India tightens trade noose on Pakistan: $500 million indirect imports blocked in sweeping ban

In a decisive economic strike following the Pahalgam terror attack, the Indian government has imposed a blanket ban on all imports from Pakistan — direct or indirect — cutting off an estimated $500 million worth of goods previously routed through third countries.

The sweeping trade embargo, notified on May 2 by the Directorate General of Foreign Trade (DGFT), amends the Foreign Trade Policy (FTP) 2023 to explicitly prohibit “direct or indirect import or transit of all goods originating in or exported from Pakistan.”

The directive, citing concerns over national security and public policy, will remain in force until further notice and overrides any existing provisions that might have allowed limited import flows.

In tandem, India has barred postal and parcel deliveries from Pakistan and restricted port access—banning Pakistan-registered vessels from docking at Indian ports and prohibiting Indian ships from calling at Pakistani harbours. The move signals a hardening stance amid a rapid decline in bilateral ties.

“This comprehensive ban, including indirect imports, will empower customs authorities to intercept Pakistani goods attempting to enter India through backdoor routes,” a senior official was quoted as saying.

From diplomatic fallout to economic isolation

The latest measure marks the second major non-military reprisal by India after the imposition of strict visa restrictions. It follows a series of deteriorations in trade ties that began in 2019 after the Pulwama terror attack, when India withdrew Pakistan’s Most Favoured Nation (MFN) status and slapped a 200% tariff on its goods.

Pakistan responded by halting trade with India post the abrogation of Jammu & Kashmir’s special status. Bilateral trade plunged from $2.5 billion in FY19 to approximately $1.2 billion in FY24, with direct imports from Pakistan collapsing from nearly $500 million in 2018-19 to just $0.42 million by January 2025.

The hidden artery: Indirect trade cut off

Though direct trade was reduced to a trickle, Pakistan maintained a quiet economic artery by rerouting goods — valued at an estimated $500 million annually — through intermediary nations like the UAE, Sri Lanka, Indonesia, and Singapore.

Dry fruits, chemicals, textiles, cement, salt, and leather products originating in Pakistan were being repackaged or misrepresented in third countries to bypass Indian restrictions. These goods exploited trade agreements such as the South Asian Free Trade Area (SAFTA) and bilateral pacts with the UAE and ASEAN nations.

“The real economic blow to Pakistan is the chokehold on these indirect imports,” said a senior official involved in trade enforcement. “It plugs a lucrative backdoor that had remained open despite earlier curbs.”

Domestic impact minimal, but symbolic power significant

Think tanks and trade experts argue that the move will have minimal material impact on India’s economy, as Pakistani imports were already negligible.

“No one in India is likely to miss anything — perhaps only Himalayan pink salt,” quipped Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI). “But symbolically, this is a strong message.”

According to Agneshwar Sen, Trade Policy Leader at EY India, “The real disruption will be felt in cross-border economies and smuggling corridors, not in mainstream Indian markets.”

Still, Indian authorities remain cautious. Officials stress the need for vigilant enforcement to prevent circumvention through fraudulent declarations of country-of-origin or transshipments through free trade zones.

What lies ahead

As India simultaneously fast-tracks major hydroelectric projects in Jammu & Kashmir and recalibrates its water-sharing commitments under the Indus Waters Treaty, the message is unambiguous: economic and diplomatic leniency toward Pakistan is rapidly shrinking.

Whether this trade ban triggers a tit-for-tat response or forces Pakistan to recalibrate its regional strategy remains to be seen. But for now, the economic pipeline from Pakistan to India has been sealed—directly and indirectly.