India-Pakistan Trade Relations: Fallout from Pahalgam Attack and the Economic Ramifications
The diplomatic ties between India and Pakistan have reached a critical low point, further deteriorating after the tragic terrorist attack in Pahalgam, Jammu and Kashmir.
The incident, in which several innocent tourists lost their lives, has led to an unprecedented level of tension between the two nuclear-armed neighbors. In response to the heinous act, the Indian government has issued a stern and uncompromising message to Pakistan, taking a firm stand that includes the complete suspension of all remaining trade relations with its western neighbor.
India’s Decisive Economic Retaliation
As part of its broader diplomatic and strategic response to the attack, India announced the total severance of economic ties with Pakistan, effectively ending all trade, including the limited exchanges that had survived previous periods of hostility.
This bold move signals India’s unwillingness to continue any form of engagement while terrorism, allegedly supported or enabled from across the border, continues to claim innocent lives on Indian soil.
The government’s decision, while symbolic of its tough stance, also brings forth important economic questions:
- How will the trade ban affect India’s economy?
- Which commodities were being exchanged between the two nations?
- If imports from Pakistan stop completely, will there be a significant price rise for certain items in Indian markets?
Historical Context of India-Pakistan Trade
Trade relations between India and Pakistan have historically been turbulent, shaped more by political tensions than economic potential. In 2018–19, the total trade between the two countries stood at approximately Rs 4,370 crore, a figure that saw a dramatic drop after the Pulwama terror attack in February 2019.
In response to that incident, India took significant punitive steps, including the withdrawal of Most Favoured Nation (MFN) status from Pakistan and the imposition of a 200% import duty on goods from the country.
These economic sanctions led to a sharp decline in bilateral trade, with figures falling to Rs 2,772 crore by 2019–20, particularly through key checkpoints like the Attari-Wagah Land Port, one of the primary land routes for Indo-Pak trade.
Recent Trade Statistics Reflect Growing Imbalance
Despite the persistent hostility, limited trade relations continued over the next few years. However, data shows a growing imbalance that heavily favors India:
- In 2021–22, India’s exports to Pakistan were valued at USD 513.82 million, while imports stood at a meager USD 2.54 million.
- In 2022–23, exports increased to USD 627.10 million, while imports rose slightly to USD 20.11 million.
- In 2023–24, while India’s exports soared to USD 1,180 million, imports from Pakistan once again dropped drastically to just USD 2.88 million.
This trend clearly illustrates that India has not been significantly dependent on imports from Pakistan, whereas Pakistan has continued to rely heavily on Indian goods. Moreover, India’s total trade with Pakistan represents less than 0.06% of its global trade volume, making the economic impact of this suspension minimal for India but potentially crippling for Pakistan.
What Goods Were Traded Between India and Pakistan?
A review of the trade composition provides clarity on the types of goods being exchanged across the border.
Goods Imported by India from Pakistan:
- Agricultural and Perishable Items: Watermelons, muskmelons, dry fruits
- Raw Materials and Minerals: Cement, rock salt, lime, Multani mitti (Fuller’s earth), sulfur, copper
- Industrial Goods: Cotton, steel, leather products, metal compounds
- Consumer and Utility Items: Slippers, optical lenses, certain fabrics
Goods Exported by India to Pakistan:
- Food Products: Coconuts, fruits, vegetables, tea, sugar, spices, dairy products
- Agricultural Inputs: Oilseeds, animal feed
- Industrial and Pharmaceutical Supplies: Plastic goods, salt, motor parts, organic chemicals, pharmaceuticals, dyes
- Beverages: Coffee
Potential Economic Impact on India
Given the limited volume and diversity of imports from Pakistan, India is unlikely to face significant disruption or inflationary pressure due to the trade suspension. Most of the items imported from Pakistan, such as fruits, dry fruits, cement, or Multani mitti, are either available domestically or can be sourced from other countries without much difficulty.
Some short-term scarcity or price increase might occur in niche markets for specific goods like dry fruits, rock salt, or Multani mitti, which had a steady customer base in India. However, given the diversified sourcing network and domestic alternatives, such effects would likely be temporary and negligible.
Greater Impact on Pakistan’s Fragile Economy
On the other hand, the repercussions for Pakistan are expected to be far more severe. The country is already grappling with record-high inflation, a rapidly depreciating currency, and dwindling foreign exchange reserves. Pakistan’s dependence on international loans, particularly from the IMF, has made it vulnerable to any further economic instability.
The complete breakdown of trade relations with a neighboring country like India will only exacerbate Pakistan’s economic crisis, further limiting access to affordable goods and shrinking opportunities for export earnings. It also sends a strong signal to the global community about Pakistan’s deteriorating regional ties, potentially affecting investor confidence and future trade agreements.
A Strategic Yet Symbolic Move by India
India’s suspension of all trade with Pakistan in the wake of the Pahalgam attack serves as a strategic and diplomatic rebuke to state-sponsored or tolerated acts of terror. Economically, this step is largely symbolic for India, with minimal financial cost, but it is poised to deliver a significant blow to Pakistan’s struggling economy.
The decision reflects India’s growing economic and geopolitical assertiveness, demonstrating that acts of aggression will not be tolerated, ot even indirectly, and that economic leverage will be used decisively in the face of terrorism. As the two countries remain at a diplomatic impasse, the hope for peace rests on meaningful action against terrorism and a commitment to genuine dialogue, which, for now, seems increasingly distant.
