India-Pakistan trade and the Crisis in Pakistan -- From Floods, Hunger, Inflation To Political Turmoil

Flood Of Woes: Why Delhi Must Leave It To Islamabad To Normalise Relations

by Pratim Ranjan Bose - Sep 2, 2022 06:45 PM +05:30 IST
Flood Of Woes: Why Delhi Must Leave It To Islamabad To Normalise RelationsPakistan floods: over 1,000 killed and at least 3 crore people are homeless. (Flickr)
  • The devastating floods in Pakistan have worsened the country's existing food and economic crisis.

Pakistan is witnessing the worst floods in decades. More than 1,000 people have died and at least 30 million or three crore people are homeless. Considering the ongoing economic crisis, the impact is huge.

And that brought India-Pakistan trade back in context.

Responding to questions at a recent media conference, Pakistani Finance Minister Miftah Ismail said that his government might “consider” importing food and essentials from India.

The decision, if taken, should be Pakistan’s own, as there was no bar on exports from India.

Delhi withdrew the most-favoured-nation (MFN) status on Pakistan — thereby effectively increasing the duty barrier on imports — after the Pulwama terror attack in February 2019.

The Imran Khan government suspended trade (barring a few items) and downgraded diplomatic ties in August 2019, in response to the abrogation of Article 370 in Jammu and Kashmir.

Khan thought he took a calculated risk. Pakistan was always unique in putting curbs on low-cost (direct) import of Indian goods and buying the same at exorbitant costs through the Middle-East.

While official trade was stagnant at $2 billion for a long time, the estimated unofficial trade was two to three times higher

(Click on the image to enlarge)
(Click on the image to enlarge)

But this time, Pakistan suffered terribly. From barely 5 to 6 per cent in 2018, inflation soared to 25 per cent in July 2022. Barring a brief period in 2021, the rise was more or less consistent.

Over and above the global supply chain crisis, the Pakistan economy was hit by a host of local issues including the foreign exchange crisis, slipping exchange value of the local currency, power cuts and low domestic demand sentiments due to high prices.

As their economic woes started aggravating beginning in 2021, many in Pakistan demanded low-cost imports from India.

Khan did a somersault on the issue in April 2021. The Shehbaz Sharif government, that came in power in April 2022, too showed apparent keenness. However, nothing changed on the ground.

Self-Inflicted Injury

The dilly-dally from Pakistan explains why New Delhi must leave it to Islamabad to normalise relations. While Prime Minister Narendra Modi has expressed grief at the widespread devastation in Pakistan there is little reason for New Delhi to go overboard when it comes to extending help.

Historically, the economy has been among the last of the concerns of Islamabad. They only take refuge under it when cornered or use it as a handle to launch a fresh onslaught on India.

The history of the now-forgotten South Asian Association for Regional Cooperation (SAARC), bears testimony to that.

Since its inception in 1985, SAARC was a talking shop. The South Asian Free Trade Agreement (SAFTA) was a failure. Pakistan used SAARC as an opportunity to frustrate India. All critical regional negotiations ended up in veto.

Till 2015, governments in Delhi kept wasting money and time, in funding the SAARC secretariat and posing for useless photo sessions. India should be grateful to Modi for breaking the pattern and spearheading regional cooperation minus Pakistan.

The benefits went to the region. Delhi went out of its way to support smaller neighbours over the last two years. While China was demanding repayment from a bankrupt Sri Lanka, India delivered support — including petroleum products and food — worth $3.5 billion in 2022 alone.

From the Maldives to Bhutan, India’s regional cooperation overdrive helped every neighbour to minimise the dual impact of Covid and the Ukraine crisis. Assured supply of energy, food and raw material kept smaller countries ticking during the global supply chain crisis.

The garment industry is key to Bangladesh’s export performance. On an average year, Dhaka meets roughly one-third of the cotton requirement from India, the rest comes from far away destinations.

According to ITC Trade Map, Dhaka doubled the import of cotton from India during the 2019-2021 period to beat supply chain disruption and volatile sea freight. Exports had shot up to $52 billion in 2021, approximately 11 per cent higher than the pre-Covid level.

A bigger impact is visible in food sector. India’s export of cereals to Bangladesh was up by 52-times during the two years. Rice, wheat, maize, onions — check any food item and there is an abnormal rise. No wonder Dhaka could keep inflation in check.

India is the world’s largest rice exporter. The Indian dominance grew in 2021 as many traditional rice exporters (like Myanmar and Vietnam) took to imports.

The global food scenario became more complex in 2022 due to the Ukraine crisis. Unlike rice, India has a limited surplus in wheat. Delhi stopped commercial exports to save it for neighbours and friends.

Even the Taliban welcomed Indian support. Delhi shipped 40 tonnes of wheat and 32 tonnes of medical assistance to Afghanistan in 2022. The diplomatic mission in Kabul, which was deserted last year, was recently upgraded.

Pakistan however decided to be an exception and they are paying the price. From less than 5 per cent in 2018, food inflation in the country hit 28.8 per cent in July 2022.

According to newspaper reports, even a cup of tea at roadside eateries is now selling at two to three times the price in India.

A Habitual Offender

The situation is nicely summarised by Pakistani Foreign Minister Bilawal Bhutto Zardari. “Does it serve our interest that we have practically cut all engagements with India?” Zardari said at a think-tank meeting in June. “We (Pakistan) are cutting our nose to spite our face,” he added.

However, a politician is a mere toy in the hands of the army-Islamist combo in Pakistan, which runs that nation. That no prime minister since 1947 could complete a term is no coincidence. They are brought in and thrown out at will by the backseat drivers.

It is no coincidence either that after 22 bailouts (23rd in progress) in 75 years, Pakistan is a basket case.

The Pakistani Army and ISI engineer conflict. Terror and religion are their biggest weapons to remain relevant and to keep the money tap open.

There is little reason to believe that the real culprits behind Pakistan’s woes will change colours overnight. They are looking forward to making the best of the tense geopolitical scenario. It is useless to pin hopes on them.

Also Read: How do you solve a problem like Pakistan?

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