May 16, 2021

Aone Punjabi

Nidar, Nipakh, Nawi Soch

Why Pakistan is lifting its ban on Indian imports?

4 min read

India-Pakistan trade before ban

The trade between India-Pakistan has always been linked to politics with their clamorous relationships.

India’s exports to Pakistan fell down around16 per cent to $1.82 billion in 2016-17 from $2.17 billion in 2015-16 when the relation became noisy after the Uri terror attack and the Indian Army’s surgical strikes on militants launchpads in Pakistan-occupied Kashmir in 2016.

Despite these continuous tensions, trade between the two countries grew marginally in next years; Indian exports increased nearly 6 per cent to $1.92 billion in 2017-18, and then by around 7 per cent to $2.07 billion in 2018-19. Imports from Pakistan were also increased but in low volume by 7.5 per cent to $488.56 million in 2017-18 from $454.49 million in 2016-17.

In 2018-19, the growth of imports from Pakistan slowed to around $494.87 million when political relations entered a freeze zone in 2019.

Major products traded

Over the years, India has had a trade surplus with Pakistan, with much less imports than exports. Pakistan was among India’s top 50 trade partners in 2018-19, but was pushed out of the list in 2019-20.

It had been anticipated that Pakistan would be affected by trade ban with India and it came true as Pakistan always relied on India for key raw materials for its textiles and pharmaceuticals industries.

In 2018-19, Pakistan imported cotton, organic chemicals, plastic, tanning/dyeing extracts and nuclear reactors, boilers, machinery, and mechanical appliances.

After the ban, imports of these five products fell drastically to $1 million to $2 million between April 2020 and January 2021, while cotton imports stopped altogether.

The only trade in pharmaceutical products has been increased. Pakistan has imported drug products and  organic chemicals to ensure sufficient supplies of medicines during the Covid-19 pandemic.

In 2018-19, India imported mineral fuels and oils, edible fruits and nuts, salt, sulphur, stone and plastering materials, ores, slag and ash and raw hides and leather.

The country imported these products in higher volumes from other countries like- Saudi Arabia, US, UAE, Chile, and Italy.

Pakistan’s trade ban

Pakistan made decision to suspend bilateral trade with India in August 2019 after India made constitutional changes in Jammu and Kashmir, which Pakistan said were “illegal”. However, a primary reason for suspending trade was the 200 per cent tariff imposed by New Delhi on Pakistani imports. And India also revoked Pakistan’s Most Favoured Nation (MFN) status after the Pulwama terror attack.

Trade between the two countries suffered greatly – India’s exports to Pakistan dropped nearly 60.5 per cent to $816.62 million, and its imports plummeting 97 per cent to $13.97 million in 2019-20.

Why the change

The Pakistan decided to lift the ban on cotton because of shortage in raw material for Pakistan’s textile sector, which has reportedly suffered due to low domestic yields of cotton. Also, imports from countries like the US and Brazil are costlier and take longer to arrive.

“A meeting was held with the Prime Minister @ImranKhanPTI escalating prices of cotton yarn were discussed,” Abdul Razak Dawood, commerce and investment adviser to the Pakistani Prime Minister, tweeted on March 29.

The decision on sugar was dictated by high domestic prices. Pakistani sugar imports in the period July 2020-February 2021 zoomed to 278,733 metric tonnes from 4,358 metric tonnes in the same period in 2019-20. The increase in imports of the commodity was a measure “to stabilize the market prices”, Dawood said in a tweet on March 2.

Following the meeting of the country’s Economic Coordination Committee (ECC) on Wednesday, Pakistan’s Finance Minister Hammad Azhar said sugar imports would be allowed from India, as the price of the commodity was lower in India than in Pakistan.

“There has been sugar dependence between the two countries forever. Typically, what happens is, (because) they (Pakistan) produce sugar and we (India) also produce sugar, whenever they have a shortage, we have supplied their requirement and vice versa,” said Prof Nisha Taneja of the Indian Council for Research on International Economic Relations (ICRIER), an expert on India’s regional trade.

“Even when we had a very small positive list (of goods for trade with Pakistan), agricultural commodities were always there in the list,” she said.

What happens now

Several experts expect Wednesday’s decisions to re-open the door for trade between India and Pakistan. This might be a good time for India to explore a reduction in its 200 per cent import duties on products that its industries can benefit from, Prof Taneja said.

“We have not reduced duties on anything…at 200 per cent duty, everything becomes unviable,” she said.

“I think the (Indian) industry would play a very important role in this. It is for the industry to say this is what we need and this is where duties can be brought down.” PTI

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