Suspension of Trade and Indus Water Treaty by India: Financial Implications for Pakistan Explored
Rewritten Article:
Post the Pahalgham Terror Attack: economic actions taken against Pakistan by the Government
Join the conversation! After the horrific Pahalgham terrorist attack, the Government has taken some firm economic steps against Pakistan. trade relations and the Indus Water Treaty have been put on hold between the two nations.
According to stats from the Global Trade Research Initiative, a renowned think tank, each year around $10 billion of Indian products indirectly reach Pakistan via UAE. Recent reports suggest that the Indian government is taking a close look at these indirect exports to Pakistan at the moment.
Who is Hashim Musa? The mastermind behind the Pahalgham massacre in Pakistan Moving on, signed in 1960, the Indus Water Treaty allocated the water from six rivers among the two countries. While India was awarded the eastern rivers – Ravi, Beas, and Sutlej, Pakistan gained 80 percent of the water from the western rivers - Indus, Jhelum, and Chenab.
The significance of the Indus Basin for Pakistan
Just over a third of Pakistan's hydropower plants and 80 percent of its agriculture are reliant on water from the Indus Basin. Analysts advise staying vigilant regarding the potential impact of the ceased water flow on Pakistan's economy.
Since its inception, both countries have repeatedly debated the Indus Water Treaty. India persistently advocated for the review or modification of the treaty to accommodate irrigation, drinking water, and hydropower projects, while Pakistan stressed that India's hydropower projects would reduce water flow and violate the treaty. Despite the numerous disagreements, the treaty has miraculously endured through three wars between the countries over the past 65 years.
Consequences of halting the Indus Water Treaty for India
Despite the suspension of the treaty, India lacks the necessary dams and re-routing infrastructure to control water flow. Nevertheless, the discontinuation presents India with the chance to develop water storage or re-routing infrastructure without informing Pakistan, which could prove devastating for Pakistan's agrarian economy and hydro power projects in the future. It remains to be seen if India has the capacity to absorb the excess water.
Current bilateral trade between India and Pakistan Currently, India and Pakistan have a bilateral trade of more than $1 billion. India exported $1.18 billion worth of goods to Pakistan in 2023-24, while the value of imported goods was $2.88 million, according to the Department of Commerce. Approximately 60 percent of India's exports to Pakistan consist of chemicals and pharmaceutical items. The trade halt between India and Pakistan is expected to escalate the cost of various goods in Pakistan.
State of Pakistan's economy
Pakistan's current economic condition calls for attention. The country had only $12 billion in foreign exchange reserves by the end of 2024, according to the World Bank. The GDP of Pakistan is approximately $373 billion, which is less than one-tenth of India's GDP, as per the IMF. Pakistan's GDP growth has fallen dramatically, from 6.5 percent in 2021 to 0 percent in 2023.
Stay updated with foreign trade policy, Pahalgham Terror Attack, Trade updates, Share Market, Stock Market Quotes, India News, and business news only on our website or App.
Additional insights:
- The suspension of the Indus Water Treaty may lead to severe consequences for Pakistan's agricultural sector, which is vital for approximately 68% of its rural population. Cutbacks in water availability might lead to reduced crop yields, food shortages, and economic instability in rural regions.
- The halt of the Indus Water Treaty could strain Pakistan's hydroelectric power generation, worsening existing challenges in the power sector, already struggling with significant debt. This could raise electricity prices further and impact the overall economy.
- Reduced water availability due to the Indus Water Treaty's suspension could lead to food insecurity and economic instability, given Pakistan's low water storage capacity and current high external debt.
- Trade disruptions caused by the suspension of bilateral trade could significantly increase the cost of essential goods in Pakistan, such as chemicals and pharmaceuticals, further burdening the economy. India's exports to Pakistan, valued at $1.18 billion in 2023-24, could have a substantial effect on Pakistan's domestic market.
- The suspension offers India opportunities to establish new water storage or re-routing infrastructure, albeit at the cost of potentially contentious geopolitical implications due to the lack of formal obligations to Pakistan.
- For India, the trade disruption might result in reduced exports, but the impact on India's larger economy is likely to be minimal compared to Pakistan's severe repercussions.
- The Government, post the Pahalgham terror attack, is scrutinizing the indirect export of Indian products to Pakistan, worth approximately $10 billion annually via UAE.
- DEFIs (Decentralized Finance) and the finance industry are closely monitoring the economic repercussions of the halted Indus Water Treaty between India and Pakistan.
- Political tensions and war-and-conflicts between India and Pakistan have indirectly affected the economy, with the suspension of the Indus Water Treaty and trade relations causing concerns.
- The financial implications of the Indus Water Treaty's suspension on Pakistan's economy are significant, as it houses more than one-third of its hydropower plants and 80% of its agriculture relies on water from the Indus Basin.
- The Indian government is considering strategies to develop water storage or re-routing infrastructure, capitalizing on the suspension of the Indus Water Treaty, which could have severe consequences for Pakistan's agrarian economy and hydro power projects in the future.
- Crime-and-justice and general news organizations are following the ceased water flow under the Indus Water Treaty, given its potential impact on Pakistan's agricultural sector, hydroelectric power generation, and overall economy.
- The economic condition of Pakistan necessitates immediate attention, as it had only $12 billion in foreign exchange reserves at the end of 2024, despite a small GDP growth compared to India.
- The suspension of the Indus Water Treaty may also inflate the cost of essential goods in Pakistan, such as chemicals and pharmaceuticals, due to the halt in bilateral trade with India, valued at $1.18 billion in 2023-24.
