Following the deadly April 22 attack in Pahalgam, India and Pakistan have ramped up hostilities with a series of diplomatic and economic measures.
New Delhi blamed Islamabad for the attack, suspended its participation in the Indus River water-sharing agreement—vital for Pakistan’s water supply—and cut back its diplomatic staff. Pakistan denied any involvement, demanded a neutral investigation, and responded by halting all trade with India, including indirect trade via third countries.
Both nations also shut down the Wagah-Attari land border crossing—the only overland trade route between them. Though official trade figures are modest, experts suggest a far larger volume of goods continues to flow between the countries through unofficial channels.
Formal trade between the two neighbours has been minimal in recent years. According to India’s Ministry of Commerce, Indian exports to Pakistan between April 2024 and January 2025 amounted to $447.7 million, while Pakistan exported just $420,000 worth of goods to India.
India’s main exports include pharmaceuticals, petroleum products, plastics, chemicals, spices, tea, and cereals. Pakistan exports copper, glassware, organic chemicals, sulphur, fruits, and some oil seeds.
Trade peaked in 2017-18 at $2.41 billion (roughly Rs 20,000 crore) but has steadily declined since. After the 2019 Pulwama attack, India revoked Pakistan’s Most Favoured Nation (MFN) status, and bilateral trade dropped to $1.2 billion by 2024. Pakistani exports to India have almost vanished, falling from $547.5 million in 2019 to just $480,000 in 2024.
Despite official restrictions, backdoor trade has flourished. Goods are often routed via third countries such as the UAE, Sri Lanka, and Singapore. Indian products are exported to bonded warehouses in these locations, relabelled with new origins—typically the UAE—and then re-exported to Pakistan.
According to the Global Trade Research Initiative (GTRI), India’s unofficial exports to Pakistan may be worth as much as $10 billion annually. GTRI described this process as a “grey-zone strategy” that allows trade to persist despite formal bans, with higher profit margins due to the added cost of relabelling.
Such methods are not unique to South Asia. Similar tactics have been used globally to circumvent trade restrictions. For instance, India has become a major hub for rerouting Russian oil to Europe, and China has long exported goods to India via ASEAN nations to exploit lower tariffs.
Pakistan’s latest measures aim to curb not just direct trade with India but also indirect trade via third countries. However, enforcement is challenging, as rerouting and relabelling are handled by private businesses rather than government agencies.
Pakistan’s customs authorities will now need to scrutinise imports more closely to verify their true origin. Yet, experts point out, it will be difficult to eliminate informal trade entirely, given the strong demand for Indian goods in Pakistan and the cultural and commercial ties between the two countries.
“Traders are unlikely to let go of a business that offers better margins than official trade,” said a trade economist. “If traders want to be unscrupulous, there’s little that can be done to stop them.”
The 1965 and 1971 wars between India and Pakistan led to the suspension of trade, which resumed only after the Tashkent and Simla Agreements. More recently, after the suicide bombing in 2019 Pulwama, India slapped an import duty of 200 percent on all goods from Pakistan, including fresh fruit, cement and mineral ore.
Six months later, in August 2019, India revoked the semi-autonomous status of Jammu and Kashmir and reorganised the erstwhile state into two union. Pakistan, which never granted India MFN status, further downgraded ties and suspended trade in response.
Since then, no formal talks to resume trade between India and Pakistan have taken place.
But the informal trade goes on on a large scale.
