Pakistan-India Trade:

The Pakistan-India Trade Relationship:
Prospects, Profits, and Pitfalls
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MICHAEL KUGELMAN
In November 2011, the government of Pakistan announced its decision
to grant Most Favored Nation (MFN) status to India. This
means that India, in principle, will enjoy lower tariffs and fewer
trade barriers in its economic relationship with Pakistan. The decision,
which followed New Delhi’s extension of MFN status to Pakistan in
1996, underscores Islamabad’s willingness to deepen commercial ties
with its long-time nemesis.
The potential for greater trade between the two is considerable.
Current trade volume is less than $3 billion, but some experts estimate
that a normalized trade regime could eventually send the figure soaring
to $40 billion. 1 Such projections take into account, in part, the large volume
of informal Pakistan-India trade, which not long ago equaled that
of formal trade, and is now estimated at about $1 billion. With more formal
trade, according to an estimate from 2011, more Indian cotton, petroleum
products, telephones, cars, organic chemicals, and tea will flow
into Pakistan, while more Pakistani dates, jewelry, medical supplies, and
petroleum oils will surge into India. 2 Many of these exports are now
transacted informally (such as by smuggling or through third countries).
Trade TalK
In 2012, intensified trade diplomacy between Islamabad and New Delhi
yielded a range of achievements. Early in the year, Pakistan abolished
Michael Kugelman is the senior program associate for South Asia at the
Woodrow Wilson International Center for Scholars.