Pakistan suspends trade ties with India, makes no dent on India

Pakistan suspends trade ties with India, makes no dent on India: Pakistan decided to demote bilateral trade and diplomatic ties with India on Wednesday, leading worsening the relations between India and Pakistan. The decision was taken at a high-level meeting which was chaired by Pakistan Prime Minister Imran Khan in response to the Narendra Modi government’s revocation of Article 370 in Jammu and Kashmir.

India on Monday eliminated Article 370 of the Constitution that gave special status to Jammu and Kashmir and divided the state into two Union Territories that is Jammu and Kashmir, and Ladakh.

Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai said, “The suspension of trade relations will hit Pakistan more badly as India is less dependent on Pakistan while the latter is more,”

As per to Pakistan, India has violated United Nations’ resolutions on Kashmir and upped the stake to raise the matter at several international forums, which also comprises of the United Nations and the Organisation for Islamic Cooperation.

While declaring dropping of diplomatic relations as well as suspension of bilateral trade, Pakistan also make an objection to India’s decision of dividing the former state of Jammu and Kashmir into two Union Territories.

But, if we took a look at their decision, it’s only going to hurt Pakistan’s collapsing economy. The reason behind is very logical and simple as Pakistan is way down in the list of India’s trade partners, i.e., 48. Contrary to that, India is ranked 6th in the list of its key importing partner nations according to Pakistan’s ecomonic survey FY19.

Trade relations between India and Pakistan are already tense after the Pulwama terror attack which was held in February, after which India imposed 200 per cent customs duty on all goods imported from the neighbouring nation.

Taking a look to India’s exports to Pakistan, it stood at $2 billion, imports were around $500 million each year. Imports from Pakistan also dropped by 92 per cent to $2.84 million in March this year as compared to $34.61 million in March 2018, as per to the commerce ministry data.

From Pakistan, India imported goods like cotton, fresh fruits, cement, petroleum products as well as mineral ore. For the duration of April-June this fiscal, imports stood at to $7.13 million.

India’s exports to Pakistan too have immersed by around 32 per cent to $171.34 million in the month of March. On the other hand, exports had raised by 7.4 per cent to $2 billion for the period of 2018-19.

Together with the US and China, nations such as UAE, Saudi Arabia, Hong Kong, Singapore, Iraq, Germany, South Korea, and Indonesia have also accounted for 49.62 per cent of India’s trade, which is 45.47 per cent exports as well as 52.29 per cent imports.

In spite of rising diplomatic tensions in the middle of India and Pakistan, the rate of export progress has been positive in the past four years. Talking about imports, it too rose by 3.05 per cent ($0.45 billion) in FY17; 7.5 per cent ($0.49 billion) in FY 18; and 1.29 per cent ($0.495 billion) in FY 19.

As per to the database of World Bank on global trade, in the year 2017 India’s GDP stood at $2,600,818 million with a per capita income of $1,800. While Pakistan’s GDP on the other hand was $304,952 million (i.e. 752 per cent lower than India) and it’s per capita income was $1,580.

Well, if we talk about past, the situation was different as Pakistan had been outclassing India in the first three decades after independence in economic growth. A 2019 World Bank policy note states, “In the 1950s and 1960s, India’s growth hovered around 2-3 per cent annually while Pakistan grew at around 5-6 per cent, with a per capita income significantly higher than India’s,”

But just three decades later in 1970s, India was able to improve its growth rate, while Pakistan’s growth steadily petered, mainly because of its internal political instability.

The World Bank states in a policy note also states, “Pakistan’s share of exports to India has been less than two per cent of its total exports, and for India, imports from Pakistan are not even 0.5 per cent of its total imports. This situation is in contrast to the initial trade relationship at independence, under which 70 per cent of Pakistan’s exports were directed to India and 63 per cent of Indian exports went to Pakistan,”

But now, Pakistan’s foreign reserves stand at just $7.76 billion, which is even lower than Bangladesh’s forex reserves which worth $32 billion. Pakistan’s GDP estimate has also been reviewed descending to 4 per cent. In June 2019, Pakistan’s inflation stood at 8.9 per cent.

It’s seems to be like that India is not going to get much effected by Pakistan’s decision. However, Pakistan might face some issues regarding their own decision. In the meantime, India remains unfazed as Pakistan demoted ties on Wednesday.