The report titled “The Republic of India & the Potential for Pakistan-India Bilateral Trade” is part of the Market Access Series 2024 published by the Pakistan Business Council (PBC).
India is one of the biggest countries in the world both geographically and economically; it had the second largest population, second largest workforce, and the fifth largest GDP in the world in 2022. India’s trade has grown at a fast pace in the past decade (2013-2022): Indian exports grew by US$ 116.1 billion while imports increased by US$ 266.6 billion and the trade deficit rose by US$ 150.5 billion. Further, India’s exports had a positive CAGR of 3.0% from 2013 to 2022 whereas, its import CAGR was 4.6% in the same period.
The USA was India’s largest export partner, its share in India’s total exports in 2022 was 17.7%, the second largest export partner was the United Arab Emirates which had a share of 6.9% in India’s total exports.
In 2022, India’s largest import source was China with a 14.0% share in total imports followed by the United Arab Emirates with a 7.4% share. Other major import sources in 2022 were the USA, Saudi Arabia, the Russian Federation and Iraq.
The figure below shows India’s exports, imports and trade balance for the past 10 years.
Figure 1 India’s Balance of Trade (2013-2022)
Source: Data Sourced from ITC Trade Map
India’s services trade was 40.6% of its total goods and services trade in 2022. India’s total exports in services at BPM6 accounted for US$ 309.4 billion whereas total imports in the services sector were worth US$ 249.5 billion. Indian services trade has been in surplus for the past ten years, and the surplus was US$ 59.9 billion in 2022.
Pakistan, India bilateral trade has always been limited for various reasons, in the 2014 to 2018 period which was the last period during which both sides had a somewhat “normalized” trading relationship – though with restrictions, has been used to study trends in bilateral trade relations. In 2018, India’s imports from Pakistan were worth US$ 549.3 million, and its exports to Pakistan were US$ 2,351.3 million.
The figure below shows India & Pakistan bilateral trade statistics reported by India from 2013 to 2022.
Figure 2 Pakistan-India Bilateral Trade (2013-2022)
Source: Data Sourced from ITC Trade Map
Based on 2022 trade data, Pakistan had its highest export potential with India in textile products (HS-50**** to HS-63****), with the potential for the top 10 products in this category estimated to be around US$ 0.8 billion. This was followed by mineral products including mineral fuels (HS-25**** to HS-27****), where the potential for the top 10 commodities was estimated to be US$ 0.6 billion. For miscellaneous products (HS-90**** to HS-97****), the top 10 commodities had an export potential estimated at US$ 0.5 billion. In the categories of metals (HS-72**** to HS-83****) and plastics/rubbers (HS-39**** to HS-40****), the potential for the top 10 products in each sector was estimated at US$ 0.4 billion each. Cumulatively, these top five categories possessed an export potential of US$ 2.7 billion for the top 10 commodities shown in the table below.
Table 1 Pakistan’s Export Potential for Top 5 Sectors to India in 2022
| (Value in USD Thousand) | |
| Trade Sectors | Export Potential for Top 10 Commodities, 2022 |
|---|---|
| Textiles (HS-50 to HS-63) | 772,323 |
| Mineral Products (HS-25 to HS-27) | 555,627 |
| Miscellaneous (HS-90 to HS-97) | 552,021 |
| Metals (HS-72 to HS-83) | 424,297 |
| Plastics/ Rubbers (HS-39 to HS-40) | 353,865 |
| Total Export Potential for 5 Categories | 2,658,133 |
| Source: Data Sourced from ITC Trade Map | |
Similarly, India possessed an export potential with Pakistan of US$ 19.5 billion for its top 5 categories, which included mineral products including mineral fuels (HS-25**** to HS-27****); transportation (HS-86**** to HS-89****); textiles (HS-50**** to HS-63****); machinery/electrical products (HS-84**** to HS-85****); and chemical and allied industries (HS-28**** to HS-38****). The export potential for the top 10 commodities in these categories was US$ 12.0 billion, US$ 2.2 billion, US$ 2.0 billion, US$ 1.8 billion, and US$ 1.6 billion, respectively, leading to a total potential of approximately US$19.6 billion, shown in the table below.
Table 2 India’s Export Potential for Top 5 Sectors to Pakistan in 2022
| (Value in USD Thousand) | |
| Trade Sectors | Export Potential for Top 10 Commodities, 2022 |
|---|---|
| Mineral Products (HS-25 to HS-27) | 11,981,060 |
| Transportation (HS-86 to HS-89) | 2,187,453 |
| Textiles (HS-50 to HS-63) | 1,958,986 |
| Machinery/Electrical (HS-84 to HS-85) | 1,781,745 |
| Chemical and Allied Industries (HS-28 to HS-38) | 1,578,642 |
| Total Export Potential for 5 Categories | 19,541,473 |
| Source: Data Sourced from ITC trade Map | |
Using Pakistan’s top 50 global export products data, it was estimated that in 2022, Pakistan possessed an export potential of US$ 2.1 billion. The top three products include “HS-901890, Instruments and appliances used in medical, surgical, or veterinary sciences, n.e.s.”, “HS-270900, Petroleum oils and oils obtained from bituminous minerals, crude”, and “HS-620342, Men’s or boys’ trousers, bib and brace overalls, breeches and shorts, of cotton (excl. knitted …”).
