Dear Readers,

"You may not be interested in war, but war is interested in you," Leon Trotsky, a founding leader of the Red Army, had said.

As the TV channels boomed with live visuals of missile firings, announcing that war is finally upon us, these words of Trotsky, a Soviet revolutionary, flashed through my mind.

At first, I hope and pray that the war with our unruly neighbour ends soon.


We are in a situation where many things are happening at the same time, as if we have opened multiple applications on the crisis dashboard — tariff, currency war, geopolitical tensions, and now the war.

First, innocent tourists lost their lives at Pahalgam, which led to India responding sternly with Operation Sindoor and destroying terrorist camps across the border.

I saw the whole nation cherishing the actions of the Indian armed forces. I can see vibrant reactions on unknown faces — in trains, buses, metros, offices, colleges, and social media handles. There is a satisfying feeling that India can strike back and hit hard when needed. People were randomly chatting with strangers and sharing their excitement.

As war clouds gathered, military drills were being conducted across the country. A major chunk of the population is hearing sirens for the first time and seeing army personnel marching on the streets. The government is in action and has cancelled the leaves of not just the armed forces but also many departments of the central and state governments. Proud officers are rushing to their duties, leaving behind holidays and summer family vacations, with immediate effect.

India, Pakistan economic relations

After India’s strong response with Operation Sindoor, the escalation has happened, but fortunately, according to various analysts I spoke to and reports I have gone through, the impact on the Indian economy will be minimal if the conflict is not prolonged.


According to a Kotak Mutual Fund report, during earlier events such as the Balakot air strike or the Uri surgical strike, the impact on the stock market was less than 0.10 percent. It was only during the Kargil War in 1999 that the market fell by 36.6 percent. “If it's a prolonged conflict, then there are chances that macroeconomic variables (such as inflation, and the government’s fiscal deficit) would increase, and the market might correct,” it said.

The impact of the conflict on Pakistan will be much greater, according to Moody's. Its macroeconomic situation will be far more damaged.

I see short-term challenges for trade and business. For example, airlines will suffer huge losses since they will have to reroute flights to avoid Pakistani airspace. Similarly, businesses and educational institutions will go through tough times as they may be closed for some time for safety reasons.

The Indian economy

The Indian government has reviewed the economic situation well in the last few days and has informed every ministry and department about the potential situation between the two countries. The Reserve Bank of India has also discussed with bankers whether their systems are ready in case tensions escalate.


Notably, India has dealt with Pakistan cautiously from the beginning when it comes to economic relations. Indian banks have no branches, representative offices, or correspondent banking initiatives in Pakistan. Remember, Indian banks are present in almost 50 countries — but not in Pakistan.

In fact, India has taken a stringent approach toward Pakistan. It added more barriers to trade with Pakistan in 2019 after the Pulwama attack. India also imposed a 200 percent duty on Pakistani imports that year, which brought down bilateral trade to $1.2 billion in FY2024 from $2.5 billion in FY2019.

With new rules like the suspension of the Indus Water Treaty, Pakistan will suffer more. India might face a minimal shortage of products like figs, dates, seeds, and Himalayan salt, as we import these from them.

Currently, the Indian economy is in one of its best phases on the macro front. This week itself — despite the border tensions — India signed a Free Trade Agreement (FTA) with the United Kingdom. This shows India’s resilience. Importantly, all developed nations are supporting India. Interestingly, this month, for the first time, domestic institutional investors (DIIs) surpassed foreign institutional investors (FIIs) in the Indian stock market.


The war impact

Pakistan does not have much to lose in terms of reputation in this conflict. In the words of India’s Foreign Secretary Vikram Misri, “We don’t need to tell the world where Osama Bin Laden was found.”

But for India, a lot is at stake. We are an emerging market for the world and are marching toward becoming the third-largest economy. We have to be very cautious, as various reports suggest that China is supporting Pakistan. If the escalation continues for a long time, then certainly China will be a beneficiary — because many global players are looking at India as an alternative to China. Companies like Apple are extremely positive about India and want to move production here after the US Pre sident Donald Trump’s tariff war.


Finally, wars are damaging. Once they begin, they can go on for months or even years, and it takes decades for people and cities to recover. We’ve seen this in Ukraine and Gaza—families torn apart, lives uprooted, and economies shattered. Even now, the global economy continues to reel from the aftershocks of those conflicts. Just when the world was beginning to assess the damage, another wave of uncertainty has hit — first with Trump’s tariffs, and now with fresh tensions in South Asia.

This is a crucial time for India. We are on the cusp of becoming the third-largest economy in the world. Global investors are looking at us with hope — not just as an alternative to China, but as a stable, forward-looking nation with unmatched potential. Let’s hope for the best.

Please share your feedback, suggestions if any. You can reach me on amol .dethe@timesinternet.in and follow me on LinkedIn here.

As usual, I am adding here the top 5 stories of the week, trust you will find them meaningful.

1.From Samsung to Volkswagen: Call for customs reforms grow as classification disputes mount
2.India Inc hails India-UK FTA as a game-changer for exports, services, and global talent mobility
3.Big six audit firms maintain firm grip on India Inc as mandatory rotation looms
4.JSW Steel-BPSL SC order unprecedented, takes IBC into uncharted territory: Experts
5.Why TDS return filing has become tedious for companies after 6-yr revision window?

Happy Reading
Amol Dethe,
Editor,
ETCFO

(Editor's note is a column written by Amol Dethe, Editor, ETCFO. Click here to read more of his articles exploring several buzzing topics)

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