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Pakistan takes a step forward in improving bilateral trade ties with India

Pakistan agreed has recently lifted its almost two-year-old ban on imports of cotton and sugar from India.

What was the trade between India and Pakistan before prohibition?

Because of their turbulent relationship between India and Pakistan, their neighbourhood commerce was often connected to a policy. Indeed, exports of India to Pakistan dropped from $2.17 billion in 2015-2016 to $1.82 billion in 2016-2017, around 16 per cent. This happened due to the worsening of bilateral relations after the jihadist Uri attack and the Indian army surgical strikes in Pakistan’s occupied Cashmere military pads in 2016.

Despite constant tensions, trading between the two countries has risen slightly in years, with Indian exports increasing by almost 6 per cent to 1,92 billion dollars in 2017-18 and almost 7 per cent to 2,07 billion dollars in 2018-19. Imports from Pakistan have risen by 7.5 per cent from 454.49 million dollars in 2016-2017 to 488.56 million dollars in 2017–16, albeit much less in value. Imports growth from Pakistan in 2018-19 slowed down to around $494.87 million — an expansion of about 1% — until a deep freeze in 2019.

What are the major traded goods between the two countries?

India has had a trade surplus with Pakistan for several years, with far fewer imports than exports. In 2018-19, Pakistan was among India’s top 50 trading partners, but in 2019-20, it was dropped from the list. A trade ban between the two countries was expected to have a greater impact on Pakistan, which depended heavily on India for key raw materials for its textile and pharmaceutical industries.

Cotton export from India for $550.33 million and organic chemicals for $457.75 million accounted for approximately half of Pakistan’s imports from India in the 2018-19 fiscal year. Plastic ($131.19 million), tanning or dyeing extracts ($114.48 million), and nuclear reactors, boilers, machinery, and electronic machines ($94.88 million) were among the other significant Pakistani imports from India during the same period.

Imports of these five goods dropped dramatically from $1 million to $2 million after the suspension between April 2020 and January 2021, while cotton imports ceased entirely. The only rise has been in pharmaceutical products: Pakistan has imported $67.26 million in prescription products and over $115 million in organic chemicals so far to ensure enough medication supply during the Covid-19 pandemic.

Mineral fuels and oils for $131.29 million, edible nuts and fruits for $103.27 million, salt, sulphur, stone and plastering products ($92.84 million), ores, slag and ash ($17.18 million), and raw hides and leather ($16.27 million) were India’s top imports from Pakistan in 2018-19.

These goods were transported in much greater quantities from other countries: $25.51 billion in natural fuels and oils from Saudi Arabia; $840.80 million in edible fruits and nuts from the United States; $566.52 million in salt, sulphur, and plastering materials from the United Arab Emirates; $862.00 million in crores, slag, and ash from Chile; and $83.36 million in raw hides, skin, and leather from Italy.

Why did Pakistan suspend trade ties with India?

Pakistan’s decision in August 2019 to suspend bilateral trade with India was a failure of the Jammu and Kashmir constitutional amendments that Pakistan has called “illegal.” However, the 200% tariff levied on Pakistani exports by New Delhi the year after the Indian revocation of Pakistan’s Most Favored Nation (MFN) after the Pulwama terrorist attack was an underlying cause for the suspension of commerce.

Trade between the two countries suffered considerably: India’s exports to Pakistan fell by almost 60.5 per cent to 816.62 million dollars and its imports collapsed 97 per cent to 13.97 million dollars in 2019-20.

Why did Pakistan lift the ban now?

Pakistan’s decision to lift the ban on imports of cotton is at the back of Pakistan’s textile sector’s raw material shortage, which reportedly was hit by low domestic cotton yields. Furthermore, imports from countries such as the United States of America (USA) and Brazil are more costly and take longer.

On March 29, Abdul Razak Dawood, the Pakistani Prime Minister’s commerce and investment adviser, tweeted that escalating cotton yarn prices were addressed. A meeting with Prime Minister Imran Khan was arranged.

Strong domestic prices dictated the decision on sugar. In the same duration in 2019-28, Pakistani sugar imports zoomed into 278,733 metric tons in July 2020-February 2021 from 4,358 metric tons. Following a meeting of Pakistan’s Economic Coordination Committee (ECC), Finance Minister Hammad Azhar declared that sugar imports from India would be permitted because the commodity’s price was lower in India than in Pakistan.

Sugar has always been a source of dependency between the two nations. According to Prof Nisha Taneja of the Indian Council for Research on International Economic Relations (ICRIER), an authority on India’s regional trade, both India and Pakistan grow and produce sugar, so, whenever Pakistan has a shortfall, India has supplied their requirement and vice versa.

What is going on now?

With the decision to partially reverse the two-year old decision by allowing imports of cotton and sugar from India, Pakistan made a historic leap in the bilateral ties of the two nations. It was followed by a ceasefire on the Line of Control (LoC) announced in February, and is seen as a part of a bigger set of moves to de-freeze and strengthen the base for a larger dialogue process.

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