India and Pakistan, two neighboring South Asian countries that share deep historical, cultural, and economic roots, have been locked in a decades-long conflict since 1947. While diplomatic tensions and military standoffs dominate headlines, a less-discussed yet equally significant aspect is how wars have crippled trade relations between the two nations.
From the 1947 Partition to the 2019 Pulwama attack and beyond, each conflict and border flare-up has impacted bilateral trade, often causing temporary suspensions or long-term economic estrangement. This article explores how wars and military confrontations have shaped, interrupted, and redefined the economic dynamics between India and Pakistan.
The Early Years: Post-Partition Trade Dependency
After the 1947 Partition, India was Pakistan’s largest trading partner, providing essential goods like cotton, coal, jute, and machinery. The two economies were interdependent due to their shared colonial infrastructure.
However, the first India-Pakistan war over Kashmir in 1947-48 changed this equation. Political distrust began seeping into trade ties. Despite the conflict, trade did not halt immediately but progressively weakened due to growing border issues and nationalization policies.
The 1965 War: First Major Blow to Bilateral Trade
The second Indo-Pak war in 1965 was a turning point in bilateral trade.
Impact on Trade:
- Complete suspension of all trade and diplomatic ties.
- Severance of rail and road links like the Samjhauta Express and Wagah-Attari road route.
- Trade volumes, already declining, came to a near halt.
For nearly six years post-war, there was no formal trade between India and Pakistan. It wasn’t until 1972, after the Shimla Agreement, that both sides agreed to normalize relations, including trade.
The 1971 War and Bangladesh Liberation: Long-Term Fallout
The third war in 1971, leading to the creation of Bangladesh, worsened Indo-Pak economic relations.
Consequences:
- Deep diplomatic estrangement.
- Collapse of existing trade channels.
- Economic embargos from both sides.
The war caused not only a military defeat for Pakistan but also a major economic setback. India, meanwhile, lost access to potential trade markets in East Pakistan (now Bangladesh), which could have benefited trilateral commerce in South Asia.
Trade Revival in the 1980s: Hope Amid Hostility
Despite political tensions, the 1980s saw limited revival in trade, mostly under SAARC (South Asian Association for Regional Cooperation) frameworks. India and Pakistan began to:
- Allow indirect trade through third countries like Dubai and Singapore.
- Sign limited trade agreements covering select commodities such as textiles, spices, and agricultural goods.
- Hold bilateral trade fairs and exhibitions.
However, any significant progress remained fragile, always vulnerable to border skirmishes and political rhetoric.
The 1999 Kargil War: A Setback to Economic Diplomacy
The Kargil conflict in 1999 again disrupted a promising trade trajectory. Earlier that year, Indian PM Atal Bihari Vajpayee had initiated peace through the Lahore Declaration, encouraging economic integration.
Kargil War Effects:
- Immediate freeze on diplomatic and economic dialogues.
- Slowdown in SAARC-led trade cooperation.
- Erosion of business trust between Indian and Pakistani entrepreneurs.
The war reaffirmed the pattern: military conflict resets any economic goodwill built over time.
2004–2008: A Short-Lived Trade Thaw
Following peace talks in the early 2000s, cross-LoC trade routes were reopened, and trade volume saw a sharp increase.
Key Developments:
- Opening of the Srinagar-Muzaffarabad and Poonch-Rawalakot routes in Kashmir.
- Pakistan granted most favored nation (MFN) status to India in principle, though not formally.
- India allowed limited duty-free access to Pakistani goods.
During this period, bilateral trade grew from less than $250 million to over $2 billion. It seemed both countries had realized the potential of trade as a bridge to peace.
2008 Mumbai Attacks: A Turning Point
The 26/11 Mumbai terror attacks by Pakistani-based terrorists in 2008 dealt a severe blow to trade and diplomatic ties.
Economic Fallout:
- India halted composite dialogue with Pakistan.
- New trade proposals were frozen.
- Business-to-business initiatives were stalled by security concerns.
Despite a formal trade route remaining open, actual volumes and business confidence plummeted. Pakistani goods faced informal restrictions in Indian markets, and trade fairs were cancelled.
Post-2010: Trade Peaks Amid Political Volatility
Ironically, the period between 2010 and 2016 witnessed the highest volume of bilateral trade since 1947. Trade crossed $2.6 billion annually, including goods such as:
- Cotton, pharmaceuticals, and sugar from India
- Cement, textiles, and fruits from Pakistan
However, recurring cross-border ceasefire violations and terror attacks (like the 2016 Uri attack) continued to create volatility, making the environment unsuitable for long-term investment or trade infrastructure.
2019 Pulwama Attack and Article 370 Abrogation: Trade at a Standstill
The Pulwama terror attack in February 2019, followed by India’s Balakot airstrikes, led to the complete suspension of trade.
Aftermath:
- India withdrew Pakistan’s MFN status.
- Pakistan imposed a 200% tariff on Indian imports.
- Formal trade via Attari-Wagah and LoC routes was suspended.
Later that year, India’s decision to revoke Article 370 in Jammu & Kashmir further deepened the rift, with Pakistan permanently suspending trade ties in protest.
Current State of India-Pakistan Trade (as of 2024–2025)
As of now, there is no official bilateral trade between India and Pakistan. However:
- Informal or third-party trade through Gulf countries like UAE and Oman still exists.
- Cross-border smuggling in Punjab and Kashmir continues at low levels.
- Private sector dialogue is minimal, with both governments refusing to engage on trade discussions.
Despite WTO and SAARC frameworks, political hostility and security concerns overshadow all economic logic.
The Cost of Broken Trade Ties
The frequent breakdown in trade has cost both nations billions in lost revenue and employment opportunities.
Economic Losses:
- India loses access to a market of 220+ million people.
- Pakistan misses out on affordable imports and raw materials.
- Regional logistics and connectivity remain underdeveloped.
- Trust deficit prevents joint ventures or South Asian economic corridors.
Numerous studies, including World Bank reports, suggest that if normalized, India-Pakistan trade could exceed $20 billion annually.
Conclusion
The story of India-Pakistan trade relations is a tale of potential lost to politics and war. Every major conflict — 1947, 1965, 1971, 1999, and recent terror attacks — has pushed economic cooperation to the background. While trade has occasionally resumed, it has never been allowed to flourish due to recurring hostilities and absence of political will.
In a region plagued by poverty, unemployment, and underdevelopment, trade could be a powerful engine of peace and prosperity. But as long as war rhetoric and unresolved territorial issues dominate, India-Pakistan trade will remain a casualty of conflict.