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Pulwama-Balakot effect: India-Pakistan trade halves in February, plunges headlong since

Banikinkar Pattanayak

India s imports from Pakistan crashed 44.6% and its exports to the hostile neighbour plunged 43.7% in February when New Delhi revoked its most favoured nation (MFN) status to Islamabad in the wake of the Pulwama terror attack on the 14th of the month, perpetrated by Pakistan-based militant outfit Jaish e-Mohammed (JeM).

Analysts said trade with Pakistan might have collapsed even further in March, which witnessed the full-month impact of the measures taken after February 15. The country-wise official trade data for March are yet to be compiled.

While imports were expected to drop, given that India had slapped a 200% duty on purchases from Pakistan after the withdrawal of the MFN status, the massive fall in exports suggests Islamabad has quietly raised its non-tariff barriers for Indian products in response to New Delhi s tariff war. India had granted the MFN status, a jargon for giving equal treatment to all trade partners under the WTO framework, to Pakistan unilaterally in 1996. JeM chief Masood Azhar was designated as a global terrorist by the United Nations on Wednesday.

While India s exports to Pakistan dropped to $126.5 million in February from $224.5 million a year earlier, its imports declined to $18.6 million during the month from $33.5 million in the year before, showed the latest official data sourced from the DGCIS.

Importantly, between April 2018 and January 2019 (before the curbs were slapped), India s exports to the neighbour had risen 22.1% from a year earlier to $1,768.7 million, while imports from Pakistan had inched up by 12.6% to $473.5 million, according to the data.

The exports of key items such as cotton, organic chemicals and plastics, which made up for over 55% of India s outbound shipment to the neighbour in FY19, crashed by 59.3%, 49.6% and 35.5%, respectively, in February. Similarly, imports of key products such as edible fruit and nuts, cement & salts and products crashed by 56% and 45.5%, respectively, in February.

The decision to withdraw the MFN status and impose the punitive duty on imports from Pakistan was taken, keeping in mind broader national interest, and not short-term commercial gains. Pakistan is known to impose non-tariff barriers against us and they have done it in the past as well. In any case, the trade levels are low, so it (the fall) doesn t hurt us in any manner, a senior government official told FE. Ultimately, national security has to be of paramount importance.

Despite the fall in exports as well as imports, the impact of the MFN status withdrawal is limited for India due to the low level of bilateral trade. However, symbolically, the move has been seen as the strongest retaliation in trade yet, given the status was not revoked even after the Kargil war and the 26/11 Mumbai attacks.

For its part, Pakistan hasn t granted the MFN status to India and continues to trade with New Delhi with a negative list of 1,209 products. This means barring those products on the list, India can ship out other items to the neighbour. However, New Delhi s retaliation may offer Pakistan an excuse to raise its negative list of tradable items with India. In 2012, Pakistan had committed to granting India the MFN status but retracted later due to domestic opposition.

India s merchandise exports to Pakistan constitute just 0.6% of the country s total exports. Similarly, its imports from the neighbour made up for 0.1% of New Delhi s overall purchases from overseas. For Pakistan, though, the impact will be greater, as the neighbour s purchases from India stood at over 3% in 2017-18.

India had last reviewed the MFN status after the 2016 Uri attacks which were traced to militant outfits based in Pakistan but refrained from revoking it.

In 2012, Pakistan announced the negative list, departing from its decades-old practice of trading on the basis of a positive list that had severely restricted prospects of Indian exports to that country.