07-05-2025
Operation Sindoor: Before the Missiles Fly, Someone Should Check the Budget
Published : May 07, 2025 16:16 IST - 6 MINS READ
One of the most dangerous things about a wildfire is that it can start from almost anything—a lightning strike, extreme heat, a forgotten campfire, or even a discarded cigarette. What can often change the intensity and fury of a wildfire are the weather conditions. And sometimes the wildfire can smoulder for a long time, even an entire season.
The weather in South Asia is grim, and the terror attack in Pahalgam has brought relations between India and Pakistan to a 'wildfire'-like moment. There is an uncontrolled nature to the public discourse, and the climate is primed for combustion, mutual suspicion, and calls for forceful military action. So far, events have been marked by high-pitched rhetoric baying for a sharp response and a swift war. The first round of responses are in place: halting formal trade ties to what are fairly low formal trade volumes with Pakistan, a downgrading of diplomatic relations, suspension of a major treaty governing water sharing—with the details of how this will be done still unclear—and the banning of Pakistani YouTube channels, including several prominent news outlets.
The second round has been a series of missile strikes against Pakistan, a marked spike in tensions between the two nuclear-armed neighbours. Things are moving fast. A nationwide civil defence drill was announced that would include air raid sirens and blackout protocols, with officials urging citizens to keep torches, first aid kits and cash ready.
Also Read | Pahalgam: The grief is real; so is the theatre
Experts have pointed to both nations now having a higher risk appetite for initiating conflict and escalating it. The financial cost of a war is also being determined. While one think tank has warned of the 'financial costs, [hurt] human lives and policy losses' even low-intensity warfare could have, the closest benchmark is the Kargil conflict in 2002, where India reportedly spent Rs.14.6 billion per day while Pakistan spent close to Rs.3.7 billion per day.
Other numbers are being assessed: India's handsome foreign exchange reserves of over $650 billion that could help cushion against a rise in military costs, shocks to the stock market in case of potential stock market outflows if there were to be a full-fledged war between the two neighbours, and the possibility of a wartime cess or surcharge on tax-paying individuals. All of this is already visible in a two-year high on volatility for the rupee that has one eye on trade tariff gyrations and the other on capital flight in the wake of an actual war.
The Israel model
The most striking note in the wake of the heinous militant attack in Pahalgam has been calls for India to model Israel. April 22 is to India what October 7 was to Israel, said one television commentator, while a former senior police official called for an 'Israel-like response'.
What does an Israel-like response cost, and what does violent conflict do to a nation's economy? In the most recent Union Budget, the government increased its defence budget to Rs.6.21 lakh crore. It remains modest compared to China's 2024 defence budget of over $200 billion, for example. Israel's military expenditure surged by 65 per cent to $46.5 billion in 2024. Defence accounted for 8.8 per cent of GDP, an increase of 135 per cent from the allocation for defence in 2015, which was an already high 5.4 per cent of GDP. India's defence allocation remains below 2 per cent of its GDP—even lower than the levels of 2.4 per cent in FY21 (Financial Year of 2021). Sharp military aggression is also an intensely front-loaded cost; the Israeli government spent close to $6 billion in the December that followed the October 7 attack alone.
There are other costs that have run longer and deeper across the Israeli citizenry. The 2025 state budget for Israel included an austerity package with steep spending cuts to offset ballooning war costs and tax measures including freezing income tax brackets and an increase in the supertax levied on the country's wealthiest.
If India were to boost its military spend, it would find itself in a tricky bind. The most recent Union Budget was an admission that consumer spending needed urgent attention, and a tax stimulus was the answer. It is still unclear if there has been a meaningful improvement in eroding real purchasing power or in slowing personal loan growth. However, that tax stimulus has come with a downside; it means the government will lose 1 trillion rupees annually, which in turn will impact its revenues and restrict its ability to spend.
There are other economic wounds from the war for Israel. Airfares have surged—airline companies in India are already bracing themselves for a rise in fuel costs because of longer journey times, tourism numbers for Israel have plunged (a given now for Jammu and Kashmir but perhaps something that other States will begin to see), and salaries remain stagnant, a running challenge for India alongside high unemployment numbers.
The economic costs of conflict are clear. In a fragile phase of economic growth and recovery, Pakistan risks undoing all the progress it has made on improving fiscal consolidation and macroeconomic stability. And while India may appear relatively stable, the cost of prolonged conflict and troop mobilisation will begin to tell on its growth as well.
Conflicts also divert resources from developmental projects to defence spending. In the coming weeks, the questions that Finance and Defence Ministries should jointly be assessing are: first, what is the cost of military preparations that preclude war, and how fit for purpose are India's conventional and non-conventional military forces? Second, what is the long-term cost to growth in a fragile economic period where countries across the world are facing an exceptional level of policy and trade whiplashes—geopolitical tensions will be a potentially lethal mix to this cocktail of uncertainty. And third, what could costs escalate to, in the event of a powerful third party entering this hostility between two nations?
Also Read | The Indus Waters Treaty and the options ahead
Generations of Indians have never experienced war and are now being trained for emergency situations. But they have seen a period of steady and clear economic deceleration that has left the country with gaping income inequality, our widest ever. If Israel is the model for military aggression, then the financial cost of that level of armed conflict must also be reckoned with.
Because just as wildfires can either be contained or spread with fury, the fires that burn near communities can become dangerous and even deadly if they grow out of control.
Mitali Mukherjee is the Director of the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.
