India and Pakistan announced a number of diplomatic measures against one another, including suspending cross-border trade and imposing visa suspensions, in the days after at least 26 people were killed last week in the picturesque tourist resort of Pahalgam in India-administered Kashmir.
New Delhi accused Islamabad of involvement in the April 22 attack, suspended India’s participation in an Indus River water-sharing agreement that ensures Pakistan’s water supply and trimmed down diplomatic missions.
Islamabad has called for a fair investigation into the attack, denied the accusations made by India, and said it will suspend all trade with India, including through third countries, among other retaliatory measures. Since 2019, trade between India and Pakistan has been suspended.
Both countries have also closed the Wagah-Attari crossing, the main land border between India and Pakistan.
However, experts claim that billions of dollars of secret, backdoor trading continues despite official figures indicating little trade between the neighboring nations.
What is the actual volume of trade between these rivals, then? And will the suspension of trade and closure of the land border truly impact trading still taking place between the two countries?
Have India and Pakistan previously engaged in free trade?
Yes . Trade between India and Pakistan began after the two countries were created out of British India in 1947 through partition.
When New Delhi granted Islamabad the “most favoured nation” (MFN) designation in 1996, a World Trade Organization rule that guarantees a nation treats all of its trading partners equally with respect to tariffs and trade concessions, trading volumes increased.
However, trade between the nuclear-armed neighbors never fully grew due to wider bilateral tensions. At least officially.
Trade between India and Pakistan totaled $ 2.41 billion in the fiscal year 2017-2018, up from $ 2.27 billion in 2016-2017. India imported $ 488.5 million worth of goods from Pakistan, and it exported $ 1.92 billion worth of goods.
But in 2019, India revoked Pakistan’s MFN status after a suicide bombing in Pulwama in India-administered Kashmir killed at least 40 Indian paramilitary personnel.
Bilateral trade decreased from $ 2.41 billion to $ 1.2 billion between 2018 and 2024. Pakistani exports to India decreased from $ 547.5 million in 2019 to $ 480.000 in 2024.
How much and what do India and Pakistan officially trade now?
Exports to Pakistan by India’s Ministry of Commerce totaled $447.7 million between April 2024 and January 2025. Just $420, 000 was exported to India during the same time period.
India’s exports include pharmaceuticals, petroleum, plastic, rubber, organic chemicals, dyes, vegetables, spices, coffee, tea, dairy products and cereals.
Copper, glassware, organic chemicals, sulphur, fruits and nuts, and some oilseeds are the main exports of Pakistan.
The immediate effects of the current trade ban, according to Shantanu Singh, an international trade lawyer based in India, will be felt in Pakistan’s pharmaceutical sector: pharmaceutical products are Islamabad’s main imports from India.
He also noted that the closure of the Wagah-Attari Integrated Check Post (ICP), which was the only land port through which trade was permitted between India and Pakistan, will increase the cost of trade.
“Land ports typically lower costs and ease of transportation, but with the closure of this land port, you would see a rise in costs of any kind of trade. Because Afghanistan’s imports used this land route, it will also negatively impact trade. The local economy built around the ICP is also likely to be affected”, Singh added.
Is there more real trade between Pakistan and India?
Indian exports to Pakistan are estimated to be worth $447.65 million, but actual trade volume is thought to be much higher as traders trade goods through third countries to avoid scrutiny and command higher prices when they are relabelled, according to official figures.
Unofficial Indian exports to Pakistan are in fact believed to stand at $10bn a year, according to the India-based think tank Global Trade Research Initiative (GTRI).
What is the operation of this unofficial trade?
GTRI claimed that finding alternative routes through Singapore’s and Dubai’s ports has helped to accomplish this.
Explaining how the system works in a LinkedIn post, GTRI founder Ajay Srivastava said: “Indian goods are sent to Dubai, Singapore, and Colombo. The goods are then transported via transit hubs to bonded warehouses. The labels and documents are changed while they are still duty-free in storage. The products are re-exported to Pakistan under a new ‘ country of origin ‘ – say, UAE instead of India”.
