Opinion: Opinion | How Pakistan's Anti-India Obsession Turned Into A $40 Billion Blunder

Most people know that Pakistan is in a mess of its own making, with a jailed former Prime Minister, protests in almost all states and peripheries, a power crisis, and an economy running only due to the tight control of international financial bodies. But what has now come to light is that Pakistan has yet another self-inflicted injury. The Chairman of the Pakistan-India Business Council, Noor Muhammad Qasuri, has indicated that the country incurred an estimated $40 billion in economic losses due to trade with India being suspended in 2019, with businesses facing higher sourcing and logistics costs after being forced to import goods from distant markets. Remember that Islamabad chose to stop all trade with India after the revocation of Article 370, which ended the Special Status of Kashmir. Anyone could have forecast that this would impact its own economy.

That Trade Thing

Since relations between the two have always been messy, it is a given that trade potential between the two largest economies in South Asia was never realised. A seminal World Bank Study notes that this has led to barriers in intra-South Asia trade as well. The Bank estimated the potential trade at $37 billion, one of the highest unrealised trade gaps in the world. Despite a South Asian Free Trade Area (SAFTA) agreement signed in January 2004, India and Pakistan continued to maintain long sensitive lists on which no tariff concessions are granted. Pakistan had a long list of 936 items for imports from all SAFTA countries, with an additional negative list of some 1,209 items against India alone, denying it preferential access under the treaty. The reality was that much of this came in anyway through various third countries, usually the United Arab Emirates.

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History now repeats itself. A think tank, the Global Trade Research Initiative, estimates that some $10 billion worth of Indian goods reach Pakistan every year indirectly through ports such as Dubai, Singapore, and Colombo, bypassing trade restrictions. These goods are stored in bonded warehouses, with labels and documents modified to show a different country of origin, and then shipped to Pakistan. That means money for everyone except the governments involved. What is worth noting is that even while this process was on, bilateral trade was minimal. Interestingly, legal trade is also minimal. India's exports to Pakistan in 2025 (April-January) stood at $447.65 million, while imports were a meagre $0.42 million. After Pulwama, India closed the Attari border, imposed 200% tariffs on the two main imports from Pakistan, cement and fruits, and finally ended the MFN Status (Most Favoured Nation) granted way back in 1996. Pakistan, which had never granted such status to India, responded by closing its borders entirely.

The Case of Cement

Since then, Pakistan's once-strong industries in select areas seem to have suffered heavily as one border after another is closed. Cement, where the top producer is the army-owned Fauji Cement, did well as the China-Pakistan corridor focused on infrastructure. The cement industry makes up about 73% of Pakistan's manufacturing sector, with 16 companies with 27 operational plants across the country. The sector is also employment-heavy.

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While all this was internally focused, Pakistan was also a major exporter to Afghanistan, Madagascar, and Somalia, while the main export destinations were Bangladesh and Sri Lanka. As borders, both sea and land come under strain - or are closed entirely, as in Afghanistan's case. The north-based industries, especially, have been badly hit. The Pakistan Cement Manufacturers Association reports a continuous fall in exports, with even the overall internal production badly hit. The economy simply doesn't need that much cement. With major producers like Lucky Cement continuing to see a fall in profits, the India route would have proved extremely handy. Most of these big manufacturers are also politically connected, directly or indirectly. In other words, expect a strong push to the ‘establishment' to open up trade.

Sugar As Politics

That's just one sector. Sugar is another, though it is far less impactful. India imported 13,110 metric tons (MT) of sugar from Pakistan, valued at about $4.68 million in 2018. Now Pakistan faces an apparent surplus - over one million tonnes – which millers argue will boost liquidity, clear warehouses, and settle outstanding dues to farmers, and so on. This is another area where the industry is expected to push for new markets, as losses are reported to be to the tune of some Rs 98 billion amid a decline of up to 25% in sugar prices over the past year.

Prominent among industry leaders is the Sharif group, owned by Nawaz Sharif and his family. The trouble is that in 2019, a slew of cases were filed against Sharif and his daughter, Maryam, over money laundering allegations. That was also probably due to the fact that earlier, India had, in a bid to mend ties with Pakistan, bought sugar from its mills. Now, the whole industry is in trouble, which has been worsened by the fact that sugar cane is fast replacing cotton, leading to a crisis in yet another sector.

Cotton Ginners Forum Chairman Ihsan-ul-Haq said that the persistent failure to enforce crop zoning laws has led to a steady expansion of sugarcane cultivation in traditional cotton zones over the past few years, along with the establishment of new sugar mills. This trend, he said, has not only caused a record decline in cotton acreage and national output, but also environmental pollution linked with sugarcane farming. As a result, Pakistan has slipped in the global index, while India's acreage has increased steadily. Pakistan has tried to focus on value addition by increasing readymade garments production, but it now has to rely on imported cotton. That's not cheap for the state. It means more subsidies in a skewed story, where cotton is its most valued export.

The True Story

Research underlines the keen interest of Pakistani businessmen in trading with India, with even the Lahore Chamber of Commerce recommending earlier that a healthy competition with India in a free trade zone would be the first requirement before exposing their country's domestic market to international trade. It also cites lower labour costs and the entirely export-oriented mills in India, arguing that having similar resources would actually be an advantage to both India and Pakistan in pooling their resources, rather than competing against each other. Those were analyses of the halcyon days, when it was not considered a sin to even talk of such things. Since then, conferences and research papers have highlighted the value of food or commodity trade to all countries in the region, not to mention the employment opportunities for hundreds of drivers, loaders, and all manner of people who serviced the 120-acre Attari land border. The crux of it all, however, is this: India's overall trade has risen steadily, with a target of $1 trillion this year. The opposite is true of Pakistan, which saw a steady contraction since 2023. Its merchandise export proceeds contracted by 5.97% to approximately $30.8 billion this year. It simply cannot survive on such figures. Quite simply put, India can survive without Pakistan, but not the other way around. That's it.

There is an old adage in international relations: democracies never go to war with each other. That is certainly not the case with the Indian subcontinent, but the point is that elected leaders are under pressure to deliver to their populations, especially to powerful businessmen and industry. They are (reasonably) accountable for ensuring that employment remains tenable and that people are employable. The problem here is that Pakistan has been run by the military for more than half its lifetime. And the military has no stake in governance; it is only interested in milking the state for all it can provide. Towards that objective, Pakistan increases the ‘security threat' and, in the present case, has made such a mess that its biggest threats lie within the country and around it. The irony is that its only stable border is the one with India (discounting the Line of Control, which is still terrorist-infested). For Pakistan to realise the ambitions of its hard-working people, the military has to give ground to civilians. Pakistan has reasonably good political leaders. Imran Khan was an excellent administrator for Khyber Pakhtunkhwa, and Shahbaz Sharif for Punjab. Neither, however, made the least push to normalise ties with India. They knew well that any such move would mean immediate demise - politically and physically. This is the Gordian knot that has to be untied. And it can only be untied by a truly powerful General who cares more for his country than his uniform. And such generals are in immensely short supply. Don't hold your breath.

(Tara Kartha is a former Director, National Security Council Secretariat)