War may slow down India’s growth by up to 3%

ISLAMABAD: If Pakistan and India go to war over the Pahalgam incident, their economies would bear the brunt, facing severe and far-reaching consequences due to their current economic conditions, global interdependence and the costs of modern warfare.

Dr Nadeem-ul-Haq, an eminent economist, former deputy chairman of the Planning Commission, and ex-Vice Chancellor of PIDE, who has also worked at the IMF in various capacities, said that in the event of war, the economies of both Pakistan and India would suffer, as wars devastate economies. He noted that although India’s economy and reserves are in better condition than Pakistan’s, Pakistan’s determination, backed by its highly professional army, could make a difference.

The economic data of 2024 available with this scribe suggests that the size of the Indian economy stands at $3.7 trillion, with annual military budget at $75 billion. According to experts, an immediate military conflict could cost India $20-$50 billion in direct costs such as weapons and troops mobilisation. Indian GDP growth could slow by 1-3 per cent depending on war duration and intensity.

As far as Pakistan is concerned, its GDP stands at $375 billion, and its military budget is $7 billion annually. Pakistan’s GDP may hover at 2.6 percent in the current fiscal, according to IMF estimates, but it could turn negative in case of a war. Though Pakistan’s economic indicators have improved, the economy is still on the way to stabilisation. The war costs for Pakistan could easily exceed $10-15 billion in a short period.

And more importantly, foreign investment in India could decline sharply due to risk perception. And the trade routes could be disrupted, especially with key partners like the US, EU, and Middle East. The sectors like tourism, manufacturing, and tech could take a significant hit. Popular destinations like Kashmir, Rajasthan, Goa, and Kerala would see drastic drops in tourism. Apart from this, international tourism would collapse due to safety concerns.

According to Antonio Bhardwaj, an international writer on wars, a short-term conventional war between India and Pakistan could cost India between Rs1,460 crore and Rs5,000 crore per day in direct military expenses. A prolonged conflict, when accounting for broader macroeconomic impacts, could lead to catastrophic economic losses exceeding $17.8 billion (Rs1.34 lakh crore) daily.