In numbers: How financial crisis has forced Pakistan to knock on India’s door

Three years after walking out of trade relations with India over abrogation of Article 370 from Jammu & Kashmir, a dire economic crisis has forced Pakistan to return crawling to New Delhi for resumption of commercial ties. 

Reports say the new Shehbaz Sharif government in Pakistan has given the go-ahead for appointment of a trade minister in its New Delhi high commission, who will work to restore trade between the neighbouring countries. The post had been lying vacant since August 2019, when Pakistan suspended trade with India following the latter’s decision to withdraw special powers to J&K and split the state in two. 

A month later, however, Islamabad partially relaxed the ban, permitting trade in certain pharma products that constitute the bulk of Pakistan’s imports from India. 

Cut to 2022 and Pakistan is facing one of its worst financial crises that even saw the Imran Khan government being ousted by a rainbow coalition of Opposition parties. 

A sorry state of affairs 

Pakistan is facing a balance of payments crisis; its exchange rate is under pressure; reserves are at precarious levels; and a widening current account deficit threatens a total collapse. Data from the Pakistan Bureau of Statistics shows March 2022 retail inflation at 12.7 per cent, with perishable food items as high as 30 per cent. 

Pakistan’s foreign exchange reserves have dropped to a 28-month low to below $11bn – barely enough to cover imports for the next two months. Its current account deficit has jumped to $13.17bn, up from $275mn the same time last year. As per International Monetary Fund, Pakistan’s current account deficit is projected to spike from 0.6 per cent of GDP in 2020-21 to 5.3 per cent of GDP in 2021-22. The Pakistani rupee has touched a new low, with one dollar now equalling 190 PKR. 

Islamabad’s present situation is such that it is desperate for money irrespective of source. And despite its hostility towards New Delhi, Pakistan knows well that India is one of the largest and fastest growing economies in the world, and trade with it will go a long way in restoring financial stability. 

India-Pakistan trade 

Imports from Pakistan have always been a fraction of India’s exports to the country. Indian exports to Pakistan were worth $2,066.63mn in 2018-19, which dropped to $816.64mn in 2019-20 and further to $326.87mn in 2020-21, as per commerce ministry data. Imports from Pakistan were worth $494.87mn in 2018-19, which spiralled down to $13.97mn in 2019-20 and then to a mere $2.39mn in 2020-21. 

According to the Observatory of Economic Complexity (OEC), India’s exports to Pakistan in the calendar year 2020 were worth $293mn and imports were worth $2.42mn – less than one per cent of the exports. 

“The main products that India exported to Pakistan were nitrogen heterocyclic compounds ($43.4mn); blood, antisera, vaccines, toxins and cultures ($42.7mn); and raw sugar ($34.8mn)… The main products that Pakistan exported to India were tropical fruits ($668k), alcohol ($343k) and nuts ($231k),” OEC said. 

Other Indian exports to Pakistan included tomatoes, onions, cane sugar, fresh vegetables, coarse cereals, etc, while Pakistan’s exports to India have included dates, leather, hides and skins and woven fabrics. 

In August 2019, India exported goods worth $52mn to Pakistan and imported goods worth $2.5mn. After New Delhi abrogated Article 370, Pakistan downgraded India’s trade status to that of Israel – which is of zero business. But with this decision, Pakistan had only hit a nail in its own coffin.