By Annunthra Rangan
On April 22, 2025, India witnessed a tragic terrorist attack in Pahalgam, Kashmir, where gunfire predominantly targeted tourists, killing 26 people. The incident has considerably escalated tensions between India and Pakistan. In response, the Government of India has taken several significant measures, including the suspension of multiple bilateral agreements. Notably, India has halted the implementation of the Indus Waters Treaty (IWT), which had historically allowed Pakistan access to 80% of the shared waters.
Furthermore, India has suspended trade operations by closing the Attari-Wagah border. This move is anticipated to create substantial challenges for Pakistan’s trade, as the border served as a key land route for bilateral commerce. The closure also disrupts Afghanistan’s trade with India, which was facilitated via Pakistan through the Wagah border; while Pakistan permitted Afghan goods to be imported into India, reciprocal exports were restricted. With the land port now fully sealed, both India-Pakistan and Afghanistan-India trade flows through this route have come to a complete halt.
Trade between India and Pakistan has historically been highly volatile. In one year, bilateral commerce may reach record highs; in the next, it can suffer a sharp decline. This unpredictability arises from a variety of factors—new trade agreements, security incidents such as terrorist attacks, shifting demand for certain goods, and broader geopolitical developments. India first initiated trade with Pakistan in 1995 following the establishment of the South Asian Preferential Trading Arrangement. In 1996, India further streamlined trade relations by granting Pakistan the Most Favoured Nation status (MFN), aimed at facilitating smoother and more efficient trade between the two countries.
Over the past five decades, India-Pakistan bilateral trade relations have followed a turbulent course, reflecting evolving geopolitical tensions and diplomatic shifts. In 1948–49, more than 70% of Pakistan’s trade was with India, while 63% of India’s exports were directed towards Pakistan. However, by the end of 1949, trade ties witnessed a sharp decline. Despite the signing of 11 Indo-Pak Trade and Payments Agreements between May 1948 and March 1960, the volume of bilateral trade continued to fall, decreasing from Rs. 184.06 crore in 1948–49 to Rs. 13.63 crore by 1958, and reaching an all-time low of Rs. 10.53 crore in 1965–66. The Indo-Pak war of 1965 led to a complete trade embargo, which persisted until the signing of the Shimla Agreement on 30 November 1974, with trade resuming from 7 December 1974. In an effort to diversify economic engagement, Pakistan permitted its private sector to conduct trade with India starting 15 July 1976. Subsequent developments included Pakistan’s participation in the Delhi International Trade Fair in November–December 1981 and the establishment of a Joint Business Commission in June 1983 to expedite decision-making on bilateral trade issues and propose new items for trade. The two countries further committed to regional economic cooperation by becoming signatories to the South Asian Association for Regional Cooperation (SAARC) charter in 1986. In July 1989, Pakistan agreed to import 322 Indian items, marking a key expansion in bilateral trade, which was further encouraged by the installation of Nawaz Sharif’s government in 1991. Consequently, bilateral trade rose from Rs. 168.09 crore in 1990–91 to Rs. 522.59 crore in 1992–93.
The signing of the South Asian Preferential Trading Arrangement (SAPTA) in December 1995 introduced a structured framework for regional trade, covering tariff concessions on 5,550 tariff lines by the end of three negotiation rounds. When India granted MFN status to Pakistan, Islamabad expanded its positive list to 600 items that could be legally imported from India. Further liberalization came in 2003 when Pakistan added another 78 items, mainly chemicals, minerals, and metal products, to the positive list, though some commodities like cardamom and tea continued to attract high tariffs. An analysis of trade complementarity showed that India’s Trade Complementarity Index (TCI) with Pakistan was 50% in 2003, while Pakistan’s TCI with India was 14%. Notably, India achieved its highest TCI with Pakistan in 2007, while Pakistan recorded its highest TCI with India in 2010, indicating improving compatibility in their trade structures.
