Key points
- Pakistan and India are on the brink of war again
- Tensions push South Asia into uncharted territory
- Diplomatic relations are at their lowest in years
ISLAMABAD: Escalating tensions between India and Pakistan have pushed South Asia into uncharted territory.
The risk of a full-blown crisis is heightening as bilateral mechanisms are cast aside and diplomatic relations are further downgraded.
Amid warmongering and accusations, experts warn that if India initiates a war with Pakistan, the toll on its economy would be much higher than previously thought.
A macroeconomic analysis by the Centre for Aerospace & Security Studies indicates that a four-week conventional war would incur $750 billion in economic losses to India — three-fourths of a trillion dollars in just four weeks.
This analysis echoes the findings of a previous study made during the height of the 2019 India-Pakistan standoff, which found that India’s losses over such a period would have exceeded half a trillion dollars — $500 billion at a minimum back then, according to Usman W Chohan, Advisor for Economic Affairs and National Development at the Centre for Aerospace & Security Studies, Islamabad.
“A trifling sum”
“This would not be a trifling sum by any means for an economy that had not reached even three trillion US dollars at that time and which is now approaching $4.2 trillion. With the exception of the Covid-19 pandemic that was very poorly handled by the Indian government, India’s economy has grown larger, and so too have the economic stakes for India in the event of a confrontation with any neighbour,” the expert said in an opinion piece published in The Nation newspaper.
Chohan elaborated that the multifactor macroeconomic model used in both studies (2025 post-Pahalgam and 2019 post-Pulwama) assessed aggregate output categories of consumption, government spending (civilian and military), investment, and foreign receipts, with key subcategories within each factor calculated and then normalised on a monthly basis.
“It was cautioned in 2019 that, if the damage were to approach anywhere near this mark, India would have faced a GDP decline of nearly 20 per cent, and a similar proportion today as well. This is an amount seldom seen in recent history, except in the cases of catastrophic economic dissolution as experienced in Argentina (2001) and Greece (2011) during peacetime, and Iraq (2003) and Libya (2011) in wartime,” he opined.
Even countries hit by the worst of Covid-19 would not countenance such destruction.
Impact on investment
“At a time when India is aiming to draw greater investment from around the world, and negotiating tariffs, how would the course of fixed capital and financial investment proceed in the midst of a full-blown conventional war with a neighbour? How would economic activity maintain the semblance of normalcy?” he questioned.
Referring to a brief aerial showdown in 2019 where Pakistan Air Force shot down two Indian fighter jets, and the downing of a helicopter by the Indian air defence system, the expert said India bore a loss of over $100 million in less than ten minutes of air action.
“The dividends of India’s GDP growth on paper have gone almost exclusively to the top 5 per cent of their society, with the bottom 51 per cent majority holding barely 3 per cent of all economic assets. India has 1.2 billion poor people, and barely 2 million high-income individuals, and the thin stratum of ‘middle class’ is calculated at an income of just $10 per day.”
