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Economic Impact On Pakistan After Pulwama Attack

As you are aware that more than 40 Central Reserve Police Force (CRPF) jawans have killed last week in the Pulwama district of Jammu & Kashmir (J&K)^[1]. It is considered as one of the worst terrorist attacks in the last several years. On this attack, strategic analysts are debating for all the possible options in terms of taking revenge from such terrorist communities to reinstate the faith of the general public. However, every political or economic move made by the government has long term impact; but still, it cannot recover the cost of loss of lives.

Now, Indian people want the government to punish perpetrators even if it means carrying out surgical strike across the border. Therefore to give a reply to the terrorist communities the Indian government has taken some significant steps. Let’s have a look at all these steps in detail;

Actions Taken by the Indian Government after Pulwama Attack

The following measures are in process on the immediate basis after the Pulwama Attack:

• Less than 24 hours after the terror attack in Jammu and Kashmir’s Pulwama district, India withdrew the status of Most Favoured Nation Status of Pakistan. However, the withdrawal of MFN will impact the relationship of India with Pakistan favored countries like China, etc.

• Under the Customs Tariff Act, customs duty increased to 200 percent on all Pakistani imports to India. On the other hand, it will impact the revenue generated from Pakistan to India.

• Union Minister Nitin Gadkari on February 21 said that the government has decided to stop India’s share of water which used to flow to Pakistan. Gadkari said in a tweet that water from Eastern Rivers would be diverted to Jammu and Kashmir and Punjab. However, this requires the construction of a dam which will cost a considerable amount to India.

• The construction of the dam has started at Shahpur- Kandi on Ravi River. Moreover, UJH project will store India’s share of water for use in J&K, and the balance water will flow from 2nd Ravi-BEAS Link to provide water to other basin states. This will require a large amount of infrastructural planning cost and labor cost.

While the withdrawal of the MFN status by India is detrimental in sentiment terms for the bilateral relations. The impact on trade is unlikely to be substantial given that volumes of merchandise trade are low.

The MFN provision, given in Article I of the General Agreement on Tariffs and Trade (GATT) is a principle of non-discrimination, which prohibits WTO member countries from discriminating between their trading partners subject to certain exceptions. It obligates all WTO member countries to treat all other member countries equally as ‘most favored’ trading partners.

India has been honoring its MFN obligation towards Pakistan since 1996, i.e., after the formation of the WTO. However, Pakistan has not done so.

Most Significant Developments in the aftermath of the Pulwama Attack

The following significant developments were taken on February 17^th, 2019

• Pakistan feels the pressure as more neighbors protest
• IMG Reliance not to broadcast Pakistan Super League
• Pakistan Government websites hacked
• Kashmir separatists lose security cover
• 23 with suspected links to Jaish-e-Mohammad Detained
• Army has given a free hand to punish culprits

Reactions of different farmers on restricting vegetables to Pakistan

Nearly 5000 farmers, engaged in tomato cultivation, have supported the decision of the community to mark their protest against the Pulwama Attack that claimed the lives of at least 40 soldiers.

• Ravindra Patidar, a Farmer, said “We are farmers, and we grow tomatoes. We also export tomatoes to Pakistan. And by eating our food, they are killing our soldiers. We now pray for Pakistan’s destruction. We will also not let any other country sent tomatoes to Pakistan,”
• Basanti Lal Patidar, a large scale tomato cultivator, inform “We now do not have any concern about the prices of tomato getting export. If there will be no soldiers, how will (we) survive. All the surplus money coming from export will go in vain.”

According to Tomato Trade Association’s president Ashok Kaushik, the market sends 75-100 trucks of tomatoes to Pakistan.  The mandi has also decided not to send any products to Pakistan.  Currently, tomatoes in India are selling at Rs 10 per kg while in Lahore the prices have skyrocketed to Rs 180 per kg, according to a journalist who’s covering the South Asia region

Impact after the withdrawal of “Most Favored Nation” status from Pakistan

Pakistan will no longer enjoy rebates on the tariff, freer markets and a free flow of goods that come with the Most DFMFN status. These bonuses are helpful for the participating countries as they give local products broader access to markets, but it may also cause price wars and make domestic industries weak.

Data suggest the bilateral trade between India and Pakistan increases to $2.41 billion in 2017-18 as compared to $2.27 billion in 2016-17 with India being a net exporter of goods worth $1.92 billion in FY17. Pakistan exported products worth $488.5 million in 2017-18.

However, the trade potential between India and Pakistan are much higher than the existing trade between the two nations. A World Bank report in September last year highlighted that commerce between India and Pakistan could grow up to USD 37 billion. It can only be if both countries eliminate artificial trade barriers.

To Sum Up

While looking at the past, India has a total of 4 wars with Pakistan. But, India never reacted in such a violent manner before. It will be challenging for Indian political regime to unite and respond with a robust planned strategy without hitting the Indian economy badly.