Indian goods worth USD 10 bn annually reach Pakistan via third countries: GTRI estimates

Indian goods worth over USD 10 billion are reaching Pakistan every year indirectly through ports such as Dubai, Singapore, and Colombo, bypassing trade restrictions, according to estimates of economic think tank GTRI.

Explaining the system, Global Trade Research Initiative (GTRI) said that Indian firms send goods to these ports, where an independent company offloads the consignment and keeps the products in bonded warehouses, where goods can be stored without paying duties while in transit.

"In the bonded warehouse, the labels and documents are modified to show a different country of origin. For example, Indian-made goods may be relabelled as 'Made in UAE'. After this change, they are shipped to countries like Pakistan, where direct trade with India is not allowed," GTRI Founder Ajay Srivastava said.

This method, he said, helps firms to bypass India-Pakistan trade restrictions; sell goods at higher prices, using the third country route; and avoid scrutiny, since the trade appears to come from other countries.

The higher price covers storage, paperwork, and access to a closed market.

"While this transshipment model isn't always illegal, it sits in a grey zone. It shows how businesses find creative ways to keep trade going -- often faster than governments can react. GTRI estimates Indian goods worth over USD 10 billion reach Pakistan via this route annually," Srivastava said.

The trade between India and Pakistan may come to a complete halt after New Delhi's move to close the Attari Integrated Check Post in the wake of the Pahalgam terror attack, which was followed by Islamabad's decision to suspend all trade ties, exporters have said.

The two-way trade between the countries was already miniscule following steps taken by both the sides after the Pulwama terror attack in 2019.

India's exports to Pakistan in April-January 2024-25 stood at USD 447.65 million, while imports were meagre USD 0.42 million. Exports and imports in 2023-24 were USD 1.18 billion and USD 2.88 million, respectively.

In 2022-23 and 2021-22, India exported goods worth USD 627.1 million and USD 513.82 million, and imported products worth USD 20.11 million and USD 2.54 million, respectively.

In April-January 2024-25, exports of organic chemicals and pharmaceutical products accounted for about 60 per cent of the country's total outbound shipments to Pakistan. It was USD 129.55 million and USD 110.06 million, respectively.

The other items include sugar and sugar confectionary (USD 85.16 million), certain vegetables (USD 3.77 million), coffee, tea and spices (USD 1.66 million), cereals (USD 1.39 million), petroleum products (USD 11.63 million), fertiliser (USD 6 million), plastics (USD 4.16 million), rubber (USD 1.88 million), and auto components (USD 28.57 million).

The main imports include fruits and nuts (USD 0.08 million), certain oil seeds and medicinal plants (USD 0.26 million), organic chemicals, and project goods.

The India-Pakistan trade relations soured after the Pulwama terror attack.

Following that, India raised the import duty to 200 per cent on all goods imported from the neighbouring country, including fresh fruits, cement, petroleum products and mineral ore.

In 2017-18, Pakistan's exports to India was USD 488.5 million. India also withdrew MFN (most favoured nation) status to Pakistan.

That time the two main items imported from Pakistan were fruits and cement. Slapping an import duty of 200 per cent effectively means almost banning imports.

The country invoked a security exception clause of the World Trade Organization (WTO) to withdraw the MFN status. Both countries are members of this organisation. India had granted the MFN status to Pakistan way back in 1996, but the neighbouring country had not reciprocated.

Under the MFN pact, a WTO member country is obliged to treat the other trading nation in a non-discriminatory manner, especially with regard to customs duty and other levies.

In 2012, Pakistan had committed to giving the MFN status to India but retracted later due to domestic opposition. Instead of MFN, Pakistan said it was working on granting Non-Discriminatory Market Access (NDMA) status to India but that also was not announced.

Pakistan too in August 2019 suspended trade ties in almost all sectors (barring few like pharma) with New Delhi following imposition of the heavy import duty by India on imports from Pakistan.

Both countries have a long history of strained relations, primarily due to the Kashmir issue as well as the cross-border terrorism emanating from Pakistan.

Total India-Pakistan trade in 2017-18 was USD 2.41 billion as against USD 2.27 billion in 2016-17. India imported goods worth USD 488.5 million in 2017-18 and exported goods worth USD 1.92 billion.