Comparative Economic Trajectories of India and Pakistan

The signing of the India-European Union Free Trade Agreement (FTA) in January 2026 is a huge development in the South Asian geoeconomic trajectory. For Pakistan, these developments naturally raise important questions. The EU is Pakistan's largest export market, absorbing more than 27% of its exports, or about $8.8 billion in fiscal year 2025. Pakistan currently enjoys duty-free access on over 85% of its exports under the GSP Plus scheme, which is secured until at least December 2027 and is now under consideration for renewal. The FTA shows 30 years of divergent economic trajectories and compels a reality check that the structural advantage of Pakistan in Western markets is getting eroded in a systematic way.

To understand the significance of the India-EU FTA, it is important to consider the statistics of 1990s, when both India and Pakistan were economically similar, with each having a GDP per capita of approximately $370. Pakistan, then, had a more open trade-oriented economy. The decoupling of the countries occurred radically during the next decades.

By 2025, the nominal GDP of India had surged to approximately 4.18 trillion dollars, which is more than 10 times the size of Pakistan's, which is 399 billion dollars. More importantly, the economic structure in both countries has also shifted. India increased its market penetration of high-value services, information technology and specialized manufacturing industries – its exports of services currently constitute more than 40 percent of its total trade. By contrast, Pakistan is still hooked on an export-based economy. In FY2025, textiles and apparel accounted for almost 60 percent of the total exports of Pakistan, making the economy vulnerable to shocks in this sector.