Pulwama attack: India withdraws Most Favoured Nation status for Pakistan, what is its significance?

India has withrawn the status of 'Most Favoured Nation' for Pakistan after yesterday's Pulwama attack where 40 Central Reserve Police Force (CRPF) soldiers were martyred in one of the worst terror attack on Indian armed forces. Prime Minister Narendra Modi speaking on the Pulwama attack said that the country will revenge the loss of our soldiers as perpetrators of the Pulwama attack have done a big mistake.

Speaking at a public event on Friday, PM Modi said that those behind the attack will not be spared and mentioned that the armed forces have been given complete freedom. The Prime Minister earlier in the day said that he can see that people are extremely angry after the Pulwama attack, therefore, a befitting reply will be given to the perpetrators of the attack.

Niti Aayog Vice Chairman said that the impact of India's decision to withdraw MFN status on Pakistan economy, which is already in deep trouble, could be significant. "On the other hand, India's exports are marginally dependent on Pakistan's market and these can be successively diverted to markets in the Middle East.

What is 'Most Favoured Nation' status?

Most Favoured Nation status basically increases a set of advantages in trade for the recipient country or international trade partner by the country which is awarding this status. Some of the trade advantages which a Most Favoured Nation recieve include low tariffs, high import quotas. It also ensures a non-discrimatory trade with the partner nation who has been given the MFN status. 

Other advantages which a most favoured nation gets include immunity, privileges, low tarrifs and concessions when trade agreements are sealed. It basically means that the country which will be granted the status of Most Favoured Nation will receive a non-discriminatory trade and ensure equal trade among all the WTO member nation. India has granted the MFN status to Pakistan in 1996. 

How will the withdrawl of Most Favoured Nation will affect Pakistan

Since the Most Favoured Nation status to Pakistan has now been revoked in the wake of the Pulwama attack, Pakistan will not be getting direct benefits such as immunity in custom duty in goods trade. India can now increase the custom duties on the goods which are imported from Pakistan, however, India-Pakistan trade ratio is not that high, therefore, it's not going to affect Islamabad much. Since India-Pakistan does not share favourable poltical relation, Islamabad has already blocked the import of 1209 items from India.

India generally import goods like cement, leather, spices, chemicals, fruits and other stuff and export goods like vegetables, iron, steel, fruits, chemicals. Currently trade between the two countries stands at $2 billion where there is a potiential of $37 billion. The revocation of MFN status to Pakistan means that Islamabad will face difficulties in trade with India. Moreover, trade to Pakistan will now be done via Saudi Arabia and not directly through Pakistan.