As calls to punish Pakistan for supporting terror attacks in Kashmir and elsewhere reverberate through the country, and war clouds become darker, RPG Enterprises chairman Harsh Goenka sounded a contrarian warning on Wednesday to beware of “economic tremors”.
In a Let’s-be-careful post on ‘X’ Goenka cautioned an escalating war could mean a volatile rupee, less FII investment, spiking oil prices, lower infrastructure spending and a falling stock market.
Predictably, there was blowback. Many X users said they were willing to see the economy going down but not let India’s national pride be overtaken by terror attacks.
These netizens had made a point. There’s is always a human and economic cost to defending our borders. National security cannot be reduced to budgetary haggling. What has to be done, has to be done. Having said that, what RPG’s Harsh Goenka is urging is to keep the broader picture in mind and not let passions runaway and overtake the nation’s goals of planned growth and poverty alleviation.
A deadly decade
Russia marched into Ukraine in February 2022, expecting to be in Kyiv within 15 days. It is now more than 3 years the grinding war has carried on with no end in sight. Writing a paper for the International Monetary Fund (IMF) on the economic shock of war, well known Harvard University economist Kenneth Rogoff said: “Russia’s invasion of Ukraine is an unmitigated catastrophe for global peace… But the war also greatly compounds a number of preexisting adverse global economic trends, including rising inflation, extreme poverty, increasing food insecurity, deglobalisation, and worsening environmental degradation.”
Giving an example, Rogoff pointed out Russia and Ukraine combined accounted for a quarter of global wheat exports, while Russia is a major supplier of fossil fuels, especially to Europe. But with these supplies disrupted, the prices of food and fuel had shot up impacting consuming countries everywhere.
A recent, much quoted study by the Kiel Institute and the University of Tubingen, based on data from more than 150 wars since 1870, shows Ukraine will lose about USD 120 billion in economic output (GDP) and almost $ 1 trillion in capital stock by 2026. Non-belligerent third countries, and more particularly Germany, are expected to face output losses of about $ 250 billion, of which $ 70 billion are being borne by the European Union alone.
Will it now be India and Pakistan’s turn to add to the heightened global militarization – perhaps the highest level seen since Ward War II? The Global Peace Index, released in June 2024 documents 56 ongoing armed conflicts worldwide, the most since World War II, involving 92 countries in conflicts outside their borders.
In this limited analysis, we can’t even begin to get into the human cost. Russia is slated to have 315,000 casualties with over 125,000 dead in the three years. Ukraine, which has fought a defensive war has a lower casualty rate but President Vladimir Zelensky has conceded the loss of 35,000 military personnel. Israel’s Gaza campaign has topped 50,000 Palestinians killed and almost the whole population of the strip has been rendered homeless.
One of the deadliest and underreported wars, starting in 2020, has been fought in Ethiopia between the breakaway region’s Tigray People’s Liberation Front (TPLF) and the Ethiopian government. Civilians have borne the brunt and Belgium’s Ghent University estimates that that 385,000 to 600,000 civilians had died of war-related causes by August 2022. The Global Peace Index estimates war and conflict in recent years has created a army of migrants touching 110 million.
Can we pull back?
India and Pakistan have gone to war on 4 occasions – 1947, 1965, 1971 and the 1999 Kargil war. Some anecdotal evidence on the Kargil war showed India was spending `1,460 crore a day, while Pakistan’s costs were `370 crore a day. The UAE-based Foreign Affairs Forum has been quoted projecting that even a limited military standoff today can cost India $1.8 billion and Pakistan $1.2 billion.
It is significant how the stock markets have been looking at the current hostilities. On the first day it saw the early Wednesday morning strikes by India on Pakistan targets as a limited skirmish. Discounting any long term engagement, the markets – which were expected to plunge – in fact rose marginally and the BSE Sensex closed 105 points higher at 80,746.
However, when the firing across the border intensified and jets scrambled for air combat, the jitters in the market also increased and the benchmark Sensex on Thursday, 7 May fell sharply by 412 points. By Friday, when the limited engagement was turning into a shooting war and Jammu and other cities saw explosions and blackout, the indices tumbled and the BSE closed 880 points down.
Volatile political conditions are anathema to business and economic growth. A long term regional conflict will not benefit anyone. Reporting from the frontiers shows it is still not an all out war, and things can be pulled back from the brink. Pakistan has been served a lesson. It is time to return to diplomacy and to business as usual.