India-Pakistan tensions could strain fiscal deficit if conflict escalates

Economists say India's fiscal deficit may widen if tensions with Pakistan persist, although the broader economic impact is expected to be limited if conflict remains contained

Any further escalation in the India-Pakistan conflict—following strikes on terrorist camps in Pakistan early Wednesday—could strain India’s fiscal deficit, particularly if tensions persist, economists have cautioned. However, they also noted that if the situation remains contained, the broader economic impact is expected to be limited.

 

“On the fiscal side, there could be a diversion of resources at the expense of capital expenditure. Higher fiscal deficit, however, would not make a material difference to fiscal prudence,” an economist at a public sector bank said.

 

The government has set a target of bringing down the fiscal deficit to 4.4 per cent of