Despite the ceasefire, several punitive measures taken by India against Pakistan will directly affect its economy. Let’s find out how.
Although India and Pakistan agreed to a ceasefire on May 10, India’s five punitive measures adopted during the recent conflict following the Pahalgam terror attack will continue to affect Pakistan’s fragile economy, even with the suspension of hostilities. These measures, including the suspension of the Indus Waters Treaty, closing airspace and a complete ban on direct and indirect trade, remain in place.
In his first address to the nation on Monday following the success of Operation Sindoor, Prime Minister Narendra Modi made a firm statement that terror and trade, or terror and talks, cannot happen together. “India’s stand is very clear… Terror and talks cannot go together… Terror and trade cannot go together…. Water and blood cannot flow together,” he said.
The message was strong and direct that India’s punitive economic actions against Pakistan will continue, signaling that India will not engage in normalcy with a nation that continues to sponsor terrorism.
How will India’s punitive measures impact Pakistan?
In response to the devastating Pahalgam terror attack on April 22, which claimed 26 lives, India took decisive diplomatic and economic actions against Pakistan for its alleged support of cross-border terrorism. These measures were intended to exert pressure on Pakistan and include:
Suspension of the Indus Waters Treaty
The Indus Waters Treaty, signed on September 19, 1960, is a vital water-sharing pact between India and Pakistan, facilitated by the World Bank after nine years of negotiations. It was signed by then Indian Prime Minister Jawaharlal Nehru and Pakistani President Ayub Khan. According to the Indian government, Pakistan depends heavily on the Indus river system, accounting for 80 per cent of irrigation over its 16 million hectares of farmland and 93 per cent of its overall water use. This river system supports 237 million people and contributes around 25 per cent of Pakistan’s GDP through key crops like wheat, rice, and cotton.
However, with limited live water storage, just 10 per cent of annual flow capacity (14.4 MAF) in major reservoirs like Mangla and Tarbela, any interruption in water supply could cause severe agricultural damage, food insecurity, water shortages in cities, and widespread power outages. These disruptions could severely impact critical sectors such as textiles and fertilizers, potentially triggering a broader economic and foreign exchange crisis.
Suspension of trade
The Directorate General of Foreign Trade (DGFT), in a notification dated May 2, which introduces a new provision in the FTP 2023, imposes a blanket ban on imports from Pakistan. The directive specifies “to prohibit direct or indirect import or transit of all goods originating in or exported from Pakistan with immediate effect until further orders”.
The ban on ‘indirect’ imports is expected to severely affect Pakistan, which is already struggling with high inflation and a weak economy. While direct trade between India and Pakistan remains minimal, a considerable volume of goods is traded through third-party countries. As per a report, items such as dry fruits and chemicals worth around USD 500 million reach India via other nations. With India’s new comprehensive ban, covering even indirect imports, customs officials will now be able to block Pakistani goods routed through intermediary countries, according to the Times of India.
Closing air space
India had issued a Notice to Airmen (NOTAM) barring all aircraft registered, operated, or leased by Pakistan, including both commercial and military flights, from using Indian airspace. This move significantly disrupts flight schedules, lengthens travel times, and increases operational costs for Pakistan International Airlines (PIA).
The extended flight durations demand more fuel, lengthier crew shifts, and could even compel the airline to reschedule or cut back on certain routes.
Closing of borders
The closure of the Attari border, the main trade link between India and Pakistan, is expected to significantly harm Pakistan’s economy. This move will disrupt the flow of goods, adversely affecting small traders and manufacturers who rely heavily on this route.
Additionally, India’s decision to suspend access to the Kartarpur Sahib Corridor, which enables Indian pilgrims to visit one of Sikhs’ most revered shrines in Pakistan without a visa, could impact tourism in the region.
Shipping and parcel services ban
India’s ban on shipping and parcel services to and from Pakistan will negatively impact Pakistan’s already fragile economy, especially its export sector and access to Indian-origin goods and intermediate products. Shipping companies may be forced to reroute their operations, causing delays in deliveries and disrupting Pakistan’s connectivity with global trade networks. Additionally, the prohibition on Pakistani vessels using Indian ports could further strain the country’s logistics and shipping industry, which is already struggling.
The overall economic situation in Pakistan could be further weakened due to reduced trade, increased costs, and the potential for further isolation.
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