Following the Pulwama terror attack, India has withdrawn the title of “Most favoured Nation” from Pakistan. And now after the big move, scrapping of Article 370 along with article 35A, and dividing Jammu and Kashmir into two Union territories by Indian government has left Pakistan furious. This left a great impact on the India-Pak relations.

Imran Khan in a meeting held on 7th Aug 2019, stated that Pakistan would be downgrading Diplomatic relations with India. He also said that it will be suspending bilateral trade and reviewing bilateral arrangements. Pakistan has to do something after two major comebacks by India, and suspension of bilateral trade is what they could come up with. A few hours later Pak also announced the partial closure of its airspace.

Indian economy is not going to have any major impact of this decision as India is less dependent on Pakistan. Though India exports around $2 billion goods to Pakistan, but the same as a limited profile as Pakistan no longer holds the title of Most Favoured Nation, all such goods have a readily available market in South Asia and the Middle East. 

Another major reason for minimal impact of the trade suspension on Indian economy and businesses is that a large part of the trade between Indian and Pakistan takes place through an informal channel, i.e., by a third country and not directly. India- UAE-Pakistan is the primary channel for informal trading. In this process, taking takes place between India and UAE, UAE and Pakistan and not between India- Pakistan.

Hence, Pakistan’s decision to suspend trade is likely to affect Pakistan more than India. The Indian economy has survived bigger issues than this and will survive and rise above this too.

InvestorQ