Further progress was made during the third round of the Composite Dialogue process in March 2006, where both sides discussed crucial areas such as a new shipping protocol, deregulation of air services, joint registration of Basmati rice, the expansion of Pakistan’s positive list, facilitation of information technology-related medical services, export insurance initiatives by India, and cooperation in capital markets. Bilateral efforts to address trade barriers intensified during the sixth round of Commerce Secretary-level talks in November 2011 in New Delhi, where the two countries initialled three agreements — the Customs Cooperation Agreement, the Mutual Recognition Agreement, and the Redressal of Trade Grievances Agreement — to tackle issues such as non-tariff barriers. Significantly, in November 2011, Pakistan announced its decision to grant MFN status to India, underscoring a renewed commitment to enhancing economic relations (The MFN Status was however never granted to India by Pakistan).
Cut to 2017–18, the total trade value stood at ₹4,148.15 crore, supported by the movement of 48,193 cargo consignments and 80,314 passengers across the border. This upward trend continued into 2018–19, with trade rising to ₹4,370.78 crore, cargo movements increasing slightly to 49,102, and passenger traffic recorded at 78,471. However, beginning in 2019–20, bilateral trade volumes witnessed a sharp decline, falling to ₹2,772.04 crore, with cargo movements reducing drastically to 6,655 and passenger movement to 78,675.
Following the Pulwama attack in 2019, India imposed stringent restrictions on trade with Pakistan and officially revoked Pakistan’s MFN status. Since then, bilateral trade volumes have declined sharply, leaving Pakistan’s trade position with India considerably weakened. Additionally, India raised tariffs on Pakistani goods to 200%, making it increasingly difficult for Pakistani products to access the Indian market.
The removal of Pakistan’s MFN status by India enabled New Delhi to impose customs duties at any level on imports from Pakistan, according to trade experts. This move significantly impacted Pakistan’s exports to India, which had been valued at approximately $488.5 million (around ₹3,482.3 crore) in 2017–18. In November of the previous year, a senior advisor to Pakistan’s Prime Minister, Imran Khan, had stated that Pakistan had “no immediate plans” to grant MFN status to India. At that time, Pakistan allowed only 137 products to be exported from India through the Wagah land route.
Bilateral trade between India and Pakistan had increased marginally to $2.41 billion in 2017–18, compared to $2.27 billion in 2016–17. During 2017–18, India imported goods worth $488.5 million from Pakistan and exported goods valued at $1.92 billion. Under the MFN framework, as established by the World Trade Organization (WTO), member countries were required to extend non-discriminatory trade advantages, including equal customs duties and levies, to one another.
The downward trend persisted during 2020–21, when trade dropped further to ₹2,639.95 crore, cargo movement decreased to 5,250 consignments, and passenger movement fell sharply to 6,177, reflecting the impact of geopolitical tensions and the COVID-19 pandemic. In 2021–22, trade showed a modest recovery to ₹3,002.38 crore, cargo consignments totaled 4,812, and passenger movement rose to 10,342. The subsequent year, 2022–23, witnessed a decline in trade to ₹2,257.55 crore, with cargo movements at 3,827 and passenger numbers at 67,747. In 2023–24, trade rebounded to ₹3,886.53 crore, accompanied by an increase in cargo movements to 6,871.
In addition to legal trade, New Delhi and Islamabad have also been involved in illegal trade as well. Prior to the trade embargo imposed in August 2019, approximately one-fourth (₹4,476 crore) of the total trade, valued at ₹17,903 crore, was facilitated through the Attari Integrated Check Post (ICP). Reopening this border is crucial to unlocking an annual trade potential exceeding ₹5,000 crore, which could significantly benefit the debt-ridden economy of Punjab and boost trade and industry within the state.
