After water, India’s export offensive on Pak; air cargo route can be shut down

Indian exports valued at $10B continue to enter Pakistan via third nations despite freeze; Government weighs suspending air cargo route after Kashmir attack that killed many innocent tourist

In a major policy turn after the terrorist attack on April 22 in Jammu and Kashmir, India is setting up a new trade offensive against Pakistan, with possible controls over the indirect export of electronics and ecommerce products. The step comes amid rising tensions after the attack that resulted in the deaths of at least 26 tourists and was executed by The Resistance Front (TRF), a Pakistan-backed proxy organization of Lashkar-e-Taiba.

As per a report from CNBC TV18 quoting official sources, the Indian government is also looking for measures to reduce the volume of its exports to Pakistan, even though the direct trade between the countries is minimal. India is also getting itself ready for a potential closure of the air cargo corridor, an essential transportation route for exporters, in case Pakistan decides to impose airspace restrictions.

Indirect Trade Thrives Despite Official Ban

While India and Pakistan formally suspended bilateral trade in 2019, trade between the two continues—primarily via third-party nations such as the UAE, Sri Lanka, and Singapore. A recent Global Trade Research Initiative (GTRI) report estimates that more than $10 billion worth of Indian products still enter Pakistan each year through these transshipment centers.

Goods in high demand such as electronics, gold, gems, jewellery, and online goods are among these. But the circuitous route increases costs many times over since the products are exported to places like the UAE, warehoused in bonded warehouses, repackaged to conceal their Indian origin (commonly stamped “Made in UAE”), and finally re-exported to Pakistan.

GTRI gave the following example for cost inflation: Indian auto components of $100,000 can be re-exported to Pakistan for $130,000 by relabelling and freight costs.

India Considers Strategic Trade Tools

After shifting to exercise more control over water resources under the Indus Waters Treaty, India is now indicating that it may employ trade as another strategic tool. Government officials are reportedly studying the economic effect of limiting indirect exports and making contingency plans for possible disruption to the air cargo route, which would impact Indian exporters in regional markets.

This possible crackdown is a part of a larger re-examination of India’s economic interaction with Pakistan, specifically against the backdrop of national security issues and cross-border terrorism.