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.
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“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.”