Watan-Tensions between India and Pakistan have sharply escalated over threats of war, following an attack on Indian tourists in the Indian-administered section of Kashmir—a region long disputed between the two nuclear-armed nations. The standoff raises serious concerns about whether either country can economically sustain a war, especially amid global trade instability fueled by U.S. tariffs imposed under President Donald Trump.
In a report released Monday, Bloomberg analyzed the economic fragility of both nations.
India’s Economic Stakes
India finds itself in crisis during sensitive trade negotiations with the U.S., aiming to avoid retaliatory tariffs and position itself as a stable investment hub. Prime Minister Narendra Modi is banking on a trade agreement to bolster investor confidence in India as a safer alternative amid the ongoing U.S.-China trade war.
Pakistan’s Economic Fragility
Meanwhile, Pakistan has narrowly averted economic collapse through a $7 billion IMF bailout and is undertaking its most significant economic reforms in decades. It is also lobbying for relief from 29% reciprocal tariffs imposed by the Trump administration. Islamabad plans to send a trade delegation to Washington in the coming months, with the U.S. being Pakistan’s largest export market.
Military Escalation and Diplomatic Fallout
India blamed Pakistan for the attack, which Islamabad denied. Indian Defense Minister Rajnath Singh vowed a “fitting response,” while Pakistan tested a surface-to-surface missile—its second in recent days—and announced it would formally notify the UN Security Council.
The rising conflict threatens to derail both countries’ economic agendas. Natixis Chief Economist Alicia Garcia Herrero told Bloomberg,
“It’s incredibly unfortunate timing—India risks delaying its global investment appeal.”
Prolonged conflict could distract Modi from a near-final trade deal with the U.S. and undermine separate negotiations with the EU and UK. There are also concerns that escalation might pull in China, a longtime ally of Pakistan and rival to India. Beijing reaffirmed its support for Islamabad, calling Pakistan its “strategic partner in all circumstances.”
Expert Warnings and Market Reaction
Imtiaz Gul, director of the Islamabad-based Center for Research and Security Studies, noted:“India knows a long-term war brings immense uncertainty—something it cannot afford.”
Pakistan, still recovering from record inflation and looming debt, remains highly vulnerable. Moody’s warned that continued tensions could slow Pakistan’s $350 billion economy, drain foreign reserves, and impede access to external financing—although it stopped short of forecasting full-scale war.
Despite the turmoil, stock markets in both countries have shown resilience. India’s markets remained stable, and Pakistan’s index recouped earlier losses. Analysts note that while limited strikes are still possible, neither side appears ready for prolonged warfare.
Conclusion
With nationalistic fervor rising and economic vulnerabilities exposed, both India and Pakistan now face a dangerous balancing act: assert geopolitical dominance without sacrificing hard-fought gains in economic recovery and global credibility.
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