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The relations between India and Pakistan have never really been cordial. Ever, since the Islamic Republic of Pakistan was carved out of British India, the two countries have been at loggerheads. The countries have fought four wars until now, and the disputed territory of Kashmir has been at the centre of three of those wars.
After the Indian security forces were attacked at Pulwama it Kashmir where 44 soldiers were martyred, there is immense tension in the Indian subcontinent. India has been holding Pakistan responsible for this dastardly attack. However, at the same time, Pakistan has been simply denying any involvement in the attack.
Warmongering and chest thumping by politicians and media channels on both sides of the Indo Pakistan border almost brought the nuclear-armed neighbours to the brink of another war.
The problem is that neither Pakistan nor India can actually afford a war at this stage. India is on its way to becoming a global economic power. On the other hand, Pakistan is on its way to bankruptcy. A war would mean both countries would find it impossible to meet their economic objectives.
In this article, we will have a look at some of the financial consequences that would arise in the event of an Indo-Pak war.
This is because of the size and respective strength of the given economies. The GDP of Pakistan is about $305 billion dollars. Also, the country already has a huge debt burden and is also facing a foreign exchange crisis. India, on the other hand, has a GDP of $2.7 trillion. It is amongst the top 5 economies in the world. Obviously, war will have a huge impact on the Indian economy, but the effects will be disproportionately felt by Pakistan.
With regards to poverty as well, Pakistan is more vulnerable than India. About 33% of the population of Pakistan lives in extreme poverty (less than $1.9 per day). On the other hand, this number is close to 16% in India.
India also has a fiscal deficit problem. The last war, i.e. the Kargil war had cost India close to $1 billion per week. It is now estimated that the current war will cost India $1 billion per day! Hence, if this war were to go on for about 2 or 3 weeks, it would end up increasing the fiscal deficit by 50%. To cover this fiscal deficit, the government would have to levy more taxes. These taxes will make Indian made products less competitive. The rapid growth which India is witnessing on the global stage will be impacted.
War would lead to a dramatic increase in the military spending of India as well. The money will have to be spent to recoup losses to human life as well as damage to property. The pensions to the survivors of martyred soldiers will also have to be paid. Also, the cost of rehabilitating injured soldiers and civilians will have to be borne by the state.
The bottom line is that the economic consequences of the war will be too severe for the fragile economy of Pakistan and the fledgling economy of India. Hence the escalation of conflict should be avoided unless absolutely necessary.
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