Srivastava added that while illegal trade can sometimes be found, “this grey-zone strategy highlights how trade can change more quickly than policy.”
He continued, noting that commerce continues despite the formal trade restrictions that led to better prices even after re-export markups and maintains plausible deniability.
Does this sort of trade happen elsewhere?
Yes . According to experts in foreign trade, it is common to reroute goods by transporting them to locations where they are later transferred to other ships to avoid restrictions on international trade.
India, for instance, has been a location for such practices since Russia’s invasion of Ukraine, said Jayati Ghosh, economics professor at the University of Massachusetts Amherst. To avoid sanctions, Ghosh claimed, they reroute fuel from Russia to European nations like Germany.
India has surpassed the Ukraine’s invasion in volume, importing 1.75 million barrels of Russian crude oil on average every day in 2023, a 140% increase over the same period in 2022. Russian oil accounted for about 40 percent of India’s total crude imports in 2024, up from just 2 percent in 2021.
According to trade expert Biswajit Dhar, China has been facilitating trade between India and India for decades by connecting goods to them via the Association of Southeast Asian Nations, which includes Laos, Brunei, Malaysia, Thailand, Vietnam, Cambodia, Laos, Brunei, Malaysia, the Philippines, and Myanmar.
Higher tariffs are imposed on Chinese exports to India if they are exported directly. With ASEAN, India has a retail agreement”, Dhar said. Businesses will make every effort to satisfy a demand, no matter where it is located.
Will Pakistan and India continue to trade informally?
Since the Kashmir attack, government officials in India have been collating data on indirect exports to Pakistan and are reportedly lobbying to curb the practice. Due to Pakistan’s most recent trade ban against India, trading with third countries is also prohibited. This implies that Pakistani authorities are also aware of this informal trade.
However, preventing it may be challenging because, according to Singh, rerouting and relabeling goods in third countries are performed by private companies, including importers, exporters, and traders, rather than through official government channels.
“It is really for the customs agencies in Pakistan to determine whether the relevant nonpreferential rules of origin, if any, in Pakistan are met”, Singh said.
“This is typically accomplished by providing some kind of proof that the product importer must supply in order to fulfill the requirements that may be contained in Pakistan’s laws.” Therefore, Pakistan’s authorities must determine whether the good is actually from India or whether it is actually a circumvented good.
The challenge now is for customs authorities in Pakistan to determine how to tackle this circumvention through third countries, Singh said.
That would require them to bolster the scrutiny of goods entering Pakistan in some ways.
Because of the high demand, it will ultimately be difficult to stop this trade. “This trade is bound to happen because]India and Pakistan] have common cultures. And in Pakistan, he claimed, there is a sizable demand for Indian goods. “That demand must be met somewhere,” he says.
Traders are unlikely to want to relinquish a business that provides higher profit margins than official trade.
When we believe that the traders will act honestly and that the Indian traders will understand what the government of India is trying to say through these measures, Singh said, “This tactic] works.”
There is nothing that can be stopped, Dhar said, but if the traders don’t want to do that or if they want to be unscrupulous, they can’t.
Have India and Pakistan sparred over trade before?
Yes.
Trade was severely impacted by the Indo-Pakistani War of 1965, which caused economic ties to be suspended, but the Tashkent Agreement in 1966 restored diplomatic and economic ties, allowing trade to gradually resume.
Trade slowed down as a result of the conflict’s resolution in the 1971 war, which further strained relations and caused trade to end. The Simla Agreement in 1972 emphasised peaceful resolution of disputes, indirectly supporting trade normalisation. However, decades of watchful eye have been keeping trade ties.
The Pulwama suicide bombing of 2019 further strained bilateral trade. After the attack, India slapped an import duty of 200 percent on all goods from Pakistan, including fresh fruit, cement and mineral ore.
Six months later, in August 2019, India unilaterally reorganized the former state into two federally governed regions by robbing the region of Kashmir of its semi-autonomous status.
