Will A Full-Fledged War Cripple The Indian Economy?

Will A Full-Fledged Shooting War Cripple The Indian Economy?

NSA Ajit Doval’s Defensive Offence doctrine designed to effect a paradigm shift in strategy, has jettisoned the old ‘strategic restraint’ given up as ineffective.

The new policy envisages judicious, well-planned, flawlessly executed, overt/covert limited military action, combined with coordinated economic/diplomatic/political thrusts.

All towards promoting the strategic interests of India First. It being a pronounced foreign policy stance of the Modi government.

Looked at through this prism, the woeful war in 1962,  humiliatingly lost to China; followed by wins in  1965, and 1971 , against Pakistan, saw India reeling under the considerable financial costs of war.

Growth rates then were never in excess of 3.5%, on less than $189 billion, the 1980 figure for the economy. In 1965, the Indian economy even recorded minus 3.7% as a consequence .

The early reforms of the 1980s and the first stirrings of capitalist-style  competition, grew the country at an average of 5.6%  p.a..

In the liberalised 1990s, the growth rate averaged 6.2%.  And at the end of the decade, in 1999, we had a one location conflict with Pakistan on the Kargil heights.

But this time, the economy shrugged off its charge, and grew at 6.5% for both 1999, and the millennial year 2000.

The growth of IT and the new service economy, is said to have offset the cost-impact of the Kargil War. But it was limited to a single location after all, and was mercifully short. Yet it cost India about $15 billion.

Today, 17 years later, any war to come, is likely to be on multiple fronts, involving land, sea, air operations, running to the plains, deserts, high altitudes. This, even if we have just Pakistan to battle.

If China, ostensibly ‘neutral’ for now, decides to get involved, then we might be fighting on widely dispersed fronts.

This will geometrically progress the costs of war. Combined,  as it will be with inflation of some 200%, compared to 1999. And the war, this time, could be much longer.

However, the official Indian economy is now at approximately $ 2.29 trillion. Our present growth rate is between 7.6% and 8% projected.

Could we therefore afford a $ 500 billion war with both China and Pakistan? It is undeniably 25% of the official economy. But yes, we can manage it, but not without enormous dislocation for years to come.

But Pakistan is highly unlikely to undertake it, given its miniscule $220 billion odd economy.

And India, after all, ostensibly just wants all the cross-border terrorism to stop.

That is why, the stock market fell on the 29^th by around 450 points on the Sensex and 150 odd points on the Nifty at the close, but it stabilised on the very next day, to look ahead, to a prospect without war.

Some form of retaliation to India’s strikes, is indeed expected, but it is likely to be proportionate.

 The fact that India does possess considerable deterrence capacity, mainly due to an array of fine Mach 4 missiles, also has something to do with the caution.

Nuclear weapons power, though bandied about by Pakistan, will not be used by any of the three countries concerned, because it will assure mutual annihilation.

India’s array of Mach 4 missiles include the Indo-Russian BrahMos cruise missiles, the Indo-Israeli Barak surface-to-air, the home-grown Surya ICBMs, the French air-to-air Meteors for the Rafale fighters, the American  anti-ship Harpoon.    

Extensive preparatory infrastructure development is also on, including $5 billion worth of new roads, train-lines and airports. A new mountain corps is being raised at an estimated cost of $ 15 billion.

India’s shopping list for military hardware and associated equipment tallies up to at least $150 billion. This is being fast-tracked now.

So, as long as all this, and future pre-emptive strikes, does not tip over into war, it will actually boost the economy. It is already headed towards double-digits because of the ongoing implementation of GST, and better expected  agricultural performance.

China also, will not, want to polarise the Western powers against it. This, despite the importance it attaches to the $50 billion CPEC from Xinkiang to Gwadar.  

India can therefore expect to reap its geopolitical dividend as the designated great equaliser in South Asia and environs.  

For: The Quint

(697 words)

September 30^th, 2016

Gautam Mukherjee