Trade Turmoil: Rising Tensions Between India and Pakistan Post-Pahalgam Attack

In the wake of the April Pahalgam terror attack, India halts trade with Pakistan, intensifying existing strains. With India imposing a 200% tariff earlier, and Pakistan's economy already wavering, the disruption could lead to significant supply chain challenges for Pakistan while India's economy remains largely unaffected.

In the aftermath of the April 22 Pahalgam terror attack, significant trade disruptions between India and Pakistan have emerged, as discussed by Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations (FIEO). He emphasized that Pakistan faces substantial challenges due to the historical tensions and the recent halt in trade.

Sahai highlighted that the trade ties between the two nations were already strained. India imposed a steep 200 per cent tariff on Pakistani imports, while Pakistan denied India Most Favoured Nation (MFN) status. Despite India's export turnover reaching USD 800 billion, the trade volume with Pakistan was negligible, and the current developments could further impact Pakistan's economy adversely.

With India deciding to cease trade with Pakistan after the attack, Sahai pointed out that the disruption would be more challenging for Pakistan, specifically in the pharmaceutical and organic chemicals imports, due to geographical advantages previously enjoyed. He noted, 'The trade impact is negligible for India; however, Pakistan may need to re-evaluate its import strategies, potentially losing the advantage of geographical proximity.'

The terror attack's aftermath saw India halt official trade, which was already minimal, with exports valued at USD 447.7 million and imports from Pakistan at a mere USD 0.42 million. This has forced Pakistan to increasingly depend on informal trade routes through countries such as the UAE and Singapore, estimated at USD 10 billion annually, to facilitate trade of essential goods like pharmaceuticals and agricultural products.

This strategy might lead to escalating costs for such goods in Pakistan, further complicating its supply chain. Meanwhile, informal channels may also route items like Himalayan pink salt and dried fruits into India, deepening reliance on indirect trade pathways. The evolving situation continues to strain diplomatic and trade relations.

(With inputs from agencies.)