The Pahalgam terrorist attack on 22 April 2025, which claimed 26 lives, including 25 tourists and one local in Jammu and Kashmir’s Baisaran Valley, has triggered a calculated and multifaceted response from India aimed at exerting maximum economic pressure on Pakistan.

By leveraging diplomatic, economic, and psychological tools rather than direct military confrontation, India has forced Pakistan into a costly defensive posture that is exacerbating its pre-existing financial vulnerabilities. This report analyses the mechanisms of India’s strategy, the cascading economic consequences for Pakistan, and the broader implications for regional stability.

India’s Strategic Toolkit: India’s Response Has Been Characterised By Three Pillars:

Economic Sanctions: Closure of the Attari border trade route, which handled ₹3,886.53 crore ($465 million) in bilateral trade in 2023–24, disrupting Pakistan’s exports of dry fruits, cement, and gypsum while halting Indian shipments of soybeans and plastics.

Resource Leverage: Suspension of the 1960 Indus Waters Treaty (IWT) under Article XII(3), enabling India to curtail water flow to Pakistan and accelerate hydropower projects on the western rivers.

Psychological Pressure: Publicised military drills, including BrahMos missile tests by the Indian Navy and the Air Force’s Exercise Aakraman, signalling readiness for escalation without overt aggression.

This tripartite approach avoids direct conflict while exploiting Pakistan’s economic fragility, a strategy informed by lessons from the 2019 Balakot strikes and the 2016 surgical strikes.

The Economic Toll of Pakistan’s Military Mobilisation: Defence Spending Surge

Pakistan’s military, anticipating Indian retaliation, has escalated its operational readiness, incurring daily costs of $1.5–3.2 million. These expenses stem from:

Naval Patrols: The Pakistan Navy’s deployment of Type 054A/P frigates and Hangor-class submarines near Karachi and Gwadar costs $500,000–$1,000,000 daily, exacerbated by a surface-to-surface missile test on 24–25 April.

Air Force Sorties: Combat air patrols with JF-17 and F-16 jets amount to $150,000–$400,000 daily, with each flight hour costing $10,000–$15,000.

Army Logistics: Mobilising 6,00,000 troops along the Line of Control (LoC) requires $800,000–$1,800,000 daily for fuel, Nasr missile systems, and personnel allowances.

Monthly expenditures of $45–96 million strain Pakistan’s $7.64 billion defence budget, which already allocates 58% to the army, 21% to the air force, and 10% to the navy.

Financial Market Collapse

The Pakistan Stock Exchange (PSX) plummeted by 3,704 points between 23–24 April, erasing $3–4 billion in market capitalisation. Investor flight intensified following the IMF’s downward revision of Pakistan’s 2025 GDP growth forecast to 3.2% and the rupee’s 30% depreciation since 2023. With foreign reserves at $13.15 billion-barely covering two months of imports-the State Bank of Pakistan faces mounting pressure to stabilise the currency amid dwindling export revenues and remittances.

Structural Vulnerabilities Amplified: Agriculture And Water Insecurity

The IWT’s suspension threatens Pakistan’s agrarian economy, which contributes 24% to GDP and employs 38% of the workforce. The Indus River irrigates 90% of Pakistan’s farmland, and reduced water flow could devastate wheat and rice production, exacerbating food inflation already at 9.8%. Compounded by India’s Attari border closure, which blocks $2.4 billion in trade, Pakistan faces shortages of essential Indian imports like pharmaceuticals and chemicals.

Debt And Fiscal Imbalances

Pakistan’s $26 billion external debt repayment due in 2025–26 looms over an economy with stagnant growth (2.38% in 2023–24) and a fiscal deficit exceeding 7% of GDP. The military’s $70.5 million monthly mobilisation cost-0.9% of the defence budget-diverts funds from healthcare (2.7% of GDP) and education (1.7% of GDP), deepening social inequities. With 35% of the population below the poverty line and youth unemployment at 7%, austerity measures risk triggering civil unrest, particularly in Balochistan and Khyber Pakhtunkhwa.

Geopolitical Repercussions And Future Scenarios: Erosion of International Support

Saudi Arabia, historically a lifeline for Pakistan, deposited $2 billion in 2023 and provided $1 billion in oil financing. However, Riyadh’s condemnation of the Pahalgam attack and reluctance to renew assistance reflect growing impatience with Islamabad’s ties to militant groups. China, while maintaining infrastructure investments under the China-Pakistan Economic Corridor (CPEC), has signalled unease over Pakistan’s instability by delaying $2.5 billion in rollover loans.

Prospects For Escalation

India’s strategy capitalises on Pakistan’s Catch-22: maintaining high military readiness drains fiscal resources, while de-escalation risks emboldening hardliners in Delhi. If Pakistan’s reserves dip below $10 billion, debt default becomes inevitable, potentially necessitating another IMF bailout with stringent reforms. Conversely, India’s calculus assumes that economic suffocation could compel Pakistan to curb cross-border terrorism, though historical precedent suggests militant proxies often operate independently of state control.

Conclusion

India’s response to the Pahalgam massacre represents a paradigm shift in counterterrorism, substituting kinetic action with economic statecraft. By weaponizing trade, water, and financial markets, Delhi has imposed asymmetric costs on Islamabad, exposing the fragility of Pakistan’s rentier economy.

While this approach avoids the risks of conventional war, its long-term efficacy hinges on sustaining international consensus against Pakistani militancy-a challenge amid shifting alliances and Great Power competition.

For Pakistan, the crisis underscores the untenable cost of its security paradigm, demanding structural reforms that prioritise economic resilience over military posturing.

IDN