India-Pakistan trade faces new blow after attack in held Kashmir

NEW DELHI/ISLAMABAD: India and Pakistan’s reciprocal actions following the killing of 26 men by suspected militants at a tourist spot in Kashmir are set to further curtail trade, which has more than halved since 2018, trade analysts and exporters said.

Here are key trade issues between the two countries:

BILATERAL TRADE

India-Pakistan trade relations deteriorated following the suspension of diplomatic ties in 2019 after India conducted a military strike in Pakistan in retaliation for a suicide bombing by militants in Kashmir that killed at least 40 Indian paramilitary police. Bilateral trade fell to $1.2 billion in 2024 from a peak of nearly $3 billion in 2018.

India exported about $500 million worth of goods to Pakistan during the April 2024-January 2025 period, mostly pharmaceuticals, chemicals, sugar and auto parts, while imports stood at just $0.42 million, Indian trade ministry data showed.

Islamabad on Thursday closed its air space for Indian airlines and suspended all trade ties with India - including routes through third countries and transit of goods to other nations -- after India closed the Attari check post, a key trade route with Pakistan, a day earlier.

This will have a negative impact particularly on Pakistan’s pharma sector, if supplies from India are affected, said Ehsan Malik, CEO of Pakistan Business Council.

TRADE VIA THIRD COUNTRIES

In 2019, India revoked Pakistan’s most favoured nation (MFN) status -- which allowed lower tariff rates -- prompting trade to shift through third countries.

With official trade channels blocked, trade worth billions of dollars in re-exports has emerged via the UAE and Singapore, according to the Global Trade Research Initiative (GTRI), a Delhi-based think tank.

This too could be affected, potentially driving up prices of medicines, tea and fertiliser, analysts said.

AIR TRAFFIC

India’s top two carriers IndiGo and Air India said some of their international routes, including to the United States and Europe, would be affected by the closure of Pakistani airspace, leading to higher fuel costs, extended flight times and diversions.

IMPACT ON TRADE WITH AFGHANISTAN

India’s imports of goods such as agricultural products from Afghanistan -- estimated at about $640 million a year -- will be hit by the ban on transit through Pakistan, said Ajay Sahai, director-general of the Federation of Indian Export Organisations (FIEO).

However, exports, which typically move via sea routes, are unlikely to be affected.“

The ban on trade may affect some exporters, but in the current scenario, trading with or through a hostile country is not desirable,” he said.