What will it take to resume India-Pakistan trade?

GS Paper III

News Excerpt:

Pakistan's Foreign Minister has expressed a serious intent to reevaluate the suspended trade relations with India, which have been inactive since 2019.

Background of the current blockade of trade:

  • Pakistan stopped trade after the constitutional changes in Jammu and Kashmir in 2019. 
    • Like other aspects of the India-Pak relationship, trade too has been impacted by Islamabad’s hard line on Kashmir and its support for terrorism. 
  • In 2021, Pakistan allowed trade in sugar and cotton but reversed the decision in a day. It also highlights the complexity of engaging with India in Pakistan. 
  • The dire state of the Pakistani economy, however, has raised hopes for a change in Pakistan’s approach. But there is no consensus in Pakistan on this issue.

Reasons for the Pakistani intent to resume trade: 

  • Over the years, there has been a deepening of Pakistan’s economic crisis, and the country is negotiating for financial assistance from the International Monetary Fund (IMF).
  • Another contributing factor is the pressure from the business community of Pakistan. 
    • One of the conditions imposed by the IMF was the increase in energy prices, which adversely affected production in Pakistan. 
    • Imports have also come down because of the low price of the Pakistani rupee.
  • Trade between India and Pakistan is already occurring through Dubai or other countries. 
    • This raises costs, and the logic of efficiency and geography demand a resumption of direct trade.
  • Meanwhile, Pakistan’s relative power position vis-à-vis India has declined. 
    • Its GDP is now 10 times smaller than India’s. This will continue to widen amid Pakistan’s low growth rates.
  • Pakistan’s relationships with Afghanistan and Iran have become tense.
    • Pakistan’s ties with India are more stable than its western frontier with Afghanistan and Iran.

Challenges to normalisation of India-Pakistan trade:

  • The challenge lies in Pakistan's internal politics: while engaging in trade with India is economically beneficial, the political complexities within Pakistan make such decisions difficult.
    • The leaders of the new coalition government of the Pakistan People’s Party (PPP) and Pakistan Muslim League-Nawaz (PML-N) have traditionally favoured trade with India. 
    • But PPP chairman Bilawal Bhutto Zardari, who was Foreign Minister in 2022-23, has taken a hard line against India in public statements over the last few years.
    • The Army Chief has also not said very much about India so far, which makes the stand of the Army unclear.
  • Pakistan has put preconditions on talks with India, demanding the reversal of the decision on Article 370. India also does not want to trade without major steps from Pakistan on curbing terrorism. India has frequently said that trade and terrorism cannot go together.
  • Presently, India holds a stronger position, with the current government showing no inclination to make concessions on Kashmir.
    • In the 1990s, Pakistan was on the offensive in demanding Indian concessions on Kashmir. 
      • Kashmir was in turmoil during that period, placing India under significant pressure to concede to Pakistan's demands.

History of India-Pakistan trade:

  • Following the conflicts of 1965 and 1971, trade links were largely cut off between India and Pakistan.
    • Borders were closed off and heavily militarised, contributing to the limited growth of trade volumes between the two nations.
    • A significant portion of actual trade occurred through other countries due to the restricted trade environment between India and Pakistan.
  • Agreements such as the SAARC Preferential Trade Agreement (1993) were signed, but Pakistan was not interested in trade with India. 
    • It demanded that India must resolve the Kashmir issue before the normalisation of economic ties.
  • During the 2010s, efforts were made by India to enhance trade relations with Pakistan.
    • The World Bank facilitated negotiations for a petroleum agreement, aiming to enable Pakistan to purchase fuel from the Jalandhar refinery across the border. Discussions were also initiated regarding the trading of electricity.
    • Despite these initiatives, the Pakistan Army consistently intervened, preventing any progress.
  • At the 2014 South Asian Association for Regional Cooperation (SAARC) Summit, member countries reached an agreement to open borders, facilitating the movement of trucks and trains.
    • However, the Pakistan Army intervened once more, blocking the implementation of the agreement.
  • India's position on Kashmir has grown stronger, particularly with the revocation of Article 370, which has shocked Pakistan.
    • Despite Pakistan's attempts to involve China in the UN Security Council, no action was taken.
    • Pakistan's key allies in the Gulf region, Saudi Arabia and the UAE, have refrained from criticising India and have maintained strong ties with New Delhi.

Benefits of trade between India-Pakistan:

  • From a Pakistani perspective, trade with India would help to draw in cheaper goods from across the border. 
    • Pakistan can substitute imported iron ore from Australia and Brazil with lesser-priced Indian iron ore. 
    • Cheaper tea and coffee from India could also become available for Pakistan, which is instead currently being procured from Kenya.
  • Pakistan is South Asia's second-largest country and it makes sense for India to include it in its search for new markets.
    • Greater trade with Pakistan also would open possibilities of transit trade and market access beyond Pakistan into Central Asia.
  • Given its relatively larger economy, India would likely reap greater benefits than Pakistan with cross border trade.
    • The improvement in Indo-Pak trade ties would not only increase the bilateral trade 10 times but also expand market access, economic growth, energy benefits, and regional stability.
    • However, several studies show that any increase in Pakistani trade with India would also produce a positive impact on Pakistan's economy.
  • Pakistan and India, despite boasting large quantities of nuclear arsenal, are still battling malnutrition, poverty and income inequality. 
    • To combat this, bilateral trade would augment the basket of goods and services available for people on both sides of the border, and would make the markets more competitive, resulting in a favourable trickle-down impact on prices.


Lowering tensions with Pakistan will surely benefit India, too. But Pakistan does not appear ready to abandon its past policies. When it does, India should be ready to reciprocate.

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