India, Pakistan economies can ill afford a full scale war

In the current economic scenario, war is not a feasible proposition for either India or Pakistan. While a war will hurt both badly, it could damage Pakistan much more severely because of the state of its finances. 

Pakistan simply does not have the financial muscle to go in for an engagement on that scale. According to the latest report of the State Bank of Pakistan, the country is facing a balance of payment crisis with a deficit close to $18 billion.  

The country’s foreign currency reserves has dropped to an all time low of $8 billion and its public sector debt stands at $75.3 billion, which is about 27 per cent of Pakistan’s gross domestic product (GDP). China has given Pakistan a $2.5 billion loan and the country is seeking a bail-out package from the IMF to overcome its financial crisis. While India too is not immune to the vagaries of war, its $2.7 trillion economy can absorb the impact of a conflict better.

If we compare the economy of the the two South Asian nations, India’s forex reserve is over 50 times bigger than Pakistan’s - $417 billion to Pakistan’s $8 billion. The GDP of Pakistan is minuscule as compared to India’s. It stands at $305 billion against India’s $2.7 trillion. 

India’s gold reserve at 560 tonnes is almost ten times that of Pakistan, which is pegged at 65 tonnes. Besides, India is currently the world’s fastest growing economy, placed sixth in the global pecking order. Growing at a rate of 7.4 per cent, it is even ahead of China today. In the Kargil war, India spent about $6-7 billion in today’s currency terms, while Pakistan’s Forex reserve stands at $8 billion. A war today would be much more expensive in degree 
and scale. 

There is, of course, the larger impact on the economy as well in terms of opportunity lost by not investing adequately in the social sectors. 

Pakistan’s defence expenditure is 3.2 per cent of its GDP, whereas for India it stands at about 2.16 per cent. Both countries spend less than that on public health and education.

In the current scenario, therefore, a war is certainly not advisable for both these growing economies. Trouble is, for India, the threshold level of terror has become too high to be tolerated any more. 

India has suffered - indeed bled - by terrorism for the last three decades. And the price for fighting terror can be best appreciated in a recent study by the Costs of War project at the Watson Institute of Brown University in the US, which says that the direct and indirect costs of war against terror unleashed by the US over the last two decades added up to more than $5.5 trillion. 

Can India afford such an investment in its fight against terror? After the attack on Parliament in 2001 and during the Kargil war in 1999, the then Vajpayee government decided not to cross the Line of Control (LoC). Again, after the 26/11 attack in Mumbai, the UPA government under Manmohan Singh maintained the sanctity of LoC. But Modi who has an absolute majority after 30 years of coalition politics, decided to take coercive action against terror. 

The attack on terror camps before the Parliamentary elections has got the support of people, opposition parties and the international community, including US, Russia and France. But the big question is this: Can India do what US did with Osama Bin Laden? Finance Minister Arun Jaitley believes it is possible. 

The even bigger question is whether India will now go for a decisive fight against terror and finish off terrorists and their training camps based in PoK and in Pakistan? Well, it did so successfully on February 26, 2019. But in the changed circumstances, where an Indian Air Force (IAF) pilot is in the custody of Pakistan, can India go ahead and do the needful? 

Modi says they have given total independence to the country’s forces to act as per the situation. The nation is behind the soldiers and they will take the decisive steps needed in their fight against terror.

Author is Editor-Input, Zee Business