There’s little incentive for India to resume bilateral trade with Pakistan

India-Pakistan trade resumption has benefits but political risk, fiscal shortfall, and minuscule market leave India cold.

On March 23, Pakistan Finance Minister Ishaq Dar said that “Pakistan would seriously look into matters of trade with India”. Trade ties between the neighbours were suspended in the wake of India’s revocation of Article 370 in Jammu & Kashmir.

Dar’s statement could be seen as a reflection of the economic desperation in Pakistan. It needs India to cool down food inflation through the Attari border and machinery such as tractor imports from Punjab. Inflation in October peeked at 31 per cent, while unofficial figures peg it much higher.

Pakistan’s foreign currency reserves even with an IMF bailout fell to $8 billion in January as loan repayments loomed. The last time full trade was on between India and Pakistan it amounted to a partly $2.5 billion.

Clearly, trade with India is the medicine the sick man of South Asia desperately seeks.

Many in New Delhi and Islamabad, however, would be outraged by the suggestion that the two nations resume commercial relations. This will be misplaced. Arch enemies such as China and the United States, and China and Taiwan are very closely aligned commercially.

Even as not a week passes when China does not threaten Taiwan with an armed assault, it is important to note that even after coming to a 21-year low, Taiwan’s exports to China constitute a staggering 35 per cent of its total exports at $152 billion.

While India-Pakistan direct trade is negligible, trade through the United Arab Emirates (UAE) and Singapore was substantial till about five years ago. Although official figures are hard to come by, estimates peg the trade at $3 billion before the recent economic collapse in Pakistan. Indian firms exporting tyres, processed food, pharmaceuticals and chemicals, and importing traditional garments, spices and some machinery used in small-scale manufacturing with a decisive trade balance favouring India.

The total trade volume between India and Pakistan in 2022 amounted to approximately $2.5 billion. This figure significantly understates bilateral trade due to the presence of informal trade channels and trade routed through third-party countries. The formal trade volume represents only about half of the total trade.

Bilateral trade between the two subcontinent neighbours is not only routed in deep-seated political difficulties, but also in Pakistan’s perusal of terror modules as an instrument of State policy aimed at India. The problem is structural in its constitution. Given this, is it even worth the effort for India. For example, in automobiles, a little over 30,000 cars were sold in Pakistan in 2023, while in India the figure was about 11,000 a day!

The problem for Indian business, even assuming a resumption of trade ties, is that Pakistan poses four significant risks. The first is political. The trade could come to an abrupt halt anytime if Pakistan chooses to attack India. This could leave millions of dollars on both sides in limbo. The small volume of transactions will not be an incentive for companies to take such a risk. 

The second is that Pakistan has very limited ability to pay in US dollars given its foreign currency crisis. Indian exporters have no use for the Pakistani rupees. The third issue is visas. Pakistan and India do not issue visas in any serious numbers to each other, and even when issued they are often city-specific constraining commercial exchange. It can be said that the visa regimes, which cannot be altered just for trade given the security paradigm, constitute a noose for doing business. You just do not do big trades with a country you can’t visit where you cannot have representative offices and on whose ports you cannot have landing oversight.

Lastly, Pakistan has very little to offer to India. While shan spices do perfect a mutton biryani, the country just fails to offer a wholesome meal.

As the world’s fifth-largest economy the $3.7 trillion, India is finding that Pakistan is not even a bite-sized chunk and has too many attended risks. This is a nonstarter.

(Ninad D Sheth is a senior journalist.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.