Ashraf Engineer
May 24, 2025
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
I was never among those who felt that the India-Pakistan conflict that followed the Pahalgam terror attack would turn into a full-blown war, but there were many who thought it would. Some even feared the use of nuclear weapons. None of that, of course, happened.
A war would have been disastrous. The loss of lives and the physical damage would have been significant and there would have been a heavy economic cost. The economic consequence of a full-scale war would extend way beyond military costs to regional instability, damage to global trade networks and the unravelling of developmental efforts undertaken through the decades.
So, let’s try to decode the cost of such a war between the two countries.
SIGNATURE TUNE
In these times of shrill public discourse and easy amplification through social media, there is a climate primed for escalation. It’s easy for high-pitched rhetoric to lead to unwise actions and then to war. As I said earlier, the economic consequences of that would be significant.
Let’s first consider the difference between the economies of both countries.
India is the world’s fourth-largest economy and will most likely remain among the top two or three fastest growing ones. GDP growth is expected to hover around 6%. Pakistan, on the other hand, will likely post 2.7% to 3.2% in 2025 off a much smaller base. In fact, the GDP of Maharashtra alone is higher than that of Pakistan.
India boasts of a diversified economy, with a substantial share of technology, services, manufacturing, real estate, and so on. The middle-class is sizeable and India remains one of the world’s most sought after investment destinations.
Pakistan, meanwhile, is more reliant on agriculture than India, has a smaller tax base, a volatile currency and is in constant need of external debt.
Among the negatives in India is that it is not generating enough jobs and per capita income remains relatively low. Private investment is not picking up the way it should either. Pakistan, on its part, is struggling with population growth, limited job creation, poverty and a host of other issues. It is very vulnerable to external shocks.
India is the much stronger economy and will remain so. In fact, the gap between the two countries will likely widen in the years to come.
That brings us to the dent a war can make in this landscape. Even low-intensity warfare would cost billions every day – money that would have otherwise been used for infrastructure, healthcare, education, social welfare programmes, etc. India is among the largest arms purchasers in the world. A war would mean a diversion of even more money from the priorities I mentioned. That would be terrible because India ranks low on the Human Development Index. So, there is a critical need to increase spending on health and education. The additional financial burden war entails would be borne by ordinary people.
India’s defence budget is Rs 6.81 lakh crore – small, compared to China’s Rs 17 lakh crore. Military aggression would put India on tough terrain. Consumer spending is down and the tax cuts in the Union Budget were a tacit admission of that. So, India can ill afford to sharply raise spending elsewhere.
Which brings us to the cost of war. There have been various estimates, but they generally say that India would spend Rs 1,460 crore to Rs 5,000 crore a day even in a short-term war. If the conflict prolongs, the cost could rise to an eye-watering Rs 1.34 lakh crore per day.
The impact of a war on the markets would be significant. The Karachi Stock Exchange plummeted 2,000 points as soon as India began military operations. Indian stock markets too fell. What you can learn from the 2001-2002 military standoff following the attack on India’s Parliament is that even a very limited confrontation could cost India Rs 15,300 crore, accompanied by a flight of capital and currency depreciation. A full-scale war would mean many multiples of this number, especially because India would increase defence imports and thus widen the current deficit. In the recent conflict, a lot of made-in-India arms were used but we aren’t fully self-sufficient yet.
Trade between India and Pakistan was valued at $1.2 billion in 2024. That would cease almost entirely. The Attari-Wagah border alone sees $451 million in cross-border commerce. After the Pahalgam attack, India shut this border. A war would lead to similar action, disrupting Pakistan’s access to Indian pharmaceuticals, soyabean, poultry feed and other products. India could face minor shortages of cement and dryfruit. Thousands of jobs would be lost on both sides of the border.
After the 2019 suicide attack in Pulwama, which claimed the lives of at least 40 soldiers, Pakistan’s exports to India plunged from $550 million to a mere $480,000. If a war breaks out, chances are the proportionate fall would be even greater.
There would be severe air travel disruptions, as we saw recently, with many airports shut and airspace restricted. Hundreds of flights were cancelled. Pakistan shut its airspace altogether and airlines had to use longer routes around the country. This led to longer travel times, excess fuel use and higher costs. This would happen again in case of a war and the disruptions would be prolonged.
A war would impact infrastructure and supply chains too. There would be damage to existing infrastructure and further investment in it would slow or pause. Multinational corporations would review their investments in India, thus slowing economic growth.
Perhaps the greatest threat would be faced by energy supply chains and shipping routes. Insurance premiums for shipping would go through the roof and make oil imports very costly. That in turn would affect the prices of essentials and send inflation soaring.
The other risk to consumer prices would come from currency depreciation. Geopolitical tensions would lead to capital outflows, weakening the rupee. While hostilities may have cooled for the moment, currency traders would keep hedging against volatility in the Indian rupee.
In early 2025, there was some easing of inflation – although cost of living remained high overall – but an external shock like war would reverse this trend. War disrupts logistics and leads to panic buying, making prices spike upwards.
The latest tensions between India and Pakistan have come at a bad time, although there can never be a good time for such a thing. Globally, growth is weak and the appetite for risk is shrinking. The world’s largest economies are turning fiercely protectionist; Donald Trump’s tariffs are a case in point. They have been put on hold or rolled back in many cases but they remain higher than before.
India is no longer a matter of bemused interest for global equity markets; it is a major player now. Already rocked by trade wars, the markets would fall further in the event of a full-scale conflict between India and Pakistan. As I said earlier, the fall would be steeper if trade and energy routes are threatened.
A word about the impact on the technology sector too. India is a global tech power and the industry has been a magnet for venture capital and outsourcing. But it thrives on a bedrock of stability. A war could cause firms to delay contracts, relocate operations or pause expansion. Technology stocks would depreciate too.
Among the sectors that would do well are defence and cybersecurity. And gold — seen as a safe haven for wealth — would almost certainly rally.
As efforts to cool tensions further continue, the finance and defence ministries would have assessed the cost of conflict escalating. The cost of war during a delicate economic period and its impact on the populace would have been worked out.
These are complex calculations, of course, but what’s very clear is that military conflicts simply cannot be undertaken without wider economic fallouts. I’ve explained how such a war would impact not just India and Pakistan, but the world. So, it becomes not just a regional flashpoint but a global risk. After all, we live in a globalised world, despite all the protectionism. There are irreversible economic linkages and a war would trigger a chain reaction in places far removed from India and Pakistan. We can all do without that.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
