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Indo-Pak face-off: India to lose significantly more if trade stops

23 September, 2016

India and Pakistan are at it again. Tensions between the two nuclear-armed neighbours are running high following a terror attack by Pakistan-supported militants on an Indian army base at Uri in Jammu and Kashmir. India has blamed Pakistan for the attack and has said the Indian armed forces reserve the right to respond at a time and place of their choosing. Here is how the latest face-off could impact trade relations between the two countries.

Is the conflict likely to escalate into a full-scale military offensive?

The Indian government, on its part, has launched a multi-pronged diplomatic offensive against Pakistan. While the possibility of a full-scale military conflict are low, it could be a high-decibel and a long-drawn-out one, with the possibility of limited and contained hostilities, especially if India decides to go in for punitive strikes across the Line of Control into Pakistan-occupied Kashmir.

Can this conflict impact trade relations between the two countries?

Yes. The scale and nature of hostilities notwithstanding, one major casualty of the escalating tensions could be cross-border trade between the two countries. Either country could bar its traders from doing business with its counterparts across the border, which could bring business engagement between the two to a halt.

But do the two archrivals have any significant trade ties?

Well, not if you compare India’s trade with the US, the European Union or even China. Out of India’s total annual import-export trade of a little over $643 billion, that with Pakistan makes up for just over $2.6 billion or less than 0.5%, according to figures compiled by the New Delhi based Indian Council for Research on International Economic Relations (ICRIER). But by themselves, the figures are not insignificant, and could impact hundreds of small traders especially in states like Punjab and Rajasthan. But this is just the official trade. There are no clear numbers on the ‘unofficial’ trade between India and Pakistan via trading hubs like Dubai, but some estimates put the figures as high as $20 billion.   

Which country would stand to lose if official trade comes to a halt?

India will lose considerably in this trade-off as Indian exports to Pakistan make up for more than 83% of the bilateral trade. As of 2015-16, India exported goods worth more than $2.1 billion while imports from Pakistani were just over $440 million. So clearly, if the two-way trade is stopped, India, which chiefly exports cotton, polypropylene, chickpeas, fabric and yarn to Pakistan, will lose more than its western neighbour.

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Indo-Pak face-off: India to lose significantly more if trade stops

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