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Friday, April 16, 2021

Why was Pakistan forced to resume trade with India?

Trade between Pakistan and India has always been closely linked to the political relations of the two countries. And they have always had a very tumultuous and intense relation.

Pakistan’s Economic Coordination Committee (ECC) has allowed the import of cotton and yarn from India, after nearly banning it for two years. The ECC meeting was still ongoing, and a debate was continuing on whether the import of sugar should also be allowed, as per reports. This brings us to the major question — why was Pakistan forced to resume trade with India?

Before the ban

Trade between Pakistan and India has always been closely linked to the political relations of the two countries. And they have always had a very tumultuous and intense relation.

Let us take an example. Indian exports to its neighbour fell around 16 per cent to $1.82 billion in the financial year 2016-17 from $2.17 billion in the previous financial year. This happened at the same time when the relation between the two countries grew tense after the terrorist attacks in Uri in 2016, which were followed by surgical strikes by India which were then celebrated by the entire nation. But it cost us dearly.

Trade improved between the two nations a little over the next few years despite continuing spurts of tense scenarios. Pakistan’s imports from India rose by almost 6 per cent and stood at $1.92 billion in 2017-18. It kept increasing and hit $2.07 billion the very next financial year — 2018-19.

India’s imports from its neighbour Pakistan stood at $494.87 million in 2018-19 after a one per cent hike from the previous year’s trade. But political relations between the two nations deteriorated in 2019 and the trade too went down.

Why was trade between India and Pakistan banned?

Pakistan decided to stop bilateral trade with India in August 2019 after the Modi government in India decided to scrap Article 370 of the Constitution. Article 370 gave a special status to the state of Jammu and Kashmir and also gave it a certain amount of autonomy. The Imran Khan-led Pakistan government called it an “illegal” move and stopped trade as a way to make its disapproval known.

But what was the real reason? Some experts are of the opinion that they stopped trade because India had decided to impose a humungous 200 per cent tariff on their imports. India took this decision after the suicide bomb attack on the CRPF in Pulwama. It also revoked the Most Favourable Nation status.

These were one of the most significant moves made by both nations in a while which soured the relation between them even more.

Trade between the two countries worsened over the 2019-20 period — India’s exports to Pakistan went down by almost 60.5 per cent and stood at $816.62 million. Imports too went down by a whopping 97 per cent to stand at $13.97 million.

Why was Pakistan forced to resume trade with India now?

Pakistan is in a fix because its textile industry is suffering from a shortfall of raw materials. Their domestic production of cotton has been considerably low which pushed them to open trade relations now. On top of that, the imports from other countries — the United States and Brazil — were more expensive and it obviously took more time to reach them. “Following an increase in the price of sugar, we allowed imports from across the world but the prices around the world are also high, which means imports aren’t possible. In our neighbouring country India, the price of sugar is lower than the price in Pakistan,” Pakistan’s finance minister Hammad Azhar said and added, “So we have decided to allow trading in sugar with India, [with imports of] up to 500,000 tonnes by the private sector.”

“A meeting was held with the Prime Minister escalating prices of cotton yarn were discussed,” tweeted the Adviser to the Prime Minister of Pakistan for Commerce and Investment, Abdul Razak Dawood, on March 29. He also said that Imran Khan, Pakistan’s Prime Minister, who has always been known to be sympathetic towards the sector, had said that “all steps be taken through cross-border imports of cotton yarn, including by land” so that the pressure on the sector is reduced and the “momentum of value-added exports” is maintained.

“Today, on a proposal from the commerce ministry, the ECC decided that we will open imports [of cotton] from India till the end of June,” said Azhar. “If the burden on the ordinary man is reduced by trading with some country, there is no loss in it.”
Cotton has always featured as one of Pakistan’s imports from India. In the fiscal year 2018-19, Pakistan imported as much as $550.33 million worth of cotton from its neighbour. This when counted together with $457.75 million worth of organic chemicals it accounted for at least half of its total imports from India. In the next fiscal year, India’s cotton exports to Pakistan drastically dropped to as much as $64.25 million due to the aforementioned reasons.

Talking about sugar, experts said that both nations have been dependant on each other when it came to agricultural produces like these. The trade statistics of Pakistan say that the country spent $126.99 million on such imports in 2020-21. There was a potential shortage of domestic supply. The trade statistics also indicate that Pakistan imported 278,733 metric tonnes of sugar between July-February 2020-21. This is a humungous spike of 6,296 per cent from 4,358 metric tonnes imported in the same duration in the previous year — 2019-20. “The import bill this year also increased because we had to import wheat and sugar to stabilise the market prices,” said Dawood in a tweet on March 2, 2021, while talking about the country’s provisional trade data. “There has been a sugar dependence between the two countries forever. Typically, what happens is, (because) they also produce sugar and we also produce sugar, whenever they have a shortage, we have supplied their requirement and vice versa,” Dr Nisha Taneja, Indian Council for Research on International Economic Relations, told the Indian Express recently. “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.

Cotton and sugar became the second and third commodities after medicine and related raw materials which were allowed for export from India to Pakistan in recent times.

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