The recent Pahalgam attack has once again escalated tensions between Pakistan and India, fueling fears of military confrontation. While political rhetoric dominates the headlines, the severe economic costs of such a conflict ranging from disrupted trade to long-term developmental setbacks remain overlooked.
This snapping of relations between Pakistan and India has not happened for the first time. From the wars of 1947 to the wars of 1965 and 1971 to the Kargil conflict, cross-border activities and occasional hot skirmishes have always threatened the stability of South Asia. While the military effects of the conflict between these two nuclear-armed South Asian neighbors are certain and tangible, the economic impacts are latent, longer lasting, and, nevertheless, grossly understated.
Expanding the conflict between Pakistan and India to a full-scale war would be as disastrous in human terms as in economic terms and would have detrimental effects on both Pakistan’s and India’s economies, as well as the economies of neighbouring nations and the whole world.
Critical resources are always diverted from development to defense when armed conflict erupts. But in any war, governments are compelled to spend more on the military via redirections to the budget or even borrowing. A conflict, even for a limited period, would impose strain on a public finance already burdened with fiscal deficits, rising debt, and limited foreign exchange reserves for Pakistan.
The immediate loss would be in trade, investment, and industrial productivity. The closure of borders, broken supply chains, and the collapse of investor confidence would wipe out the latest economic gains. The continuing decline of agriculture, manufacturing, tourism, and services, already suffering from inflation and unemployment, would continue.
Although security remains a priority for the state particularly in a volatile and unpredictable strategic environment compared to many other indicators, many economists argue that a rupee spent on weapons and troop mobilization is one rupee less for education, health, and infrastructure. Recovering from war is often not just about repairing physical infrastructure but rebuilding institutional trust and investor confidence, both of which are tricky in unstable places.
The social fabric also suffers. It also includes devaluation of prosperity, psychological trauma, internal displacement, increased poverty, and inflation. When war comes, it means loss of livelihoods, price hikes, and disrupted education for the middle and lower classes, whose scars will likely last for years.
Despite goodwill deserting its shores, Pakistan and India remain economically linked, formally and informally. These linkages would sever in a war, increasing the isolation of each. Then it would not only further weaken SAARC politically but also make it further irrelevant. As opposed to the kind of economic cooperation seen in ASEAN or the EU, South Asia, which already has one of the lowest levels of intraregional trade globally, would move farther away from that integration if the threat of transit obstruction is allowed to restrict cooperation.
While nationalism prospers in the short term, the long term cost of war is economic regression, social fragmentation, and a lost generation. Both are at a time of great domestic challenges — poverty, inequality, climate threats — and can ill afford conflict. In a world where all countries depend on one another, real power comes from economic fortitude, working together, and judicious international behaviour. Though peace is a difficult thing, it remains the most profitable policy
Traditional partners and countries wary of regional instability would stop pumping foreign direct investment. The perception and reality of these security costs would drive out engagement and international partnerships that both nations desperately need for long-term development.
Any spurts in violence are sure to cause spikes in global markets, affect trade routes throughout the region and, most of all, raise the alarm of investors around the world, as both of the countries are key players in South Asia.
The slightest whiff of a nuclear flashpoint to the war would unsettle the energy markets and the geopolitical alliances. Those global powers would have to begin applying diplomatic means to contain the situation, deflecting their focus and resources from global cooperation in climate, health, and technology.
The price of conflict in South Asia is simply too high; history is clear on this. India needs to appreciate the fact that its provocations in inflaming regional tensions will cost it economically far more than Pakistan and therefore its national security should be based on economic security, regional interaction, and strategic diplomacy – not in reckless militarism.
While nationalism prospers in the short term, the long term cost of war is economic regression, social fragmentation, and a lost generation. Both are at a time of great domestic challenges — poverty, inequality, climate threats — and can ill afford conflict. In a world where all countries depend on one another, real power comes from economic fortitude, working together, and judicious international behaviour. Though peace is a difficult thing, it remains the most profitable policy.
