The economic impact of the rising tensions between India and Pakistan — tensions that flared after India launched strikes on terror bases across the border early on May 7 — will largely depend on how the situation evolves in the coming days, according to Rajiv Kumar, former vice chairman of NITI Aayog.
Speaking to Moneycontrol, Kumar warned that a prolonged conflict could trigger capital flight and place a heavier fiscal burden on the Indian economy, even though the government has maintained that Operation Sindoor was a focused, non-escalatory action.
Concerns are growing over the possibility of a full-scale military confrontation after India targeted nine terror camps in Pakistan and Pakistan-Occupied Kashmir (PoK). The strikes came just two weeks after the deadly Pahalgam terror attack, which claimed 26 lives.
“The fallout really depends on the scale of escalation,” Kumar said. “In the worst-case scenario, we could see foreign capital pulling out and a substantial fiscal impact, especially with rising defence expenditures. There’s also the risk of a wider current account deficit if defence-related imports surge.”