India’s Operation Sindoor launched against Pakistan in the backdrop of April 22 massacres of civilians in the disputed Kashmir region is likely to have economic cost for the entire region including New Delhi that despite its higher growth is not immune to expected and unexpected shocks.
Economist say the war would impact Indian economy more widely than being seen currently as the attacker has to spend ten times more than the defenders.
Pakistan, which is just coming out of economic stagnation, and India, with its robust economic growth, both have large populations that need investments to rise above poverty levels. Mostly drafted before this month’s India-Pakistan clashes, projections see South Asia grow at 5.7 percent. The resultant geo-strategic environment, loss of political focus on development in terms of diversion of resources, climate change effects, investor confidence, and consumer sentiment will determine the actual impact on the growth prospects in consequential region with nuclear powers bordering each other, and one fourth of humanity living in the SAARC region.
Here is what we know so far.
Between May 7 and May 10, spanning 87 hours and 25 minutes, India’s NIFTY 50 and BSE Sensex, the country’s flagship stock market indices, lost a combined $82 billion in market capitalization. This is in addition to the military losses the South Asia’s biggest country experienced.
For instance, the downing of five fighter Jets as claimed by Pakistan Air Force, would have cost New Delhi a cumulative loss of US $ 956 million (almost US $ one billion in just hour-long dog fight along the Line of control in disputed Kashmir valley.
Airspace closures in northern India resulted in commercial aviation losses of about $8 million per day. The suspension of the Indian Premier League (IPL) led to losses of $50 million from television rights, ticket sales, and advertising. Military operations cost an estimated $100 million, while the loss of jets amounted to $400 million
According to a study conducted by Pakistani economist, Dr. Farrukh Saleem, Pakistan’s KSE-100 index fell 4.1 per cent, losing roughly $2.5 billion in market capitalization. The suspension of the Pakistan Super League (PSL) resulted in $10 million in losses from broadcasting and related revenue. Airspace closures caused commercial aviation losses of approximately $20 million.
All the logistical preparations and mobilization of forces along 3323 kilometers long border with Pakistan in the states of Gujarat, Rajasthan, Punjab and the disputed territory of Kashmir contributed significantly to India’s war expenditures.
“Being the fastest growing South Asian economy, India has more to lose than Pakistan,” says Dr. Qais Aslam, head of Economics Department at Lahore’s University of Central Punjab.
If Pakistan’s claim to have downed five fighters jets including 3 French-made state-of-the-art aircraft Rafale warplanes is true, Prime Minister Narendra Modi’s government not only lost an estimated staggering $ one billion in the very first hour of its operation but, as noted by French newspaper Le Monde, also exposed Indian Air Force’s weaknesses.
In addition to human losses, the daily financial cost of the conflict for India might be more than Rs 14.6 billion that it incurred during Kargil war against Pakistan’s expenditure of Rs 3.7 billion.
India’s total GDP worth US $ 4 trillion and it has a handsome foreign exchange reserves of over $650 billion, which can help cushion against a rise in military costs. But shocks to the stock market in case of potential investment outflows could send a disastrous message to investors.
But economy is just one part of the war calculus.
There is a huge political risk and a possibility of a strategic setback involved in such operations against a neighboring country like Pakistan, which not only has a strong military but the backing of its powerful ally China.
India has unresolved territorial disputes in the Himalayan region with its much more powerful and bigger and adversary China — an open wound that is just quiet at the moment after deadly clashes a couple of years ago.
Secondly, India is facing international embarrassment with the loss of several high-tech fighter jets including Rafale jets. According to Le Monde, these are the first ever known losses Rafale, considered NATO’s ultimate fighter je has suffered.
New Delhi claims that its airstrikes against what it called “terror infrastructure” sites in Pakistan were effective in that they took out several terrorists. India has blamed Lashkar-e-Taiba militant group as being behind April 22 gun attack in Pahalgam. Pakistan has rejected the claims, showing video clips and pictures of sites and civilian victims, saying there has been no evidence of any terrorist harboring at these sites.
According to Indian strategic experts, India adopted an Israeli model against Pakistan this time by depending more on projectiles and drones, which backfired as Pakistan struck back forcefully.
What does an Israel-like response cost, and what does a violent conflict do to a nation’s economy?
In the current fiscal year, India has increased its defense budget to Rs. 6 trillion, still modest to China’s 2024 defense budget of over US 200 billion. Israel’s defense budget has risen by 65 percent over the last one year and it accounts for 8.8 percent of its GDP. Can India hike its defense budget from 2.4 percent to 8 percent.?
Indian airline companies are already bracing themselves for a rise in fuel costs because of longer journey times. Tourism in Kashmir region is also likely to take hits. Before the U.S.-mediate ceasefire, Indian and Pakistan forces traded heavy shelling across the Line of Control that divides the disputed territory.
Some estimates say due to closure of Pakistani airspace, the Indian airlines are going to experience an annual loss of US $ one billion as commercial flights will have to cover much longer route and consume much more fuel.
“India will have to make expensive imports from other countries after suspension of trade with Pakistan and Afghan transit trade,” Muhammad Bilal Iftikhar Khan, a political economy PhD researcher said.
He feared that the conflict between India and Pakistan would further lower the Intra-SAARC trade which has been hovering around 5 percent of region’s total trade over the last several years.
Politically and strategically, President Donald Trump’s announcement about the U.S.-mediated ceasefire shattered the Indian claims that India-Pakistan disputes were off-limits to any mediation.
Not only did President Trump say that his administration averted a nuclear showdown between the the two South Asian countries but he also revealed the use of trade threat against both countries.
Trump also said he has close ties with both countries and would be expanding bilateral trade with both of them.
Diplomatically, while several regional and Middle Eastern countries openly expressed support for Pakistan after the Indian attack, New Delhi had nothing to show in terms of backing from regional and international friends — which according to Indian experts and commentators has come as a shock to Indian diplomatic standing.
India, seen in the West as a possible challenger to China, also seems to have suffered a setback in its battle of narratives with Pakistan. Christine Fair, an American expert on strategic issues, recently told Indian journalist Karan Thapar that New Delhi’s claim of having shot down Pakistani jets were rubbish.
In terms of domestic politics, the Indian operation has also opened Modi to scathing attacks, with domestic rival questioning the country’s purchase of high-tech jets and the efficacy of its defense systems.
