War cost for India: half a trillion dollars

Imagine the convulsions to the regular course of life in India when a full-blown conventional war erupts.

Usman W Chohan/Javaid Ahmed March 13, 2019
Javaid Ahmed is a director at the Centre for Aerospace and Security Studies. He can be reached at cass.thinkers@gmail.com

War is a costly enterprise in every sense of the word, and if the hardliner BJP regime provoked a full-scale conventional war with Pakistan, it is indisputable that India would pay very dearly. But just how dearly? We constructed a multifactor macroeconomic model, assessing aggregate output categories of consumption, government spending (civilian and military), investment, and foreign receipts, with key subcategories within each factor calculated and then normalised on a monthly basis.

By crunching the numbers in this manner, we came to get a sense of the devastation that would be wrought upon India. The findings of our macroeconomic analysis were that, in a four-week conventional war, India’s losses would exceed half a trillion dollars — at a minimum. This is by no means a trifling sum for an economy of over three trillion US dollars.

If the damage approaches anywhere near this mark, India would face a GDP decline of nearly 20 per cent, which is an amount seldom seen in recent history, except in the cases of catastrophic economic dissolution as experienced in Argentina (2001) and Greece (2010) during peacetime, and Iraq (2003) and Libya (2011) in wartime.

Why would the loss be so great? To put it plainly, the costs of war are not just in the sets of checks written by governments. Rather, they bear catastrophic losses when they disrupt or destroy human lives, military hardware, property, markets, savings, morale, psychology, and any semblance of sanity in society.

Imagine the convulsions to the regular course of life in India when a full-blown conventional war erupts. How many multinationals would halt or cancel investment plans? The cancelled projects would be worth more than $11 billion. Besides, retail activities worth $51 billion would be shuttered indefinitely. Around $50 billion worth of-of foreign investments will be drawn out.

These are some of the costs which we calculated and aggregated into a comprehensive macroeconomic model, with the omission of other variables here for brevity. We note that this does not even begin to touch the ultimate fear — that of a very limited nuclear exchange, since the loss in that instance would be near-incalculable and long-term.

To put things in perspective, the same modelling approach has also been applied to Pakistan, and as per the findings the damage would be no less catastrophic, but not nearly as much in neither absolute or relative terms. For a conventional war, this should not be surprising: India is a country seven times larger, and on a per-capita basis its economy is larger and growing at a faster rate. But to magnify the point, it is also a much more complex economy, and there are sectors in India which are incomparably larger than in Pakistan, whether it be the stock market capitalisation, its tourism industry, its IT services industry, or its overall export volume, among others. Our analysis indicates that the economic damage of a 4-week conventional conflict would amount to 10 per cent of Pakistan’s GDP, given the comparatively elemental structure of its socio-economy. All this is but a reflection of the larger glass house in which India sits. It is an axiomatic reminder that: the bigger they are, the harder they shall fall.

To cite an example of the speed with which losses are incurred in war, take the reckless employment of the Indian Air force in operations when the Pakistan Air force shot down two Indian fighters it resulted in a loss of over $100 million in less than five minutes of air combat. As such, the half-trillion-dollar ultimate figure in our study helps to frame India’s risks and stakes as a deterrent to further violence and conflict.

Yet the desperation of the BJP’s extremist government to latch on to power worsens by the day, particularly as the April 2019 election nears. India’s humiliated military, record unemployment, worsening inequality, and rampant corruption (as in the Rafale Deal), heightens the BJP’s thirst for vengeance. But India’s economic woes would be far worse if an all-out conflict broke out. The study of costs should assist those thinkers who now ponder the consequences of misadventures by the Indian military, particularly as the 2019 election nears.

Wars can escalate unpredictably, last longer than foreseen, draw down more resources, and prove difficult to end. Moreover, the state of ‘no peace, no war’ that trails a conflict worsens economic uncertainty considerably. Furthermore, with 68% of its arms and hardware obsolete, and severe human resources and materiel issues, India should be more circumspect about confronting a peaceful neighbouring country.

As such, this study bolsters the claim that peace must prevail in South Asia, for without it, the region cannot realise its full economic potential — certainly not while its largest member, India, repeatedly absolves itself of its responsibilities to its people, to its neighbours, and to the world at large.

We note that, in light of the harrowing economic damage and loss of life, any future government in India that would assume charge in the wake of such a devastating conflict would face almost insurmountable odds of reconstruction, and wallow in the economic repercussions of their forebears’ folly. The Indian leadership must be mindful of this — for as we may attempt to calculate the cost of war, scarcely can we begin to calculate its ultimate price.

Published in The Express Tribune, March 13th, 2019.

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