New Delhi, Although Pakistan on Wednesday announced it would suspend trade relations with India, the move would have “very minimal” impact on India’s overall trade scenario and its businesses.
Pakistan’s top civil and military leadership decided to expel Indian High Commissioner Ajay Bisaria and suspend bilateral trade with India in the wake of New Delhi’s move to revoke special status for Jammu and Kashmir.
The major reason for the nominal impact of the trade suspension on India’s businesses and economy is that a large part of the trade between the two countries takes place through the informal route, which means that the trade takes place through a third country.
As per a recent report by Indian Council for Research on International Economic Relations (ICRIER), the total exports from India to Pakistan in the financial year 2018-2019 was around $2 billion. But the latest data of informal exports as per the ICRIER report which goes back to 2012-13, was $3.9 billion, nearly twice the current value of formal exports.
Similarly, the informal imports by India from its western neighbour was recorded at $721 million in 2012-13 and the latest formal imports (2018-19), is well short of that level at $494.8 million, showed the report.
Informal trade has continued to increase as the formal route has seen its ups and downs in the recent past. Such module of trade is not included in the national income. Countries sometimes choose informal trade route also to avoid high tariff and trade restrictions.
In the case of two countries, India-UAE-Pakistan is the primary channel for informal trading. In this process, trade is recorded between India and UAE and between Pakistan and UAE, but is not directly recorded between India and Pakistan.
According to the 2012-2013 data, the items primary informally exported from India were jewellery, textiles, machinery and machine parts and electronic appliances among others. On the other hand, India’s informal imports from Pakistan consisted of textiles, dried fruits, spices, carpets among others.
The major items exported by India through the formal route include chemical products and textiles among others, and the formally imported items include mineral products and vegetable items.
Further, we can also see major contrast between the economies of the two countries. As of now the size of India economy has grown to around $2900 billion. On the other hand, the size of Pakistan’s economy is about $273 billion.
Pakistan’s Economic Survey 2018-19, showed that the country’s GDP grew at only 3.3 per cent in the fiscal year 2018-19. On the other hand, India’s GDP grew at 6.8 per cent during the fiscal year 2018-19. However, the Indian economy is still much bigger than Pakistan. The size of Indian economy is $2,900 billion, almost nine times larger than Pakistan.
In terms of foreign exchange reserves, too Pakistan is in dilapidated condition with forex reserves of around $17.4 billion, compared to India $420 billion forex reserve.
Given the situation, it is highly unlikely that the trade suspension between the two countries would in any major way impact India and its businesses. Further, India already has revoked the Most Favoured Nation tag given to Pakistan, which snatches away the trade benefits Pakistan used to get.