Hindu on war at whatcost

War at what cost?
The Indian economy can no doubt survive a war, but the sacrifices it will have to make in terms of development will be substantial, writes Alok Mukherjee.











THOUGH THERE has been some scaling down of tension on the Indo-Pakistan border, war clouds still loom large. And the cost of a war is tremendous, both for the victor and the vanquished.

Every war has a human cost, a social cost and an economic cost. Now, in case things come to such a pass that India and Pakistan engage each other in an armed conflict, what could be the possible impact on the former's economy? Needless to say, the economic cost for Pakistan would be much more given the current dismal state of its economy, but that could hardly be a consolation for India.

The Indian economy is possibly the fifth largest in the world (in terms of purchasing power parity worked out by IMF and World Bank), but then the problems this huge economy has to address are also numerous. More than 260 million Indians live in abject poverty; a large middle class is struggling to adjust to the market-friendly economic policies where consumption levels are being pushed up because of the demonstration effect even as jobs become scarce and, economic growth is inhibited by the lack of infrastructure and investible resources. In such circumstances, the Indian economy can no doubt survive a war, but the sacrifices it will have to make in terms of development will be substantial.

Already a large portion of the annual budget is devoted to the armed forces. The defence budget for this year is some Rs. 62,000 crores, not all of which is for defence equipment and ammunition. A significant portion is earmarked for salaries and pensions and little is left for capital expenditure. In case of an armed conflict, there is a possibility that more money would have to be diverted to defence purchases, to replenish ammunition if nothing else. The limited localised action in Kargil in 1999 cost the country an extra Rs. 3,007 crores and this cost would be multiplied many times in case of an Indo- Pakistan war. The Indian economy does have the resources to finance the war, but it will obviously have to cut costs elsewhere.

There would be other areas which would feel the impact of war. One immediate requirement would be for additional fuel to cater to the increased demand from the armed forces. The oil import bill, possibly the largest component in the nation's import bill, is already estimated to be about Rs. 80,000 crores and this could go up in proportion to the increased demand. On the other hand, exports which principally finance the country's imports, are already on a low growth path, and an international conflict could only aggravate matters. Potential importers from abroad would be loath to visit a country at war and therefore the possibilities of bagging extra export orders could be substantially curtailed.

The same principle would apply to foreign investors. As it is, there has been a slowdown in the inflow of foreign direct investment with just about $3.6 billion coming in between January and September 2001. Fear and uncertainty will be added to the list of foreign investors' woes in case of an all-out war with Pakistan. That both India and Pakistan have nuclear weapons has added another fearsome dimension to the whole issue.

Another cost India may have to bear is a drop in its invisibles earnings. Tourism around the world has taken a beating after the September 11 attacks in the U.S. and India has not been spared from the dwindling worldwide tourist flow, more so because of the U.S. action in Afghanistan. In case India and Pakistan directly engage each other in an armed conflict, only a few bravehearts will dare to venture here.

A similar effect is expected in the case of domestic tourism. In uncertain times and especially if the country is at war, few would have the inclination for fun and frolic and travel to tourist spots and the resultant effect on the hospitality industry as well as the transport sector could well be imagined. Kashmir is a ready example where terrorism has practically wiped out the tourism industry, mainstay of the State's economy.

A war has other depressing effects. The overall mood of the nation gets low and this would impact on the stock markets which are known to react more to sentiment than to economic logic. A depressed stock market would have consequent effects on fresh investment and overall industrial demand, all of which could together push the economy into deeper recession.

Overall, a war is a frightful prospect. But in case India is compelled towards waging a war, there are certain aspects of the economy which would enable it to absorb the shock. Foodstocks of over 60 million tonnes and fresh arrivals reaching the market would ensure that the nation's food security would not be in peril. Equally large foreign exchange reserves of over $48 billion will enable India to finance its essential imports of defence equipment and ammunition. But the Government would have to keep a careful check on the foreign exchange front because a large chunk of the reserves belong to investors who have the tendency to flee at the first hint of trouble. Probably, India would once again have to depend on the patriotism of the Non-Resident Indians to see it through on the monetary front.

Compared to Pakistan, India's annual budget is much larger which provides it elbow room to finance a war, even if it is at the cost of development. To that extent, it is a comfort factor for India.

There is no gainsaying the fact that in case of an enemy assault, it would be the first duty of every Indian citizen to defend the country, and history is testimony to the fact that there is no lack of patriotism in the country. But then, war is not always the best option. It should, in fact, be the very last option.

http://www.hinduonnet.com/2002/01/06/stories/2002010600681500.htm