Traders, economists heave a sigh of relief as India-Pakistan border tensions recede, ceasefire brings hope

Mint

12-05-2025

New Delhi: Cautious optimism has begun to seep in across Indian trade, industry, and economic circles amidst a fragile calm spawned by a ceasefire between sparring neighbours India and Pakistan.
After intense border hostilities threatened to choke economic activity in key manufacturing and export hubs in the northern and western parts of the country, the ceasefire has brought a measure of relief to industry, four people directly involved in trade and related policy matters told Mint.
The closure of at least 32 civilian airports across northern and western India in recent days and heightened checks at ports had started to disrupt trade flows and triggered an exodus of migrant workers from key industrial hubs. Traders are now hopeful that the ceasefire will ease nerves and reverse the migration.
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Meanwhile, economists do not expect border tensions with Pakistan to impact India's economic growth. They expect the second half of the fiscal to make up for any loss of growth momentum on the back of multiple tailwinds such as a possible trade deal with the US later this year, a trade agreement with the UK that was concluded recently, predictions of a good monsoon, and strong monetary policy support from India's central bank.
To be sure, with the ceasefire now in place, exporters and owners of manufacturing facilities are cautiously optimistic that migrant workers—from Bihar, Uttar Pradesh, Odisha, Madhya Pradesh, and West Bengal—who had begun to return home fearing prolonged disruptions, will be assuaged.
Business slows
Due to the migration, production had slowed in manufacturing centres like Amritsar, Jalandhar, Ludhiana, Surat, Bhuj, Kachchh and Rajkot—where textiles and engineering goods form the economic backbone, they said.
'With the ceasefire declared, we are hoping that those (workers) remaining will stay and those who have left will come back," one of the four people mentioned above, a textile unit owner in Ludhiana, said requesting anonymity given the sensitivity of the matter.
'There's definitely a shift in mood," said a Rajkot-based auto component exporter and manufacturer, the second of the four people mentioned above. 'If things hold steady over the next few days, we should be able to resume normal operations by mid-May."
'With the ceasefire in effect, key ports are expected to gradually ease heightened security protocols, and airports are likely to resume limited operations," said a government official, the third among the four mentioned earlier. 'The industry will now focus on ensuring that shipments meet deadlines and that labour availability is restored in affected zones."
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The temporary uncertainty might still reflect in the export figures for May, especially in labour-intensive sectors.
'The escalation has obviously impacted domestic trade, especially since Punjab, Delhi, and Rajasthan are major markets in the country," said Rahul Mehta, chief mentor of the Clothing Manufacturers Association of India (CMAI). 'The situation is under close watch. Some trade shows scheduled to be held in Ludhiana and Chandigarh have already been cancelled or postponed. One major fabric show in Ahmedabad has also been called off. Overall, the sentiment is not very positive."
Mehta added that even if the situation does not escalate further, the prevailing uncertainty will affect market confidence. 'Under such circumstances, business will continue, but very cautiously," he said.
The Engineering Export Promotion Council (EEPC) said shipments of capital goods have not yet been affected, but acknowledged the risks if the situation drags on. 'As the tensions did not escalate, supply chains and outbound shipments will not get impacted and should return to their normal course," EEPC chairman Pankaj Chaddha told Mint.
Although the government has not issued an official trade advisory, contingency plans are being discussed with states to secure logistics routes and stabilise labour availability, especially in the textile sector and engineering goods, said another government official, the fourth person mentioned earlier.
Queries emailed to the ministries of commerce, textiles, and the chief secretaries of Gujarat and Punjab remained unanswered till press time.
Economic momentum intact
Economists remain optimistic about India's GDP growth trajectory and are betting on 6.5% GDP growth in the current fiscal (FY26)—within the range of 6.3-6.8% growth projected in the 2024-25 Economic Survey.
'We should continue with our investment plans and I think we should be able to maintain our economic growth rate of 6.5%," said EY's chief policy advisor D.K. Srivastava, adding that achieving this will be aided by completing the proposed free trade deal with the US.
Srivastava said that India could make somewhat higher allocations for defence. India has a defence budget of ₹4.9 trillion in the current fiscal, up 7.6% from the year ago period.
Sachchidanand Shukla, group chief economist at Larsen & Toubro, said this fiscal would be a story of two distinct halves. The first half was marked by uncertainty mainly from the reciprocal tariff announcement by the US and, to a lesser extent, the border tension with Pakistan.
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'The second half is expected to do well and make up for any loss of growth momentum in the first half as India stitches together a trade deal with the US as has been done with the UK," Shukla said. 'Besides, the growth-facilitating monetary policy action by the RBI (Reserve Bank of India) and the expected above-normal monsoon are likely to boost economic expansion in the second half. Overall, we are looking to end FY25-26 with about 6.3-6.8% growth."
The RBI has forecast India's economy to expand at 6.5% in the current financial year. In nominal terms, GDP is forecast to grow at 10.1%, according to the Union budget for the year. Experts are betting on the resilience of the domestic economy, improving consumption demand, easing inflation, public investments into infrastructure, and the government's plans for fiscal consolidation.
RBI had said in its 9 April monetary policy statement, which came after the reciprocal tariff announcement, that risks are evenly balanced around its baseline projection of 6.5% growth this fiscal, and uncertainties remained high in the wake of recent spike in global volatility.
To be sure, the reciprocal tariffs announced on 2 April by the US are suspended for 90 days till early July to facilitate trade negotiations.
Key export hubs
India's major textile manufacturing hubs include Tiruppur, known for knitwear; Ludhiana for woollen and hosiery products; and Surat for synthetic fabrics. Ahmedabad and Mumbai-Bhiwandi are key centres for cotton and powerloom textiles. Panipat leads in home furnishings, while Karur, Coimbatore, and Erode are known for garments and textile processing. Bhagalpur and Varanasi are famous for silk and traditional weaving.
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India's key engineering goods manufacturing hubs include Rajkot, known for auto parts and machine tools, and Ludhiana, which specialises in bicycle parts and hand tools. Coimbatore is a major centre for pumps and motors, while Jamshedpur houses large steel and heavy engineering units. Pune and Chennai are strong in automotive and industrial machinery. Howrah has a long-standing base in light engineering and casting.
The export of textiles stood at $34.40 billion in FY24 and rose to $36.55 billion in FY25, while engineering goods exports increased to $116.54 billion in FY25, up from $109.22 billion in FY24.