Last week, in days when gunmen killed at least 26 people at a picture-per-owned tourist resort in Pahargam, Kashmir, last week, India and Pakistan announced a series of diplomatic moves with each other, including closures of trade across borders and halting visas.
New Delhi has accused Islamabad of being involved in the April 22 attack, halted India’s participation in the Indian river water sharing agreement, which has guaranteed Pakistan’s water supply and trimmed diplomatic missions.
Islamabad has denied India’s accusations, called for a neutral investigation into the attack and announced that it will suspend all trade, including third countries, all retaliatory measures, including third countries. India-Pakistan’s trade ties have been frozen since 2019.
The two countries also closed the intersection of Waga Atari, the main land border between India and Pakistan.
But official figures show minimal transactions between neighbouring countries, while experts say hidden backdoor transactions of billions of dollars continue.
So, what is the actual scale of trade like these bows? And will the halt of trade and the closure of land borders really affect transactions still occurring between the two countries?
Have India and Pakistan traded freely in the past?
yes. Trade between India and Pakistan began in 1947 after the two countries were created from the UK India through partitions.
When New Delhi awarded New Delhi the status of “Most Favourite Country” (MFN) in 1996, trading volumes increased. This is the World Trade Organization regulations that ensure that countries treat all trading partners equally with regard to tariffs and trade concessions.
But amid wider bilateral tensions between nuclear-armed neighbours, trade never began completely. At least officially.
For the 2017-2018 fiscal year, total trade between India and Pakistan was $2.41 billion compared to $2.27 billion between 2016-2017. India exported $1.92 billion worth of exports to Pakistan, and imported $488.5 million worth of imports.
However, in 2019, India revoked Pakistan’s MFN status after India bombed a suicide bomb in India-controlled Pulwama, Kashmir.
From 2018 to 2024, bilateral trade fell from $2.4 billion to $1.2 billion. Pakistan’s exports to India plummeted from $547.5 million in 2019 to just $480,000 in 2024.
What are the official trades in India and Pakistan at the moment?
According to India’s Ministry of Commerce, the country’s exports to Pakistan from April 2024 to January 2025 were $447.7 million. During the same period, Pakistan’s exports to India were only $420,000.
India’s exports include pharmaceuticals, oil, plastics, rubber, organic chemicals, dyes, vegetables, spices, coffee, black tea, dairy products and grains.
Pakistan’s main exports include copper, glassware, organic chemicals, sulfur, fruits, nuts and certain oilseeds.
Shantanu Singh, an international trade lawyer based in India, told Al Jazeera that Pakistan’s pharmaceutical sector will witness immediate impacts due to the current trade ban.
He also said the closure of the Wagah-Attari Integrated Check Post (ICP), the only land port where trade is permitted between India and Pakistan, will increase trade costs.
“Typically, land ports can reduce the cost and ease of transportation, and the closure of this land port will increase the costs of all kinds of trade. Since imports from Afghanistan have used this land route, it will particularly undermine trade from Afghanistan.
Is the real trade between India and Pakistan high?
The official figures lock Indian exports to Pakistan at $447.65 million, but the actual amount of trade is thought to be much higher as it routes goods through third countries to bypass restrictions, avoids scrutiny and orders a higher price when relabeling.
According to the India-based think tank Global Trade Research Initiative (GTRI), informal Indian exports to Pakistan are actually thought to be $10 billion a year.
How does this informal trade work?
GTRI said this was achieved primarily by finding an alternative route through the Dubai port of United AAB Emirates. Colombo in Sri Lanka. And Singapore.
Explaining how the system works in a LinkedIn post, GTRI founder Ajay Srivastava said: “Indian goods will be sent to Dubai, Singapore and Colombo, and the goods will be stored in a stored warehouse in the transport hub.
Srivastava added that such trade is not necessarily illegal, but “this greyzone strategy highlights how trade can adapt faster than policy.”
He said that such trade “gets better prices and maintains plausible negativity even after markup re-exports,” by bypassing formal trade restrictions.
Does this kind of trade happen elsewhere?
yes. Foreign trade experts said it is a common practice to re-rout goods by bringing them to facilities that are transferred to other vessels to avoid restrictions on international trade.
India, for example, has been the site of such practices since the Russian invasion of Ukraine, said Jayati Ghosh, professor of economics at the University of Massachusetts Amherst University. They are re-routing fuel to skirt sanctions from Russia, such as Germany, to European countries, Gausch said.
Since the Ukrainian invasion, India has become one of the biggest buyers of Russian crude oil, importing an average of 1.75 million barrels per day in 2023, an increase of 140% from 2022. Russian oil accounted for around 40% of India’s total imports in 2024, starting from just 2% in 2021.
China has been doing the same thing as India for decades, trade economist Biswajit Dar said by routing goods to India through the Association of Southeast Asian Countries, including Singapore, Indonesia, Thailand, Vietnam, Cambodia, Laos, Brunei, Malaysia, the Philippines and Myanmar.
“When China brings direct exports to India, they will attract higher tariffs. With ASEAN, India has retail contracts,” Dar said. “Companies will do everything they can to meet the demand, wherever they are in any country.”
Will informal trade between Pakistan and India continue?
Since the attack on Kashmir, Indian government officials have collated data on indirect exports to Pakistan, reportedly lobbying to curb the practice. Pakistan’s latest trade ban on India includes transactions through third countries. In other words, Pakistani authorities are also well aware of this informal trade.
However, according to Singh, it may be difficult to prevent this as rerouting and relabeling of goods in third countries is done by private companies, including importers, exporters and traders, and via official government channels.
“It is really true that Pakistani customs agencies will determine whether Pakistan’s related rules of incorrect use are met,” Singh said.
“This is usually done by some provision of evidence that the importer of the product must provide to meet the requirements that may be found in Pakistani law. Therefore, this is a question of determining whether Pakistani authorities are actually born from third countries or are actually circumventing goods that come from India.”
The current challenge is to determine how Pakistani customs authorities will tackle this turnover through third countries, Singh said.
“It would require them to increase some scrutiny of the products that are in Pakistan.”
Ultimately, this transaction will be difficult to prevent because it meets demand. “This transaction should happen [India and Pakistan] There is a common culture. And there is a great demand for Indian products in Pakistan,” he said. “That demand must be met from somewhere.”
Traders would not want to abandon businesses that offer a higher profit margin than official trade.
“This tactic [banning trade via third countries] It works when traders act honestly and believe that Indian traders understand the message that the Indian government is trying to convey through these measures,” Singh said.
“But if traders don’t want to do it, if they want to be uncruel, there’s nothing they can stop,” Dahl said.
Have India and Pakistan kept trade modest before?
yes.
The 1965 Indo-Pakistan War caused significant disruptions in trade and halting economic ties, but the 1966 Tashkent Agreement restored diplomatic and economic ties, allowing trade to gradually resume.
The war in 1971 led to the creation of Bangladesh, further halting relations and trade during the conflict. The 1972 SIMLA Agreement highlighted a peaceful resolution of the conflict and indirectly supported trade normalization. But trade ties have been in seesaws for decades.
The 2019 suicide bombing in Pulwama further strained bilateral trade. After the attack, India slapped 200% import duties on all goods from Pakistan, including fresh fruit, cement and mineral minerals.
Six months later, in August 2019, India unilaterally revoked its semi-automatic status in the Kashmir section.
Pakistan, which never gave India’s MFN status, further downgraded its diplomatic ties with India and suspended trade after the move of Kashmir in New Delhi. Since then, no talks have been held to resume trade with India.
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