Despite the trade freeze since 2019, over $10 billion worth of Indian goods continue to reach Pakistan annually, according to the New Delhi-based think tank Global Trade Research Initiative (GTRI). Many businesses have resorted to creative and often controversial workarounds, using third countries to bypass trade restrictions. These goods are often routed through transit hubs in Dubai, Singapore, and Colombo, where they are stored in bonded warehouses and re-labeled with new “country of origin” documentation. For instance, Indian products are re-exported to Pakistan under labels indicating they originated from the UAE or other third countries, rather than India. This not only circumvents official trade barriers but also allows for higher prices, even with the added markup for re-export. These strategies also provide plausible deniability—no direct trade occurs between India and Pakistan, yet commerce persists.
As an example, GTRI highlighted a scenario in which $100,000 worth of Indian auto parts are shipped to Dubai, re-labeled, and subsequently re-exported to Pakistan for $130,000, factoring in logistics, paperwork, and the premium for access to the restricted market. While such practices are not always illegal, they underscore how trade adapts more quickly than policy. Supply chains are flexible, adjusting to demand even when facing restrictions. The think tank estimates that goods worth over $10 billion continue to reach Pakistan via these indirect routes. Between April and January of 2024-25, India exported approximately $447.65 million worth of goods to Pakistan, maintaining a significant trade surplus, while imports from Pakistan were limited to just $42 million.
Cut to the present, India’s decision to immediately close the ICP at Attari, following the Pahalgam terror attack, is set to disrupt cross-border trade valued at ₹3,886.53 crore between India and Pakistan. Bilateral trade had already been on the decline since 2019. Official data reveals that India exported goods such as soybean, poultry feed, vegetables, red chillies, plastic granules, and plastic yarn, while imports from Pakistan included dry fruits, dates, gypsum, cement, glass, rock salt, and herbs via the Attari Land Port. The port, covering 120 acres, is strategically important as it provides direct access to National Highway 1.
In addition to this, the International Monetary Fund (IMF) recently revised Pakistan’s growth forecast downward to 2.6%, citing the impact of US tariffs—currently at their highest in a century—and warning that escalating global trade tensions would further hinder growth.
Trade experts have highlighted the significant economic ecosystem created by India-Pakistan trade through the Attari border, especially in and around Amritsar and Attari in Punjab. This trade generated both direct and indirect employment for thousands, including transporters, porters, shopkeepers, and workers in related sectors.
However, trade often becomes the first casualty during periods of heightened tensions between India and Pakistan, and the Wagah-Attari land route has not been immune to this trend, according to a report from the Chandigarh-based Centre for Research in Rural and Industrial Development (CRRID). Key exports from Indian Punjab via the Wagah-Attari route include straw reapers and cotton yarn.
Between 2016-17 and 2018-19, exports of straw reapers, produced by small-scale units in Punjab, ranged from 846 to 1,110 units, generating export revenues between ₹1,844 lakh and ₹2,488 lakh. However, following trade restrictions, exports of straw reapers plummeted to just 100 units in 2019-20, with earnings falling to ₹232 lakh. Exporters had expected to ship 2,441 straw reapers to Pakistan in 2020-21 under normal trade conditions, which could have generated ₹6,195 lakh in revenue.
Importers warn that shutting the Attari–Wagah crossing will severely disrupt Afghanistan’s exports of nuts, dried fruits, and spices to India—likely triggering a 15–20% price hike in the coming months. Afghanistan’s $500 million-a-year trade with India depends predominantly on this land route for its dry fruit shipments. To mitigate the impact, the Afghan Chamber of Commerce and Investment has met with Com Air and Ariana Airlines to explore opening an air corridor from Kabul to India, and is also in talks to utilize Chabahar port as an alternative gateway.
Despite the challenges posed by these restrictions, Punjab remains resilient, prioritizing the nation’s security above all else, even though some businesses may be adversely affected. The government is likely to implement further measures to respond to Pakistan’s actions. It is crucial to closely monitor the trade dynamics, as any disruptions could significantly impact the economy and trade surplus.
—The writer is a Senior Research Officer at Chennai Centre for China Studies. Her research interests constitute China-WANA (West Asia and North Africa) relations and human rights