India Pakistan Trade Relations

Regardless of the confusion emanated by several actors on whether India has been given the most favoured nation (MFN) status by Pakistan ‘in principle’ or ‘actually’, general reaction and response to the development has been extremely positive and favourable. Those in the know of the complexities involved in Indo-Pak relationship, besides the political economy in Pakistan, are aware that it’s more about trade.


As regards trade and commerce itself, the situation would favour Islamabad more than New Delhi as the former is a much smaller economy and the accrued gains would be greater in its case. The decision about MFN will cast a profound impact of the relations between Pakistan and India. It’s expected that Pakistan would now treat India like the other 100 odd countries with which it trades. While the seemingly innocuous development may look insipid, it’s a huge departure from the recent past.

Indo-Pak trade, currently valued at $2.5 billion, is likely to double in the next three years as a result of this development. It would mean a profound change for Pakistan. Indian exports to Pakistan far exceed that of the latter to India. Pakistani importers depend on cheap raw materials from India, especially chemicals and plastics. More trade would allow Pakistani manufacturers more input at a lower price enabling them to produce at a cheaper rate. Not many are aware that New Delhi is already Islamabad’s sixth largest non-oil trade partner, larger than even Montreal or Tokyo.

There’s little ambiguity, whether in Pakistan or abroad, that the country’s military establishment calls the shots over most issues, particularly Kashmir and India. Retired generals and government ministers have emphasised the fact the military is “on board” as regards granting the MFN status to India. In fact, the Pak information minister Firdous Ashiq Awan has informed that all stakeholders, including the defence and military, have been “taken into confidence” on the MFN decision.

One can expect the Pak government (import taxes and fall in smuggling), the Pak consumer (due to more choices at lower prices) and the Pak producer (lower input costs) would all benefit because of increased Indo-Pak bilateral trade. Pak businessmen could also dent the lucrative Indian market which comprises of a middle class over twice the size of Pakistan’s population.

The opportunities and possibilities for moving forward in South Asia are huge and comprise an extraordinary scope. While some hurdles and constrains remain in the form of non-tariff barriers and visa restrictions, both sides need to get over them. Indo-Pak trade was at its peak during 2007-08. However, the Mumbai terror attacks on 28 November, 2008, orchestrated by Pak groups with institutional backing, marred the scenario.

The prospect for peace and trade in South Asia critically depend on how the Pak democratic civilian government seizes the opportunity from the praetorian Pak state. For peace and trade to prosper in the region, New Delhi needs to recognise this and distinguish between the two, besides engage Islamabad in dialogue. That would certainly auger well for Indo-Pak bilateral relations.

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