Surgical Strike: Indo-Pak War Will Push Economy Back by 10 Yrs

1 Year of Surgical Strike: Had India involved in a war with Pakistan, what impact it would have had on the economy.

(As India completes one year since conducting surgical strikes across the Line of Control in Pakistan Occupied Kashmir, The Quint is republishing this piece from its archives that talks about the impact of a likely war between the two neighbouring countries. The piece first appeared on 22 September, 2016.)

The ‘Dogs of War’ are baying on Twitter and Facebook, in editorials and TV debates, post-Uri massacre at the Indian Army’s brigade head quarters.

But let us realise we are not going to fight Pakistan alone this time, their nuclear sabre-rattling notwithstanding.

And the first casualty of an all-out war would be India’s ‘fastest growing economy in the world’ tag.

Headed Towards Double Digit Growth Rate

Without war, at 8 percent growth in GDP in 2016-2017, as per the Niti Aayog projections, the trend sustaining - and the forthcoming GST dividend could add another 2 percent by 2019.

A further 1 percent could come from a well-watered rural economy, this year, and for two going forward, thanks to the La Nina effect.

India could well grow its $2 trillion real economy and its $2 trillion stock market capitalisation for the next two decades, at compounded double digits. It has every chance of becoming a ‘low middle income economy’ within a decade, given the size of its population.

But only if it does not take this bait of war.

Also read: Some Evident Lapses in Uri Call for Immediate Remedial Action

Economy Would Be Pushed Back by a Decade

It would then, over time, be in a much better position to sharply increase its military spending from the paltry 1.7 percent of GDP at present, contribute along the way towards regional security, and grow stronger with each passing year, both economically and militarily.

China’s $50 billion China-Pakistan Economic Corridor (CPEC) in Pakistan is its meal ticket to economic revival, and this is at the core of the true narrative of recent developments.

It has already occasioned joint protection of the work ongoing in Gilgit/Baltistan, and mass arrests of protesters there, even before India asserted its claim on PoK and the territory, just five weeks ago.

At the other end of the proposed CPEC, in Balochistan thousands have been killed ever since India declared its support for its independence movement. Many more ethnic Balochi men, women, and children have been abducted and gone missing. All this is now fodder for the mill at the UNGA in New York for the first time. But apart from the likelihood that we would lose this war, given China’s vast military superiority, we would certainly set our economy back by a decade at least.

Also read: No Nation Must Stumble Into War: Lessons from Op Parakram Post Uri

Likely Impact of Indo-Pak War on Economy

• Compared to the Kargil war in 1999 that cost an estimated Rs 5,000 crore a week then, a war with Pakistan now will cost Rs 5,000 crore per day.
  
• Even if the war lasts for a fortnight, it would cost India at least Rs 2,50,000 crore.
  
• An Indo-Pak war will raise India’s fiscal deficit by 50 percent to about Rs 8 lakh crore.
  
• The war will give a severe blow to the FDI/FII investment and can bring down the value of rupee to Rs 100 to a US dollar.
  

Dampening Effect on the Market

Our GDP rates would plummet. A per day cost of war in 2016 would cross Rs 5,000 crore, considering Kargil, a one-theatre operation, in 1999, was estimated to cost between Rs 5000-10,000 crore a week.

A 14-day ‘short war’ today would cost at least Rs 2,50,000 crore, assuming multiple fronts and contingencies, and raise the nation’s fiscal deficit by 50 percent to about Rs 8 lakh crore, up from Rs 5.32 lakh crore in 2015-16.

This was a healthy 3.9 percent of GDP, down from 4.1 percent the year before. This hypothetical war will also have a sharp knock-on inflationary effect.

It would also ruin the upward trend in FDI/ FII investment, take a 50 percent hit on the bourses, drop the rupee to Rs 100 to the US dollar, put paid to our high tech manufacturing ambitions and render bleak the chances of a revival in the near term.

Also Read: Uri Attack: Did Fire Delay Offensive Ops Against Terrorists?

Looking for an Alternative to War

A war with Pakistan now would suit China very well though, and eliminate a strong rival in contention. China’s determination to protect the JeM, keep India out of the NSG, shower nuclear power stations, military equipment, enter into defence pacts with Pakistan, has to be also viewed in this context.

However, this is not a ‘do-nothing’ prescription against Pakistan’s very competent ‘sub-conventional warfare’ model.

If India changes course, to stick, no matter how insolent the provocation, to responding likewise, we can give tit-for-tat indefinitely, and even make some pre-emptive thrusts and parries. Honour and blood will be served, while our economy keeps chugging forward.

Ramp Up India’s Defence

India can ramp up its own ‘defensive offence’ programme, long advocated by spymaster and NSA Ajit Doval, and create mayhem in India’s legally owned PoK/Gilgit-Baltistan.

We can also fan the revolt in independence-seeking Balochistan till success is theirs. With these regions breaking away as the ultimate objective, other regions, like NWFP, and Sindh, are likely to join the revolt.

We can provide men, materials, training,diplomatic and economic support in the long-term. We can use proxies, ‘non-state actors’, specialised operatives, soldiers, commandos – all being mufti and with ‘plausible deniability’ stencilled on them.

And this, with plenty of scalps taken to assuage what Pakistanis have been doing to us for over three decades. This slowburn would also prevent China from wading in, and blaming us for the privilege!

Stick to Diplomatic Route

Besides, our diplomatic effort to isolate Pakistan as a terrorist state is working. Not only is it under censure from America, Russia, Britain, France, Germany, but also from Afghanistan and Bangladesh, in the SAARC.

More condemnation, perhaps even economic sanctions, may well be on its way.

But not only does Pakistan and China want to seize the Kashmir Valley to secure the CPEC and water flows, humiliating India and trashing its global aspirations, are also their important objectives.

This diabolical joint plan is meant to be decisive, but how can it be, when it is essentially a ‘war of a thousand cuts’, in operation since the 1980s?

(Gautam Mukherjee is a plugged-in commentator and instant analyser. He can be reached at @gautammuk. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)

Also Read: Targeting a Fractured Pakistan: Why Covert Ops Are a Bad Idea