A recent editorial in a Pakistani daily posited that the country appears to have shut any doors to trade with neighboring India—largely to its own detriment. Globally, historical rivals continue to engage economically with each other, unlike Pakistan and India, with the ultimate aim of eventually resolving longstanding disputes after establishing “normal” ties. What makes the so-called trade freeze even more bizarre is that both states continue to trade in minimal amounts; though rarely in sectors such as food, which could have played a role in reducing crippling inflation.
According to the most recently available data, India exported $535 million worth of goods to Pakistan in 2021—vaccines blood, antisera, toxins and cultures ($172 million); raw sugar ($119 million); and nitrogen heterocyclic compounds ($46.8 million). Historically, Indian exports to Pakistan have increased by 7.76 percent annually, going from $76.5 million in 1995 to $535 million in 2021, compared to Pakistan’s exports declining by 10.9% in the same period, from $42.5 million to $2.08 million.
Taking cognizance of this trade deficit, the Pakistan Business Council (PBC) has repeatedly recommended reopening formal trade between the two states, advocating a trade route for India through Pakistan to Afghanistan and Central Asia. But despite being the strongest proponent of a normalized trade regime between Pakistan and India, the PBC also acknowledges that Pakistani firms require a “level playing-field in India,” highlighting the fears that persist in Islamabad.
Thanks in large part to its larger size and more formalized economy, trade between Pakistan and India has traditionally favored Delhi. In 2003, Pakistan’s exports to India stood at $84 million, while India’s to Pakistan were $226 million; by 2015, these figures had increased to $312 million and $1,669 million, respectively, suggesting a significant lack of a “level playing field” essential for balanced bilateral trade.
Running a perpetual trade deficit with India will not serve Pakistan but it cannot be used as a pretext to curtail further trade. An example is that of trade between Bangladesh and India, which saw the former reporting a deficit of $14 billion with the latter in 2021-22. This is unsustainable, but does not mean that there should be no trade with neighbors.