India-Pakistan Trade | Attempt to refloat amidst troubled waters

India Pakistan

The Pakistan government, on March 31, announced the easing of import restrictions on India and plans to import cotton till June-end, and up to 500,000 tonnes of sugar.

Based on these developments, Moneycontrol looked at the trade ties between the two neighbours over the past few years.

"Our estimate is that sugar is 15-20 percent cheaper in India as compared to Pakistan. Our decision to allow imports will benefit the poor," Pakistan’s Finance Minister Hammad Azhar said. Cotton imports would also benefit the country's small and medium-sized enterprises (SMEs), he said.

The move comes after two years, with Islamabad suspending bilateral trade with India on August 7, 2019, post the abrogation of Article 370. However, in September 2019, partial relaxation was provided for trade in certain pharmaceutical products with India.

Impact of terrorism on trade ties

In February 2019, post the cross-border terror attack in Pulwama, India withdrew the Most Favoured Nation (MFN) status accorded to Pakistan in 1996 and also imposed a 200 percent customs duty on exports from the neighbouring country.

Under WTO norms, member-countries are mandated to give this status to each other on a reciprocal basis. However, Pakistan did not accord the status to India despite its cabinet decision in 2011.

In August 2012, India announced a reduction of 30 percent in its Sensitive List for non-Least Developed Countries of (South Asian Free Trade Area) SAFTA--including Pakistan, lowering tariff on 264 items to 5 percent within a period of three years. However, Pakistan continued to follow a restrictive trade policy towards India, an official document states.

Bilateral trade: The invisible victim

In April 2019, New Delhi suspended cross-border trade based on reports that cross-LoC trade routes were being misused by Pakistan-based elements for funnelling illegal weapons, narcotics and fake currency.

As a result of strained relations between the two neighbours, bilateral trade has also taken a hit. India’s trade with Pakistan declined by almost 70 percent in 2019-20 over its previous year. Exports accounted for nearly 98 percent of India’s trade with Pakistan in 2019-20, while on an average, its share was 80 percent of the total trade in the previous few years.

India’s cotton exports to Pakistan declined by 88 percent in 2019-20 over 2018-19, while exports of sugar and sugar confectionery more than doubled during the same period.

Now, the decision to welcome Indian commodities across the border comes weeks after Pakistan army chief General Qamar Javed Bajwa’s statement to "bury the past" and move towards cooperation.

“Bajwa’s call for ‘burying the past’ with India and moving on is premised on the conviction that the time has come for Pakistan to relook at the weakening economic foundation of its national security,” opined C. Raja Mohan, director, Institute of South Asian Studies.