War can be a profitable business – if it is happening in a country you are doing business with. Otherwise, it is a wasteful business. “Military Keynesianism” – a WWII-era approach championed by US when public spending was diverted from productive areas towards an arms buildup for allied invasion of continental Europe – is not relevant for developing countries. Nations embroiled conflicts happen to be net arms importers, not net exporters. For them, boosting military spending doesn’t lead to economic growth.
One hopes sanity prevails and India and Pakistan do not go to war. Both countries will lose out. Some folks argue that India, which has a larger economy and is the virtual back-office of the world, would have much more to lose compared to Pakistan in case of a full-scale war. But doesn’t that reasoning validate another argument, that India, being a larger economy, might also confront fewer problems, compared to Pakistan, in financing and sustaining a potential war and later on re-building post-war economy?
Meanwhile, the Pakistan at war will further lose its standing in the eyes of foreign investors, who are being incessantly wooed by the new government. In case of war, immediate concern will be to replenish a handful of forex reserves that already limit Pakistan from stockpiling critical, strategic supplies – such as petroleum, machinery and steel products – beyond a certain level. Naval skirmishes during war can lead to shortages of both strategic supplies and daily-use items.
It is difficult to quantify “cost of war” between nation states. In 2009, then IMF MD Dominique Strauss-Kahn put the “economic cost” of one year of “internal conflict” at 2-2.5 percent of GDP. The last time Pakistan went to war was against terrorists on its own soil. Official data show that between 2001 and 2017, Pakistan suffered direct and indirect economic losses worth $123 billion on account of terrorism in the aftermath of the US-led war in Afghanistan.
Those losses averaged 5 percent of GDP in that period. In the bloodiest five years, from 2008-09 to 2012-13, economic losses – mostly in areas of tax collection, expenditure overruns, physical infrastructure, and foreign investment – averaged 7 percent of GDP. Cross-border warfare isn’t entirely comparable to internal conflict, but the destruction and chaos it can cause internally is arguably on a similar scale.
What if the two countries continue to have difficulties talking to each other? Will the foreign powers sit them down on the table? The global community – basically the Americans, the British, the Arabs and the French – may, at best, draw diplomatic equivalency between India and Pakistan, asking both countries to pull back.
More realistically, the pressure will be on Pakistan to de-escalate, partly because it does not have India’s clout in the West. Pakistan is a smaller market and it does not have the financial muscle to buy billion-dollar weapons from the West. India, the world’s leading arms importer, will seek favors by doubling down on arms orders. Pakistan will have to procure weapons from China, further indebting the former.
Other than avoiding a nuclear war, the West may have little incentive to help resolve Kashmir dispute for good. Their arms export to conflict-ridden countries is not discussed much. At the height of 2001-02 Indo-Pak standoff, Britain sold arms to both countries; even as then British PM urged them to avoid war. France’s President recently snubbed calls for an explanation over use of French weapons in Yemen amid a humanitarian crisis. Some geopolitical observers suspect the real motive behind Trump’s annulment of Iran Nuclear Accord was to appease the Saudis, who have a fat purse and Iran on their minds.
For the above reasons and more, Pakistan has all the reasons to seek peace and address India’s grievances, real or imagined. Unfortunately, peace overtures may be taken as a sign of weakness by a moody next door.
While his 2014 election may have been a reflection of India’s turn towards Hindu nationalism, Modi’s likely re-election in a few months will attest India’s latest turn towards jingoism. That will be a setback for regional peace. But not much can be done about it.
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