India suspends trade with Pakistan: Know details of imports, exports, and economic repercussions

In a bold and resolute move, the Government of India has suspended all bilateral trade with Pakistan following the tragic Pahalgam terror attack that left 26 civilians dead and dozens injured.

The assault, reportedly orchestrated by Lashkar-e-Taiba operatives with safe haven across the border, has sparked outrage and drawn strong condemnation from both the Indian public and international observers.

India's response has been swift and unequivocal: a full halt to overland and maritime trade with its western neighbour, reinforcing its long-standing position that terrorism and diplomacy cannot coexist.

This decisive measure is not merely symbolic. It is poised to inflict serious economic damage on Pakistan, a country whose industrial base and consumer market have historically leaned on Indian imports across key sectors.

A Snapshot of Pakistan's Imports from India

Before trade relations were downgraded and eventually severed, India was among Pakistan's most vital regional trade partners. As of the last official updated figures, bilateral trade has been witnessing fluctuations over the past decade due to repeated border tensions, yet in FY2018- 19 alone, Pakistan imported goods worth US$488 million from India, according to Ministry of Commerce data.

Reports from other independent sources claim that this figure could be as high as USD 2 to 10 billion, accounting for roughly 2 to 4% of Pakistan’s GDP. However, the impact will be much wider thanks to the rogue neighbour being dependent on India for critical supplies, including medicines.

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Key imports included:

Pharmaceutical raw materials: Over 60% of Pakistan's imports in this segment came from India, fuelling a domestic pharma industry that relies on imported active pharmaceutical ingredients (APIs).

Chemical feedstocks and industrial inputs: Commodities such as polypropylene, dyes, and p-Xylene were regularly sourced from Indian suppliers, essential for Pakistan's plastic, textile and manufacturing sectors.

Agricultural products and edibles: Tea, sugar, tomatoes and onions featured prominently in cross-border trade, with India at one point supplying over 70% of Pakistan's tea imports.

The presence of Indian goods in Pakistani markets was not incidental; it reflected both competitive pricing and proximity benefits that could not be matched by suppliers from China, the UAE or Southeast Asia.

Dependence, Disruption and the Domino Effect

The suspension of trade is expected to trigger a supply chain crisis across several Pakistani sectors:

Healthcare: With Indian APIs now inaccessible, Pakistani pharmaceutical manufacturers may face cost escalations of up to 30%, potentially leading to drug shortages, price hikes and halted production lines.

Textile and Manufacturing: Pakistan's textile exports, which contribute roughly 8.5% to GDP, depend heavily on Indian chemicals and dyes. Disruptions here could slash export competitiveness and dent foreign exchange inflows.

Consumer Prices and Inflation: Essential food items that were cheaply sourced from India will now have to be procured from farther afield, pushing transportation and procurement costs higher. Analysts predict a 1.2% increase in consumer inflation over the next two quarters.

While Islamabad may seek alternate markets such as China or Turkey, these substitutes often come with higher logistical and procurement costs. Additionally, foreign exchange reserves in Pakistan, currently hovering near USD 8 billion, are under immense pressure, making dollar-denominated imports even more expensive.

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Strategic Intent and Diplomatic Isolation

India's trade suspension fits into a broader strategy aimed at economically and diplomatically isolating Pakistan until it cracks down on terror infrastructure.

In tandem with this decision, India has also downgraded diplomatic ties and pressed global forums to blacklist Pakistan-based terror outfits. New Delhi's message is clear: cross-border terror will invite economic and geopolitical consequences.

Looking Ahead: Forecast and Fallout

Economists suggest that the suspension of trade with India could have significant economic repercussions for Pakistan, particularly affecting sectors reliant on Indian imports, though precise GDP impact figures have not been established. Industry stakeholders in Lahore, Faisalabad and Karachi have already begun lobbying for emergency imports and subsidies.

Meanwhile, Indian exporters, especially from border states like Punjab and Rajasthan, will take a marginal hit but are expected to reorient to other markets with relative ease, thanks to India's broader trade ecosystem and diversified export base.

India’s decision to halt trade with Pakistan marks a critical juncture in bilateral relations, with clear economic reverberations for its neighbour.

Further, India’s suspension of its airspace for Pakistan, along with the suspension of the Indus Water Treaty, will ensure that the leadership across the border gets a clear and thoroughly punishing answer for its continued sponsorship of terrorism.