- The new Pakistani government is facing many challenges including skyrocketing inflation, increasing unemployment rate, debt burden, lower human capital development and energy shortages.
- In 1996, India accorded the MFN status to Pakistan and in August 2012 it announced a reduction of 30% in the SAFT which brought down tariffs on 264 items to 5% within a period of three years. Despite this preferential treatment, Pak followed a restrictive trade policy towards India.
- During the last 27 years, the exports of Pakistan to India have decreased at the annualized rate of 3.32% from $ 45 million in 1995 to $ 18.1 Million in 2022.
- It is imperative for Pak to normalise its strained relations with neighbours by forsaking its agenda of state-sponsoring terror and putting all its efforts into ameliorating the lives of its people and bringing the economy back on track.
Last week Pakistan’s newly appointed foreign Minister Ishaq Dar was in London to attend the Nuclear Energy Summit in Brussels. In a subsequent press conference, he expressed that Pakistan is seriously considering the restoration of trade ties with India. Trade between the two countries has remained suspended since India abrogated Article 370 of the constitution, revoking the special status of Jammu and Kashmir and bifurcating the state with the two Union Territories.
It was quite surprising when he said “Pak’s businessman want trade with India to resume, we will seriously look into the matters of trade with India” his remarks have been seen as a potential shift in diplomatic stance towards India. India’s Ministry of External Affairs has declined to comment. However, speaking at the National University in Singapore at an event on his book “Why Bharat Matters”, External Affairs Minister Dr Jaishankar stated that the “mood is not to overlook” the issue of terrorism.
As per a report in the Pak’s daily The Express Tribune, the prospect of trade between India and Pakistan remains uncertain due to a lack of consensus among the stakeholders regarding the restoration of the trade relations. Even it suggests that there are conflicts of opinion among the stakeholders. The newly appointed government is facing many challenges including skyrocketing inflation, increasing unemployment rate, debt burden, lower human capital development and energy shortages. Consequently, Islamabad’s development and prosperity are severely hampered by its economic instability. Pak also has to bear the rising cost of essential items like basic food products, electricity bills etc.
Islamabad is trying to bring comprehensive changes that prioritise strengthening revenue generation and encouraging export-led growth. It is necessary for Pak to draw foreign investments to address its economic obstacles. It has been noted that Dar’s recent interest aligns with the objective of Islamabad’s newly appointed government and its five-year plan, which aims to rejuvenate the economic ties, especially with neighbouring countries like India, to facilitate the economic recovery of cash-strapped Pakistan.
When we scrutinize the relations between the two countries which are largely complex, the size of the trade is very small relative to the size of their economies and the land they share. In 2022, India exported $ 653 Million to Pakistan which mainly includes raw sugar, vaccines, blood antisera, toxins and culture and nitrogen heterocyclic compounds. During the last 27 years, the exports of India to Pakistan have increased at an annualized rate of 8.27% from $ 76.5 million to $ 653 million in 2022.
As far as exports from Pakistan to India are concerned, it exported $18.1 Million to India where the main products exported were passenger and cargo ships, tropical fruits and other oily seeds. During the last 27 years, the exports of Pakistan to India have decreased at the annualized rate of 3.32% from $ 45 million in 1995 to $ 18.1 Million in 2022 as per the OEC World Data.
In 1996, India accorded the “Most Favored Nation” (MFN) status to Pakistan (to trade with), which is a status given by international trade partners to ensure non-discriminatory trade between all partner countries of WTO. The government of Pakistan had in November 2011, decided to reciprocate the gesture by granting the same MFN status to India, even though Pak didn’t implement its decision. In August 2012, India announced a reduction of 30% in the SAFTA (South Asian Free Trade Area) sensitive list of items for Pakistan and other countries not termed as least developed countries, thus bringing down tariffs on 264 items to 5% within a period of three years. Despite this preferential treatment, Pak followed a restrictive trade policy towards India.
In the aftermath of the deadly Pulwama attack, India decided to withdraw the MFN status granted to Pakistan. Following this announcement, under the Customs Tariff Act India increased the customs duty by 200% per cent on all Pakistani imports. In the midst of all this, it was claimed that there was an increase in the share of informal trade between India and Pakistan. Pakistan has been buying the required Indian supplies from third countries like UAE and Singapore, which some say might be more than formal trade in terms of volume.
In July 2023, The Parliament Standing Committee on Foreign Affairs headed by PP Choudary presented a report that favoured the resumption of economic ties between India and Pakistan. However, the Committee recommended that given Pakistan’s “belligerent attitude” towards India, it should continue to remain vigilant and fully prepared to expose Pakistan’s role in the export of terrorism at the United Nations and various multilateral and regional fora.
When we delve into the statement by Pak’s Foreign Minister on the resumption of trade with India, it can be seen as an attempt to find a solution to Pakistan’s challenges for the last couple of years. It has been facing a severe economic crisis with the growing inflationary pressure reaching an alarming rate of 32.89% YoY and the Consumer Price Index (CPI) rate is at an all-time high at 260.01 points. Their state currency hit an all-time low of PKR 277.87 for 1$. Hence, it is imperative for Pak to normalise its strained relations with neighbours by forsaking its agenda of state-sponsoring terror and putting all its efforts into ameliorating the lives of its people and bringing the economy back on track.
(The author is a student of Business Management at Jain University, Bengaluru. The opinions expressed are the author’s own)
Sourabh Shetty is a partner at Fiscal Focus LLP and a finance executive at Param Foundation. He writes on finance, economy and international affairs. Views expressed are the author’s own.
Balaji Subramanian 
Dhruv Ashok 
Aayush Pal