two-year old decision to suspend all trade with India.

Key Points

  • Pakistan’s Trade Ban:
    • Pakistan’s decision to suspend bilateral trade with India in August 2019 was a fallout of the constitutional changes in Jammu and Kashmir.
    • However, an underlying reason for suspending trade was the 200% tariff imposed by India on Pakistani imports earlier that year after India revoked Pakistan’s Most Favoured Nation (MFN) status in the aftermath of the Pulwama terrorist attack.
    • Trade between the two countries suffered greatly.
      • India’s exports to Pakistan dropped nearly 60% to USD 816.62 million, and its imports fell 97% to USD 13.97 million in 2019-20.
  • India-Pakistan Trade Before Ban:
    • Over the years, India has had a trade surplus with Pakistan, with much less imports than exports and trade has always been linked to politics.
    • India’s exports to Pakistan fell around 16% to USD 1.82 billion in 2016-17 as compared to 2015-16 after relations deteriorated in the aftermath of the Uri terror attack and the Indian Army’s surgical strikes on militant launchpads in Pakistan-occupied Kashmir in 2016.
    • Despite continuing tensions, trade between the two countries grew marginally in subsequent years.
      • Indian exports rose nearly 6% to USD 1.92 billion in 2017-18, and then by around 7% in 2018-19.
      • Imports from Pakistan, though much less in volume, also increased by 7.5% to USD 488.56 million in 2017-18 as compared to 2016-17.
  • Major Products Traded:
    • Pakistan was among India’s top 50 trade partners in 2018-19, but was pushed out of the list in 2019-20.
      • It had been anticipated that a trade ban between the countries would affect Pakistan more, since it relied heavily on India for key raw materials for its textiles and pharmaceuticals industries.
    • Indian Export to Pakistan:
      • In 2018-19, cotton and organic chemicals accounted for around half of Indian export to Pakistan.
      • Other major items included plastic, tanning/dyeing extracts, and nuclear reactors, boilers, machinery, and mechanical appliances.
      • After the ban, imports of many items fell drastically, while cotton imports stopped altogether.
        • The only increase has been in pharmaceutical products. Pakistan has so far imported drug products and organic chemicals to ensure sufficient supplies of medicines during the Covid-19 pandemic.
    • Indian Import From Pakistan:
      • India’s major imports from Pakistan in 2018-19 were mineral fuels and oils, edible fruits and nuts, salt, sulphur, stone and plastering materials, ores, slag and ash and raw hides and leather.
  • Removal of Trade Ban by Pakistan:
    • Shortage in Raw Material: Pakistan decided to lift the ban on cotton imports as there is a shortage in raw material for Pakistan’s textile sector, which has suffered due to low domestic yields of cotton.
    • Cheaper Imports from India: Cotton and sugar imports from countries like the USA and Brazil are costlier and take longer to arrive.
    • High Domestic Demand and Prices: The decision on sugar was dictated by high demand and high domestic prices.
      • The decision to import from India is a measure to stabilize the market prices.
  • Implications:
    • The decision by Pakistan to allow trade in the selected items will gradually lead to restoration of normalcy in India-Pakistan trade.
    • This might be a good time for India to explore a reduction in its 200% import duties on products that its industries can benefit from.
    • The move by Pakistan has raised hopes for further measures besides the granting of sports related visas by India after a gap of three years, scheduling a much-delayed meeting of the Indus Water Commissioners in Delhi, peace at the Line of Control (LoC) after more than 5,000 ceasefire violations, as well as the exchange of salutary messages between Indian and Pakistan Prime Ministers.

Source: IE

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