Using Pakistan’s top 50 global import products data, India had an export potential of US$ 20.2 billion. The top three products with the highest trade potential in 2022 were “HS-271012, Light oils and preparations, of petroleum or bituminous minerals which >= 90% by volume “incl. …”, “HS-271019, Medium oils and preparations, of petroleum or bituminous minerals, not containing biodiesel, …”, and “HS-520100, Cotton, neither carded nor combed”.
The following recommendations aim to address economic and logistical barriers while leveraging potential synergies between the two nations.
STEPS FOR NORMALIZING TRADE BETWEEN THE TWO COUNTRIES: Since 2019, trade between the two nations has been badly impacted. In February 2019, India renounced Pakistan’s MFN status and imposed a 200% duty on imports from Pakistan, which drastically reduced Pakistan’s exports to India. Pakistan suspended trade with India after India’s unilateral decision to change Jammu & Kashmir’s status in the constitution in August 2019. The first recommendation is to start talks to revert trade relations back to the 2018 status.
EASE VISA REGIME: The visa regime for travel between the two countries needs to be liberalized, initially for businesspersons from both sides. Restrictions like police reporting, limited number of cities that can be visited during a single entry, port of entry and exit being the same, restrictions on international roaming for sims in each other’s country etc., need to be removed.
REACTIVATE B2B FORUMS LIKE THE PIJBF: In 2012 the governments of Pakistan and India had notified the Pakistan India Joint Business Forum (PIJBF) with nominations of leading businesspersons from both countries to serve on the forum. The basic objective behind the formation of the PIJBF was to provide a platform for businesses on both sides of the border to address the concerns of their counterparts on the other side arising from a liberalized trade regime. The secretariat for the PIJBF was the Confederation of Indian Industry (CII) in India and the Pakistan Business Council (PBC) in Pakistan. Five meetings of the PIJBF were held between 2014 and 2016 at which considerable progress was made on liberalizing trade in agricultural produce, light engineering, textiles etc.
ESTABLISH TRADE FACILITATION MECHANISMS: Pakistan and India need to work on implementing robust trade facilitation mechanisms to streamline trade processes and reduce bureaucratic hurdles. Key steps include simplifying customs procedures and documentation requirements.
Moreover, both India and Pakistan should enhance the functionality of the Attari-Wagah border for trade, establish more land crossings, and create trade corridors with expedited clearance processes to increase trade efficiency. To achieve this, both countries need to invest in trade infrastructure, including ensuring cheaper cargo and freight services, expanding rail and road links, and developing mechanisms to facilitate dispute resolution.
PROMOTE CROSS-BORDER INVESTMENTS: Pakistan and India need to encourage cross-border investments to build stronger economic ties and mutual dependencies. Both countries can enhance trade relations by providing incentives for businesses to invest in each other’s markets, facilitating joint ventures in sectors like textiles, pharmaceuticals, auto, chemicals, light engineering and information technology, and ensuring the protection of investments through bilateral agreements.
Currently, the trade transaction infrastructure between the two nations is heavily bound by regulations and is underdeveloped. Both countries have established robust domestic payment systems such as Unified Payment Interface (UPI) and Raast but these are not interconnected, and businesses have to rely on international banking channels or intermediaries in third countries to settle trade payments. This adds complexity and cost to transactions.
LEVERAGE REGIONAL TRADE AGREEMENTS: Both countries can leverage existing regional trade agreements such as the South Asian Free Trade Area (SAFTA) to enhance trade relations. This involves fully implementing SAFTA provisions to reduce tariffs to 5% and decreasing the number of items in the negative and sensitive lists.
ADDRESS NON-TARIFF BARRIERS: Pakistan and India both impose non-tariff barriers on each other; both countries need to work to ease these measures. India as the largest economy and largest market in South Asia has relied more on non-tariff barriers such as stringent regulations and standards for curbing imports. Both countries should mutually agree on harmonizing standards and certifications, and establishing clear guidelines for the export and import of specific goods. Lowering NTBs will result in more trade of lower-priced products. In addition, regular consultations between standard-setting bodies to align regulatory frameworks could help in curtailing NTBs.
FOCUS ON TRUST-BUILDING MEASURES AND FOSTER PEOPLE-TO-PEOPLE TIES: Given the historical tensions between India and Pakistan, building trust is essential. This involves regular diplomatic dialogues focusing on economic cooperation, confidence-building measures such as military de-escalation at borders, and transparent communication channels to mitigate misunderstandings and foster a cooperative atmosphere. Moreover, fostering people-to-people ties can build trust and create a conducive environment for trade. Both nations should consider easing visa restrictions, especially for business and religious travel, promote cultural exchanges and joint business forums like the PIJBF, and encourage academic and technical collaboration.
The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk
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