Pakistan Trade Ban is More Sound than Fury: Bilateral trade between India and Pakistan was just $1.2 billion in 2024, a tiny fraction (0.06%) of India’s total trade. Thus, Pakistan’s trade ban will have minimal impact on India’s economy.
Historic Trade Trends: Pakistan Trade Ban
Trade relations have historically been fragile, deteriorating sharply after incidents such as the Pulwama attack (2019). After Pulwama, India revoked Pakistan’s most favoured nation (MFN) status and imposed 200% tariffs.
Nature of Goods Traded:
Pakistan mainly imports pharmaceuticals, APIs, fertilizers, and auto parts from India, while India imports herbs like figs, basil, and rosemary from Pakistan. The trade balance heavily favours India.
Rise of Third-Country Trade:
Despite formal bans, an estimated $10 billion worth of goods are traded informally via third countries (like UAE, Singapore, Sri Lanka), making official trade restrictions largely symbolic.
Impact of Latest Ban:
Pakistan’s pharmaceutical sector could suffer due to costlier inputs. India faces negligible direct impact but Afghanistan trade might be slightly disrupted due to Pakistan’s transit ban.
Additional Important Key points for UPSC:
Third-Country Channels: Products like tea, pharmaceuticals, onions, and steel are repackaged and routed to Pakistan via third countries, keeping supply chains alive informally.
Pakistan’s Strategic Weakness: Dependence on Indian raw materials for essential sectors (especially pharmaceuticals and fertilizers) underlines Pakistan’s vulnerable economic position.
Potential Rise in Informal Trade: Formal trade bans historically result in spikes in smuggling and informal trade routes rather than genuine cessation of commerce.
Geopolitical Implication: Trade decisions mirror broader diplomatic tensions, with trade being used as a tool of strategic signaling rather than an effective economic weapon.
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