Business on the borderline: Can India stay an investor magnet now?

India’s strikes across the Line of Control and the international border on terror camps in Pakistan have offered catharsis for an Indian public hankering for “payback for Pahalgam”. But as the jingoism ratchets up, one question leaders may want to consider is how this latest outbreak of hostilities between two nuclear armed states will enable grand ambitions to make India an attractive alternative investment destination in the US-China trade war. 

 

This latest escalation, though unavoidable in political terms, is unlikely to mark the end of cross-border terrorism — the only business at which Pakistan’s military-political complex has consistently excelled. Having felt the might of a widely publicised and extensive retaliatory strike by India, a riposte from Islamabad is inevitable.

 

But war, whether low- or high-intensity, is never good for business. So even as the ruling regime accepts kudos for a suitably robust and efficient response to the Pahalgam attacks, it must weigh the economic consequences of military escalation at a time when neither foreign direct investment (FDI) nor Indian private capex expenditure is buoyant. The domestic private sector has been tightening its purse strings following unanticipated shocks to the economy caused by demonetisation and a compressed timetable for implementing the goods and services tax. Since then, the Prime Minister and finance minister have been exhorting domestic businesses to take risks and invest, without much success.

 

Various budgetary initiatives to “crowd in” private sector investment have not worked either. In FY25, according to the Centre for Monitoring Indian Economy, private sector capex fell to its lowest in three years, dropping for the second consecutive year. FDI has done better, but little of the inflows are for job-creating greenfield projects. This restricted risk appetite prevailed without war or an attack on Indian soil and at a time when the government was propagating the line that Pakistan was no longer a factor in India’s security ecosystem. Now instability on the northern borders will only enhance India Inc’s insecurities. Sadly, the Kashmiri tourism industry has become the biggest victim of a false sense of security. With tourist footfalls steadily rising since 2021, the state was looking at one of its best tourist seasons in a long time till April 22. 

 

The lack of stock market response to Operation Sindoor need not be considered a sign of business equanimity, since the indices had priced in an expected retaliatory response from India. It’s Pakistan’s response that will determine the swings and roundabouts on the bourses. But the consequences of this latest outbreak can already be noted in foreign airlines’ decisions to avoid Pakistani airspace, although Islamabad has only closed it to Indian carriers. Airport closures owing to military activity are not precisely confidence-enhancing moves.

 

The hard question that the customarily emollient business community may want to ask is the efficiency of Indian intelligence networks. The foreign secretary’s briefing on Wednesday was preceded by a brief but emotionally charged video detailing all the terror strikes by Pakistan-sponsored terrorism on India since 2001. The briefing by two military personnel offered an impressive list of 20-odd terror camps within Pakistan-occupied Kashmir and Pakistan itself. Among the nine that India struck were those that harboured and trained Lashkar-e-Taiba and Jaish-e-Mohammed  terrorists, including, we were informed, those who planned the 2001 attack on Parliament and the 2008 attack in Mumbai. 

 

Such detailed information begs many questions. First, did the intelligence agencies not have access to all this evidence before the Pahalgam attacks? If not, how come they managed to gather so much information in less than a month? If they did have this data before, why did the security establishment not act on it before? Since 2001, every terror attack has exposed the rank weaknesses of our intelligence gathering and assessment apparatus. Building miles of electrified fences with state-of-the art sensors along the most sensitive borders are of little use if terrorists still find ways to enter and attack. The abrogation of Jammu & Kashmir’s special status, and its status as a Union Territory in 2019 were supposed to enhance security in paradise. But consistent pinprick attacks since then, spreading into hitherto relatively untouched Jammu, were indicators of brewing trouble.  

 

Unlike the Balakot strikes in early 2019, which raised many questions about their veracity, the Indian government has managed the externalities better this time. There is proof; time-stamped videos of the strikes, and mapped details about the terrorist camps and which groups occupy them all helpfully provided with restrained commentary in a no-questions-permitted press briefing by the foreign secretary and two military briefers. The emphasis was on destruction of terrorists not Pakistani civilians, an important message to send across the border. Hectic diplomatic outreach to the US, the UN and, most notably, West Asian powers, preceded this military response.

 

Yet the playbook scarcely changes. Despite overt proof of Pakistani complicity in terrorism on Indian soil, support from US and China keep the military solvent in a bankrupt nation. Though Donald Trump suspended security aid to Pakistan in his first term, he exempted $397 million in security assistance to Pakistan from its massive foreign aid cuts at the start of his second term. The funds will be allocated to a programme that monitors Pakistan’s US-made F-16 fighter jets—to make sure that they are used for counterterrorism and not for action against India, a proposition that will be tested soon enough. But in 2022, Pakistan was — laughably — removed from the Financial Action Task Force’s “grey list” for apparently curbing terror financing.

 

Now, as children and ancient uncles and aunties excitedly hunker down for mock drills across India, the politicos on Raisina Hill may need to explore work on lasting ways to pull out of the cycle of terror attacks. Smart diplomacy and smarter intelligence are the only routes to peace.