On 17th May, Pakistan’s Foreign Minister Ishaq Dar acknowledged that the trade ties with India went south after the Pulwama terrorist attack on 14th February 2019 in which India lost 40 brave soldiers. Following the attack, India took some immediate steps to reduce trade with the hostile neighbour including the imposition of 200% import duty.
Firstly, India announced that Pakistan was no longer on the list of ‘Most Favoured Nations’ or MFN. Secondly, India immediately imposed a 200% import duty on all products coming from Pakistan. The neighbouring country’s track record in supporting terror activities in India resulted in a massive economic blowback.
The air strike came much after these initial steps to break Pakistan’s morale economically. Following the decision, then-Finance Minister Late Arun Jaitley wrote on X (then-Twitter), “India has withdrawn MFN status to Pakistan after the Pulwama incident. Upon withdrawal, basic customs duty on all goods exported from Pakistan to India has been raised to 200% with immediate effect.”
India has withdrawn MFN status to Pakistan after the Pulwama incident. Upon withdrawal, basic customs duty on all goods exported from Pakistan to India has been raised to 200% with immediate effect. #Pulwama
— Arun Jaitley (@arunjaitley) February 16, 2019
Pakistani minister’s acknowledgment of trade decline with India after 200% duty hike
The statement by the Pakistani minister came in response to a question asked by Sharmila Sahiba Faruqui Hashaam had asked the minister to provide details of the challenges faced by Pakistan to improve relations with neighbouring countries.
Speaking on India, Dar claimed that Pakistan desired to have cooperative relations with India and advocated constructive engagement and result-oriented dialogue to resolve the outstanding issues. During his statement, the minister whined about Jammu and Kashmir while calling it a “disputed region”. Dar claimed that India’s hostilities and retrogressive actions have created an environment that is not suitable for prospects of peace and cooperation.
Dar claimed the abrogation of Article 370 was illegal and said India indulges in human rights violations in Kashmir. He then said that in the aftermath of the Pulwama attack in February 2019, India imposed a 200% duty on exports from Pakistan, and suspended the Kashmir bus service and trade across the Line of Control. Dar further claimed the allegations against it of being involved in terror activities were baseless even though there is ample proof that Pakistan not only supports terror activities in India but also trains and funds terrorists.
Economic Impact on Pakistan
The 200% import duty imposed by India has severely hampered Pakistan’s ability to export goods to India, which used to be one of its key markets. The sharp decline in its export revenue, particularly from textiles and agricultural products, has affected its ability to have a sustainable economy. “The suspension of trade ties with India due to the heavy duties imposed has critically affected our exports,” said Dar. His statement underscored the effectiveness of India’s economic measures against its adversary. In March this year, Dar highlighted that Pakistani business community wants to resume trade with India but stated there were no plans to resume trade relations with India. According to data available with the Ministry of Commerce and Industry, India imported goods worth USD 450 million+ from Pakistan between fiscal years 2016-17 and 2018-19. Following the imposition of 200% duty, its dropped to USD 14 million in 2019-20 followed by USD 2 million in 2020-21, USD 3 million in 2021-22, USD 20 million in 2022-23 and USD 3 million in the fiscal year 2023-24. On the other hand, exports dropped exponentially but were much higher compared to imports.
Reliance on IMF Bailouts
As Pakistan has been unable to cope with the economic fallout, it has had to turn to the International Monetary Fund (IMF) for financial support multiple times. In return, the IMF has forced the neighbouring country to end subsidies, and increase fuel prices and electricity prices across the nation. The economic situation of the neighbouring country has plumped to a level that its ministers started to pat their back in case a loan from an international entity got approved making them a laughingstock on international platforms.
India’s justified stance
While there are some elements in India including Congress or NC leaders such as Mani Shankar Iyer and Farooq Abdullah who want “normalised” relationships with Pakistan, the actions taken by India against Pakistan are justified and necessary to counter its continued hostility and support for terrorism. The economic pressure imposed by India is a clear message that any form of aggression will be met with strong and effective retaliation. By targeting Pakistan’s economy, India has been able to weaken its adversary’s ability to fund and support terrorist activities.
Notably, Pakistan has repeatedly said that “normalised” relations with India are not possible till Prime Minister Narendra Modi or the BJP is in power. Recently, the former Pakistani minister extended his support for Congress leader Rahul Gandhi amidst the ongoing Lok Sabha Elections 2024.
Future implications
As PM Modi is expected to come back to power, the trade between India and Pakistan looks like an impossible dream that Pakistanis and some pro-Pakistani elements in India see. The economic condition of Pakistan is expected to deteriorate further in coming years which will make it next to impossible to stand against India on several fronts. Any talks with Pakistan should not be considered unless Pakistan stops funding terror activities and leaves the topic of Jammu and Kashmir forever. As these two seem impossible, the resulting economic turmoil in Pakistan serves as a testament to the effectiveness of India’s policies and its commitment to protecting its national security.