The recent upsurge in tensions between India and Pakistan, following the deadly terror attack in Pahalgam on April 22, 2025, has triggered a series of economic and diplomatic repercussions impacting businesses, markets, and jobs in both nations. India has responded with stringent measures, including a complete ban on trade, suspension of postal services, prohibition of Pakistani ships in Indian ports, and closure of its airspace for Pakistani aircraft. Pakistan has retaliated with similar maritime restrictions. These actions, coupled with heightened border security and diplomatic downgrading, are creating a climate of uncertainty and impacting various sectors.
Impact on Business
The most immediate and direct impact is on bilateral trade. India has imposed a blanket ban on all imports from and exports to Pakistan, regardless of whether they are direct or routed through third countries. This will severely affect the already limited official trade between the two nations.
- Trade Disruption: In the period between April 2024 and January 2025, India’s exports to Pakistan were valued at approximately $1.18 billion, while imports from Pakistan were a mere $2.88 million. The trade ban will halt this flow, impacting businesses on both sides that rely on these transactions. Key Indian exports to Pakistan include pharmaceuticals, petroleum products, plastics, rubber, and organic chemicals, while Pakistan’s exports include copper, glassware, and certain organic chemicals.
- Pharmaceutical Sector in Pakistan: Pakistan’s pharmaceutical sector, which heavily relies on imports of essential medicines and organic chemicals from India (valued at around $120.86 million and $164.19 million respectively in 2024), will face significant challenges due to shortages and potential price hikes.
- Increased Trade Costs: The closure of the Attari-Wagah border, the primary land route for trade, will increase transportation costs for any goods traded indirectly through other routes. This will also impact trade with Afghanistan, which utilizes this land route for its imports.
- Informal Trade: Experts suggest that unofficial trade between India and Pakistan, routed through third countries like Dubai and Singapore, could be as high as $10 billion annually. While this route helps bypass official restrictions, the heightened tensions and increased scrutiny might disrupt these informal channels as well.
- Logistics and Supply Chains: The suspension of postal services and the prohibition of ships entering each other’s ports will further strain logistics and supply chains for any remaining or potential trade. Airspace closure for Pakistan-registered aircraft will lead to longer routes and increased operational costs for airlines.
- Tourism and Hospitality: The terror attack in Pahalgam itself has negatively impacted the tourism sector, particularly in Kashmir. Escalated tensions will further deter tourists, affecting hotels, travel agencies, and related businesses in both countries. Hotel and aviation stocks in India have already faced selling pressure.
Impact on the Market
The stock markets in both India and Pakistan have reacted to the escalating tensions, albeit differently.
- Pakistan’s Stock Market Crash: Following the Pahalgam attack, Pakistan’s KSE-100 index experienced a significant crash, plummeting over 7,100 points (around 6%) between April 23 and April 30. This reflects investor concerns about the economic implications of the heightened tensions and potential for further escalation. Although the market showed some recovery later, its stability remains contingent on diplomatic improvements.
- Indian Market Volatility: The Indian stock market has shown more resilience. While there was an initial dip due to increased geopolitical uncertainty, the market has largely recovered. Historical data suggests that the Indian market has generally weathered periods of tension with Pakistan relatively well, with corrections being limited, except for events like the 2001 Parliament attack. However, experts advise caution as any direct confrontation could negatively impact growth and market sentiment. The India VIX, a measure of market volatility, saw a slight increase, indicating some investor apprehension. Sectors like tourism and aviation have faced selling pressure.
- Foreign Investment: Foreign Institutional Investors (FIIs) have continued to show positive momentum in the Indian markets despite the tensions. However, retail investors might adopt a more cautious “wait and watch” approach.
- Gold and Silver Prices: International declines, influenced by the geopolitical climate, have also affected gold and silver prices in local markets.
Impact on Jobs
The impact on jobs is multifaceted and linked to the disruptions in business and market activities.
- Trade-Related Jobs: The ban on trade will directly affect jobs related to import, export, customs, transportation, and logistics in both countries. The closure of the Attari border will impact the livelihoods of people involved in trade and related services there.
- Tourism Sector Jobs: The decline in tourism, particularly in regions directly affected by the tensions or perceived as risky, will lead to job losses and reduced income for those employed in hotels, restaurants, travel agencies, and related industries.
- Manufacturing and Export-Oriented Industries: Businesses that relied on inputs or markets in the other country might face production cuts or reduced demand, potentially leading to job losses or reduced hiring. For instance, if Pakistani industries relied on Indian raw materials, the trade ban could impact their production and employment. Similarly, Indian exporters to Pakistan will see a hit in demand.
- Economic Slowdown: Prolonged tensions and disruptions to economic activity can contribute to a general economic slowdown, which can negatively impact job creation across various sectors. Pakistan’s already fragile economy is particularly vulnerable, with the International Monetary Fund (IMF) and World Bank having already cut its growth forecasts. Rising inflation and potential food insecurity in Pakistan due to the trade halt could further exacerbate economic challenges and impact employment.
- Indirect Employment: The informal trade network, believed to be substantial, also supports a significant number of jobs. Any disruption to these channels due to heightened tensions could lead to indirect job losses.
The upraised tensions between India and Pakistan are having a tangible and negative impact on business, markets, and jobs in both countries. The immediate trade ban will disrupt established commercial links, particularly affecting Pakistan’s pharmaceutical sector. While the Indian stock market has shown relative resilience, prolonged uncertainty could trigger more significant volatility. The tourism sector is already suffering, and broader economic disruptions could lead to job losses, especially in trade-related and tourism-dependent industries. Pakistan’s economy, already facing challenges, is particularly vulnerable to the adverse economic consequences of these heightened tensions. The situation necessitates de-escalation and a focus on diplomatic solutions to mitigate further economic damage and protect livelihoods.
