Partially reversing a two-year-old decision to suspend all trade with India, Pakistan recently announced that it would allow the import of cotton and sugar from across the border.

Ever wonder why the neighbour next door suddenly wants to normalize all ties? Read this edition of ours:

India-Pakistan trade relations

• Trade between the subcontinental neighbours has always been linked to their political interactions, given their tumultuous relationship.
• For instance, India’s exports to Pakistan dropped by around 16 per cent to $1.82 billion in the 2016-17 financial years from $2.17 billion in 2015-16.
• This coincided with the rise in tensions between the two countries following the terrorist attacks in Uri in 2016 and the surgical strikes by India against Pakistan-based militants.

How much is the volume of trade?

• Trade between the two countries grew marginally in subsequent years despite continuing tensions.
• India’s exports to Pakistan increased to nearly 6 per cent to $1.92 billion in 2017-18, and by around 7 per cent to $2.07 billion in 2018-19.
• Imports from Pakistan, though much lower than India’s exports to the country, also increased by 7.5 per cent to $488.56 million in 2017-18 from $454.49 million in 2016-17.
• Growth of imports from Pakistan slowed to around $494.87 million in 2018-19 — an increase of around 1 per cent — before political relations between the two countries took a turn for the worse in 2019.

Why did Pakistan ban trade with India?

• Pakistan’s decision to suspend bilateral trade with India in August 2019 was primarily a fallout of India’s decision to scrap Article 370.
• Pakistan called the move “illegal”, and took this trade measure as a way of showing its dissatisfaction.
• However, an underlying reason for suspending trade between the two countries was also the 200 per cent tariff imposed by New Delhi on Pakistani imports.
• This was a move that India implemented earlier that year after revoking its status as a Most Favoured Nation following the suicide bomb attack on the CRPF in Pulwama.
• Pakistan’s announcement, coupled with India’s decision to revoke its MFN status and hike duties on its goods, was considered by some experts to be one of the most drastic measures ever taken in diplomatic tensions.

Why is Pakistan allowing cotton and sugar import now?

• Textiles from Pakistan are its value-added export.
• The proposal to lift the ban on cotton imports came in the backdrop of a shortfall in raw material for Pakistan’s textile sector, which has reportedly been facing issues due to a low domestic yield of cotton in the country.
• On top of this, imports from other countries like the US and Brazil have reportedly been more expensive and takes longer to arrive in the country.

Why only these two commodities?

• Even when we had a very small positive list (of goods for trade with Pakistan), agricultural commodities were always there in the list.
• Cotton has been one of Pakistan’s major imports from India. In 2018-19, Pakistan imported $550.33 million worth of cotton from India.
• When coupled with $457.75 million worth of organic chemicals, these products made up around half of its total imports from India.
• Where sugar is concerned, trade experts feel it is a result of a long-standing interdependence between India and Pakistan over such agricultural commodities and a potential shortage in domestic supply.
• If finally approved, cotton and sugar would be the second and third commodities allowed for export from India after Islamabad lifted the ban on medicine and related raw material imports during the Covid-19 pandemic.

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