Despite restrictions, $10 billion in Indian goods slip into Pakistan each year via backdoor trade: GTRI study

Indian goods worth over $10 billion are quietly reaching Pakistan each year, routed through ports like Dubai, Singapore, and Colombo to sidestep formal trade restrictions, according to economic think tank Global Trade Research Initiative (GTRI).

In a complex but increasingly common system, Indian firms dispatch goods to these hubs, where third-party companies relabel and re-document them inside bonded warehouses, masking their true origin before forwarding them to Pakistan, according to a GTRI study.

"In the bonded warehouse, the labels and documents are modified to show a different country of origin. For example, Indian-made goods may be relabelled as 'Made in UAE'. After this change, they are shipped to countries like Pakistan, where direct trade with India is not allowed," said GTRI Founder Ajay Srivastava.

This method, Srivastava explained, allows firms to bypass India-Pakistan trade restrictions, sell goods at higher prices through third-country routes, and avoid scrutiny since the shipments appear to originate from neutral ports. The premium charged covers storage, paperwork, and the opportunity to tap into a closed market.

"While this transshipment model isn't always illegal, it sits in a grey zone. It shows how businesses find creative ways to keep trade going -- often faster than governments can react. GTRI estimates Indian goods worth over $10 billion reach Pakistan via this route annually," Srivastava said.

The already fragile trade ties between India and Pakistan may deteriorate further after New Delhi moved to close the Attari Integrated Check Post following the Pahalgam terror attack. Islamabad responded by suspending all trade ties, exporters said.

Trade had been sharply reduced after the Pulwama terror attack in 2019, with India's exports to Pakistan in April-January 2024-25 standing at $447.65 million and imports at just $0.42 million. In 2023-24, exports were $1.18 billion while imports stood at $2.88 million.

In 2022-23 and 2021-22, India's exports to Pakistan were valued at $627.1 million and $513.82 million, respectively, while imports were $20.11 million and $2.54 million.

From April to January 2024-25, organic chemicals and pharmaceutical products made up about 60% of India's exports to Pakistan, totaling $129.55 million and $110.06 million respectively. Other key exports included sugar and sugar confectionery ($85.16 million), vegetables ($3.77 million), coffee, tea and spices ($1.66 million), cereals ($1.39 million), petroleum products ($11.63 million), fertilizer ($6 million), plastics ($4.16 million), rubber ($1.88 million), and auto components ($28.57 million).

Imports from Pakistan remained minimal, mainly fruits and nuts ($0.08 million), oil seeds and medicinal plants ($0.26 million), organic chemicals, and project goods.

The trade collapse traces back to India's decision to raise import duties to 200% on Pakistani goods following the Pulwama attack, effectively banning imports. Before the disruption, Pakistan’s exports to India in 2017-18 stood at $488.5 million.

India also revoked Pakistan’s Most Favoured Nation (MFN) status, a WTO framework obligation, invoking a security exception clause. Though India had granted MFN status to Pakistan in 1996, Pakistan never reciprocated. In 2012, Pakistan had pledged to grant MFN status but later backed out under domestic pressure, offering instead a Non-Discriminatory Market Access (NDMA) agreement that was never finalized.

Pakistan suspended almost all trade with India in August 2019, exempting only critical sectors like pharmaceuticals.

(With inputs from PTI)