War would be huge financial burden for India, Pakistan

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NEW YORK – No doubt, India is justified in its incursion and attack across the border, in Pakistan, to hunt and eliminate terrorist bases. However, India and Pakistan might well ponder on the words of President Dwight Eisenhower, also an Army General, who ruminated on the high cost of war: “The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities…We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.”

Eisenhower is also credited for these words on the futility of war and strengthening national security: “We will bankrupt ourselves in the vain search for absolute security.”

An all-out war for India and Pakistan would be economically disastrous, more so for the latter who are on the verge of financial perdition.

The human cost and emotional trauma in its wake from a debilitating war is high enough, as the two nations know well enough.

The Kargil War, in May-August 1999, saw 527 casualties on the Indian side, according to official accounts, while Pakistan were left to rue the death of 357 to as high as 453 soldiers, reported The Economic Times.

Lessons were not learnt from the 1971 war, where 3,843 Indian soldiers and close to 8,000 Pakistani soldiers died, which ended with the capture of more than 90,000 Pakistani prisoners of war.

After the attack on Parliament in 2001, the ensuing conflict on the border led to massive costs for both countries, reported Scroll.

India spent $600 million between December 2001 and January 2002 and Pakistan spent another $400 million. Estimates by the Strategic Foresight Group suggest the two countries ended up spending more than $3 billion in the short period of time due to confrontation and the overarching possibility of a nuclear war.

In 2003, India increased its military spending to Rs. 653 billion from Rs. 560 billion the previous year while Pakistan’s rose marginally from Rs. 158 billion to Rs. 160 billion, Scroll noted.

Scroll reported in 2016, after the Kargil War, that Pakistan’s military expenditure as a percentage of its gross domestic product is substantially higher than India’s and the same goes for its per capita military spending. Pakistan spends almost twice as much as India per citizen on its military and the amount rose from Rs. 1,060 in 2003 to Rs. 1,161 in 2007.

The Strategic Foresight Group observed that India spent Rs. 14.6 billion per day in 2002-2003 on confrontations with Pakistan while the latter spent another Rs. 3.7 billion per day during the same period.

Scroll reported that the findings of the study revealed that a defence budget cut could release 1% of GDP for India and nearly 2.5% for Pakistan.

Pakistan spent Rs. 424 billion in visible and invisible payments to terror outfits and its own military in the year 2004, which was about 10.6% of its GDP then, according to estimates by the think-tank.

Meanwhile, the global costs of a potential nuclear war between India and Pakistan could prove immensely high. More than 21 million people would be killed, half the ozone layer destroyed and a “nuclear winter” could affect rains and agriculture across the globe, an analysis by IndiaSpend noted, Scroll reported.

The peace overtures made by Pakistan, by its military and political leadership in recent days to India, is likely to do more with the pathetic state of its economy, than anything else.

As per data from the Asian Development Bank, Pakistan’s GDP growth stands at 4.8%, lower than even Nepal (5.5%), reported Business Today. Pakistan’s latest GDP figures have slipped from 5.4% in 2017 and 5.8% in the following year.

Standard & Poor’s had downgraded Pakistan’s long-term credit rating to ‘B-Negative’ and said the GDP growth rate would fall to 4% in 2019, then stay at 3.5% for the next two years and fall further to 3.3% by 2022.

Inflation, on the other hand, has galloped to a four-year high of 6.5%, up from 3.9% in 2018. This is the highest in the Indian subcontinent, including India, Bangladesh and Nepal, noted the Business Today report.

According to Reuters, Pakistan’s jump in inflation comes after its central bank devalued the currency five times since December 2016, weakening it by 26% against the dollar during that period.

The country’s foreign currency reserves have reportedly dwindled to around $8 billion, just enough to cover about two months of imports. Pakistan’s Prime Minister Imran Khan, since he assumed office, has gone on a begging spree for funds, across the world.

For India too, a war would come at a time when the economy is looking vulnerable, and FDI has weakened. The general elections around the corner is making it a tough situation for Prime Minister Narendra Modi.

Ashutosh Varshney, the Sol Goldman Professor of International Studies and the Social Sciences and Professor of Political Science at Brown University, where he also directs the Center for Contemporary South Asia, writing in the Indian Express, wrote of the dynamics of war with Pakistan, and its effect on the upcoming national elections.

