India to review 'most favoured nation' status given to Pakistan

India is set to review the most favoured nation (MFN) status accorded to Pakistan in 1996 under a World Trade Organization (WTO) treaty. Prime Minister Narendra Modi has called a review meeting on 29 September to discuss the issue with officials from the external affairs and commerce ministries.

On Monday (26 September), Modi chaired another review meeting to discuss the Indus Waters Treaty signed decades back between the two South Asian neighbours. These steps are seen as India's diplomatic moves to build pressure on Pakistan to act against terrorists.

New Delhi has been accusing Pakistan of harbouring terrorists on its soil and has even demanded that Pakistan be declared a terrorist state. The intensified efforts to diplomatically isolate the country in the international arena came after the recent attack on an Indian Army camp at Uri that left 18 soldiers dead.

During Monday's review meeting on the Indus Water Treaty, Modi said: "Blood and water cannot flow simultaneously." It was decided at the meeting that India will suspend the scheduled meeting of the Indus Water Commission and individually explore ways on using its share of the waters of the Indus, Jhelum and Chenab rivers. So far, India has not exercised its right of using 20% of its share on the three rivers.

The government also signalled during the meeting that they could revive the construction of the Tulbul project in the northern state of Jammu and Kashmir that would benefit the state. India also considered terminating the treaty if Pakistan continues its alleged support to terrorists, The Times of India reported.

Going a step further, on Tuesday, 27 September, Modi announced the government's intention to review the MFN status which allows Pakistan low tariffs and high import quota.

According to reports, Indian businesses are not unduly worried over moves to scale back trade ties with Pakistan as the volume is quite low. India's premier trade body Assocham (Associated Chambers of Commerce and Industry) figures show that of India's total merchandise trade of $641bn (£495bn) in 2015-2016, Pakistan accounted for only $2.67bn. Exports to the neighbouring country totalled $2.17bn, or 0.83%, of the total Indian outward shipments. In terms of imports, trade with Pakistan accounted for a mere $500m, or 0.13%, of the total inward shipments.