Significant Economic Setback for Pakistan as India Halts $500 Million

In a significant move following the recent Pahalgam attack, the Indian government has enacted a comprehensive ban on all imports from Pakistan. This decision, announced by the Narendra Modi administration, includes not only direct imports but also those routed through intermediary nations. Additionally, postal services and parcel deliveries from Pakistan are now prohibited. The ban extends to restricting access for Pakistan-registered vessels to Indian ports, reflecting a deepening rift in diplomatic relations between the two countries.

Details of the Import Ban

The Directorate General of Foreign Trade (DGFT) issued a notification on May 2, 2023, detailing the new provisions under the Foreign Trade Policy (FTP) 2023. This policy explicitly prohibits the direct or indirect import or transit of all goods originating from Pakistan, effective immediately. The notification cites national security and public policy concerns as the primary reasons for this drastic measure. Any exceptions to this ban will require explicit approval from the Indian government. The FTP now includes a specific section titled “Prohibition on Import from Pakistan,” reinforcing the government’s stance on this issue.

This ban marks the second significant non-military action taken by India in response to deteriorating relations with Pakistan, following earlier visa restrictions. Officials have indicated that the comprehensive nature of the ban will aid customs authorities in preventing Pakistani goods from entering India through alternative routes.

Impact on Trade Relations

India’s trade with Pakistan has been on a downward trajectory for several years. Between April 2024 and January 2025, imports from Pakistan totaled a mere $0.42 million, a stark decline from $20.21 million in the previous fiscal year. The strained relationship began in 2019 when India imposed a 200% duty on Pakistani products following the Pulwama terror attack. In retaliation, Pakistan halted trade relations after India revoked the special status of Jammu and Kashmir.

The bilateral trade volume has plummeted from $2.5 billion in FY19 to approximately $1.2 billion in FY24. The increase in tariffs and the withdrawal of Most Favored Nation (MFN) status have significantly reduced direct imports from Pakistan, which fell from nearly $500 million in 2018-19 to just $480,000 in 2023-24. Key products affected by this decline include horticultural goods, cement, salt, and cotton yarn, with trade now being rerouted through other countries.

Economic Consequences for Pakistan

Experts from the Global Trade Research Initiative (GTRI) suggest that India’s economy will remain largely unaffected by the ban on Pakistani imports. However, they note that Pakistan still relies on Indian products and may continue to access them through third countries. The ban will effectively reduce India’s already minimal imports from Pakistan to zero, with the exception of some niche products like Himalayan pink salt.

While Indian exports to Pakistan have historically been significant, recent trends indicate a decline. Analysts believe that the current state of formal trade minimizes the impact of the ban, with the primary consequences likely affecting the border economy. The real economic challenge for Pakistan may arise from the disruption of indirect imports, which have previously accounted for substantial trade volumes.

Challenges in Enforcement

Despite the ban, a considerable volume of goods, including dry fruits and chemicals valued at around $500 million, has been entering India through intermediary countries. This indirect trade has been facilitated by nations such as the UAE and Sri Lanka, where Pakistani products are often repackaged to circumvent restrictions. Indian officials have acknowledged that enforcing the ban will require stringent monitoring to prevent goods from entering through misrepresentation of their country of origin.

The government is now tasked with implementing a comprehensive prohibition on all Pakistani exports, whether direct or indirect. Officials stress the importance of identifying and curbing these alternative routes to ensure the effectiveness of the new trade restrictions. The situation remains fluid, and the government’s strategy for enforcement will be crucial in determining the long-term impact of the ban on both economies.

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