“India is perhaps headed towards its first national security election ever. Security will compete with unemployment and farm distress as a critical election issue, and depending on what happens to Indo-Pak tensions, it might even eclipse the significance of economics. If Pakistan goes for a military retaliation, which hurts India significantly, that might just gift an election victory to Modi, who looked quite vulnerable only a few weeks ago,” Varshney wrote.

A bruising war with Pakistan would come at a steep economic cost for the billion plus population of India. The country is hard pressed to keep up with steady development, growth, and employment for youth.

And there is bad news on the economic front, for India.

Reuters reported today, on Thursday, India’s economy likely grew at its slowest pace in over a year in the October-December quarter as weaker rural incomes and softer urban demand weighed on consumption.

The median forecast from more than 55 economists polled by Reuters on February 19-25 was for growth of 6.9 percent, compared with 7.1 percent in July-September.

Forecasts for the GDP number ranged between 6.3 percent and 7.9 percent, and suggested a significant drop from a more than two-year high of 8.2 percent in April-June 2018.

Global uncertainty over trade conflicts, Brexit and oil prices could add to growth headwinds in India, the RBI’s Monetary Policy Committee said.

A slowing economy could be a concern for Modi’s government, which wants to boost lending and lift growth before the election, Reuters reported.

Adding to India’s headache is news that the flow of foreign direct investment into India is dropping and may suffer its first full-year decline since Modi came to power in 2014.

The reversal from strong numbers in Modi’s initial years in charge may indicate that investors are being deterred by the government’s recent protectionist policies and uncertainty about this year’s general election result, reported Reuters, in a separate report, today.

Inbound FDI dropped 7 percent to $33.5 billion in the nine months between April and December 2018, compared with $36 billion in the year-earlier period, according to figures released over the weekend.

Industry experts and some government officials said the investment inflows may remain sluggish for the next few months as investors wait to see who forms the next government after the election.

There is also concern among some foreign businesses about the Modi government’s increasingly protectionist tilt. That was illustrated by moves at the beginning of this month to tighten rules on the ways that big foreign-controlled online retailers Amazon and Flipkart, which is controlled by giant U.S. retailer Walmart, are allowed to operate, the report said.

Walmart last year invested $16 billion in buying 77 percent of Flipkart. It is unclear how much of that deal is reflected in the latest FDI data.

India has moved up 53 places in the World Bank’s Ease of Doing Business survey to 77 in the last two years, and Modi is aiming for a top 50 spot by next year. A war might hamper all those plans.

There is a growing feeling, some business leaders said, that while countries such as Vietnam are offering tax holidays to investors, India has shifted towards protectionism under political pressure, Reuters reported.

“Lack of policy certainty along with upcoming elections are two reasons that the reduction in foreign direct investments can be attributed to,” said Sachin Taparia, founder of Local Circles, a network of about 30,000 businesses.

However, financial constraints would likely be pushed aside when it comes to quelling any further infringements by Pakistan. India has for long tolerated cross-border terrorism which has taken thousands of lives.

Modi is likely showing that he is different from his predecessors in the past, when it comes to dealing with Pakistan. If need be, he would not be wary of declaring war with Pakistan.

Geostrategist Brahma Chellaney, writing in the Hindustan Times, noted that India missed a chance to punish Pakistan for the December 2001 attack on Parliament, carried out by Jaish-e-Mohammed operatives.

“Had the then Prime Minister Atal Bihari Vajpayee quickly responded with punitive airstrikes to the December 2001 Jaish-e-Mohammed attack on Parliament — at a time when much of Pakistan’s F-16 fleet was not airworthy due to a lack of spares — India probably would have been spared the Pakistan-scripted terrorist carnages that have followed,” Chellaney analyzed. “The lost golden opportunity was compounded by nearly 18 years of political dithering on allowing limited uses of air power, such as taking out trans-border terrorist launch pads. India’s belated use of air power to strike a terrorist safe haven has finally sent a clear message: it is not afraid to escalate its response to the aerial domain in order to call Pakistan’s nuclear bluff.”

The question, however, for Modi to consider and reach at a decision would also be as to what exactly would India accomplish if it’s drawn into war with Pakistan. Would the scourge of terrorism end?

What, if a month after the war with Pakistan is called off, another terrorist attack claims some more Indian lives.

What will India do then?

Eisenhower had this to say of war as well: “This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.”

(Sujeet Rajan is Executive Editor, Parikh Worldwide Media. Email him: sujeet@newsindiatimes.com Follow him on Twitter @SujeetRajan1)