Pakistan may lose $488m in exports

India's decision to scrap the 'most-favoured nation' status to arch rival Pakistan in the wake of the last week's gruesome terror attack in Jammu and Kashmir would hit $488 million worth of goods that the neighbouring country exports to India.

As entire India seethed with anger against the terror attack, the decision to scrap the most-favoured nation (MFN) status was one of the first steps of New Delhi's coercive diplomacy to put pressure on Islamabad.

The main items India imports are: fresh fruits, cement, petroleum products, bulk minerals and ores and finished leather. India exports mainly raw cotton, cotton yarn, chemicals, plastics, man-made yarn and dyes to Pakistan, trade and industry sources said.

Post-MFN withdrawal, India can hike customs duties on several goods being imported from Pakistan. India can also curb export of input materials like cotton and chemical which will cause a spurt in the cost of production for Pakistan's industries. 

In a media briefing after the meeting of the cabinet committee on security that discussed the terror attack, Indian Finance Minister Arun Jaitley said the MFN status to Pakistan stands withdrawn.

India granted the status to Pakistan in 1996 but the neighbouring country had not yet reciprocated. Besides, Pakistan still maintains a negative list of 1,209 items which are not allowed to be imported from India, according to Indian commerce ministry officials.

The MFN status is accorded under World Trade Organisation's (WTO) General Agreement on Tariffs and Trade. Both India and Pakistan are signatories to this and are members of the WTO.

Under the MFN pact, a WTO member country is obliged to treat the other trading nation in a non-discriminatory manner, especially with regard to customs duty and other levies.

The total volume of India-Pakistan trade has increased marginally to $2.41 billion in 2017-18 as against $2.27 billion in 2016-17.

India imported goods worth $488.5 million in 2017-18 and exported goods worth $1.92 billion in that fiscal.

Trade experts said that this decision would not have a major implication on bilateral trade between the countries as the value of trade is below $3 billion annually.

The move would impact Pakistani industries which are exporting to India, said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations.

However, Rakesh Mohan Joshi, international trade expert with Indian Institute of Foreign Trade, said: "The government should take a carefully crafted step as India's exports are more than imports. If Pakistan takes retaliatory actions, then it would impact more to India,"

Professor Biswajit Dhar of Jawaharlal Nehru University said this was the first time India has withdrawn MFN status to Pakistan but he cautioned that this step would be effective only if Pakistan's much bigger chunk of exports to India which is routed through Dubai and Singapore is stopped.

“Only then the impact of withdrawal of MFN facility will pinch Pakistan,” he added.