India's Recent Trade Halts with Pakistan and Bangladesh: Causes, Impact, and Future Outlook:

INDRANIL PATHAK PAUL
May 21
3 min read

In a surprising geopolitical shift, India has recently suspended or significantly restricted trade with both Pakistan and Bangladesh — two of its key neighbors in South Asia. These decisions are rooted in political tensions, security concerns, and strategic recalibrations. But what does this mean for the economies involved? Will India feel the pinch, or are the consequences more severe for Pakistan and Bangladesh? Here's a breakdown.

🚫Why Did India Halt Trade with Pakistan and Bangladesh?

India-Pakistan: Fallout from Terror Tensions

India stopped trade with Pakistan following the Pahalgam terror attack, which killed several Indian security personnel. This incident triggered a rapid diplomatic and economic response from New Delhi. India closed the Attari-Wagah border, one of the few remaining trade routes, and reimposed a 200% import duty on Pakistani goods, effectively ending formal trade ties.

Tensions have been simmering since 2019, when Pakistan suspended bilateral trade after India's revocation of Article 370 in Jammu & Kashmir. However, some unofficial and third-country trade had continued until the recent attack pushed India to draw a hard line.

India-Bangladesh: Strategic Friction over the Bay of Bengal

India imposed restrictions on six key import items from Bangladesh — including garments, processed foods, rubber products, plastics, and wooden furniture. This move followed statements from Bangladesh’s interim leadership suggesting potential limitations on Indian access to the Bay of Bengal, particularly affecting India’s northeastern trade corridor.

New Delhi views these comments as a strategic concern, particularly as Bangladesh holds a key position in regional connectivity projects and India's "Act East" policy.

📦What Goods Were Traded ?

India–Pakistan Trade (Before Suspension)

India’s Exports: Pharmaceuticals, APIs (active pharmaceutical ingredients), sugar, auto parts, fertilizers.
Pakistan’s Exports: Dry fruits, cement, rock salt, glassware, gypsum, herbs.

India–Bangladesh Trade (Before Restrictions)

India’s Imports from Bangladesh: Garments, food products, rubber and plastic goods, wooden furniture.
India’s Exports to Bangladesh: Edible oil, LPG, fish, crushed stone — these items are still exempt from the ban.

📉Economic Impact: Who Loses the Most ?India: Minimal Direct Impact

India’s trade with Pakistan and Bangladesh accounts for a small fraction of its total international commerce.

Trade with Pakistan was under $500 million in 2023 — just 0.06% of India's global exports.
The Bangladesh ban affects only specific product categories and excludes essential commodities, ensuring that Indian consumers and northeastern states don't experience major shortages or price shocks.

Bottom Line: India can absorb these changes with little economic disruption, though regional supply chains in the northeast may feel some strain.

Pakistan: A More Painful Blow

Pakistan is more vulnerable to this trade freeze:

Pharmaceuticals and APIs from India are crucial. Pakistani drug makers rely on Indian raw materials for up to 40% of their supply.
The shortage of Indian sugar, fertilizers, and chemicals will likely affect agriculture and push food inflation even higher in an already struggling economy.
The closure of the Wagah border also raises costs for Afghan trade routed through India, complicating regional logistics.

Impact: Pakistan faces short-term supply shocks and long-term inflationary pressure, further weakening an economy already under IMF scrutiny.

Bangladesh: Sector-Specific Pain

Bangladesh may experience moderate setbacks, particularly in exports of garments and food products to India. However:

Bangladesh maintains diverse trade relationships, including strong ties with China, the EU, and Southeast Asia.
Essential commodities like fish and LPG continue flowing to India, mitigating economic fallout.

Impact: The trade curbs are a wake-up call but not an economic disaster. Bangladesh is expected to navigate around these curbs relatively smoothly.

🌐Informal and Third-Party Trade Continues

Interestingly, despite formal bans, informal trade via third countries such as UAE and Singapore continues. Goods like Indian pharma, sugar, tea, and Pakistani dry fruits are being re-exported through alternative routes — often at higher costs.

This shows how deeply interwoven South Asian economies are, despite political tensions.

🧭Final Thoughts: Strategy Over Economy?

India’s recent trade moves appear more strategic than economic. The minimal financial impact on India contrasts with the deeper economic and supply-chain disruptions in Pakistan and, to a lesser degree, Bangladesh.

This trade strategy sends a clear message: economic cooperation depends on political alignment and regional security. Whether this marks a temporary recalibration or a long-term decoupling remains to be seen.

As regional geopolitics evolve, so too will the economics of trade and diplomacy in South Asia.

Author’s Note: While trade suspensions make headlines, long-term peace and economic cooperation will benefit all three nations far more than isolation. As always in international politics, today’s closure might be tomorrow’s opening — if diplomacy returns to the table.

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Thankyou for Reading

Indranil pathak paul

21/05/2025