Who really wants a war; not the Indian markets for sure!
As India and Pakistan indulged in some saber rattling over the last couple of weeks, one thing was clear. Neither India nor Pakistan was interested in getting into a full-fledged war. That explains why Pakistan was more than willing to release the captured IAF pilot back to India. There are 3 reasons why neither country wants a war.
Theater of war
War is not just about the politics of two nations but also about the theater and the economics. Great armies have lost wars when the theater was not right. The Germans lost to the Russians in the Second World War and the US faced a disaster in Vietnam. They were really formidable military powers but they fought in unsuitable conditions. India had a debacle against China in 1962 but the same Indian Army repelled the Chinese with impunity in 1967. The reasons both India and Pakistan do not want a full-fledged war is twofold. Firstly, India may have an advantage in a prolonged war; both militarily and economically. However, in a very short war, the results can be much harder to predict. Clausewitz had himself observed that in a short war, surprise is more potent than military prowess. Second, both are unsure of the theater of war. Whether the war will be driven by the Army, Navy or the Air Force is not clear. Even with its military and economic edge, India would be worried of fighting the war in the wrong theater.
Economy in doldrums
Both the South Asian economies are likely to take a hit but the situation in Pakistan is already a lot more precarious. Inflation is already ruling close to 10% and the GDP growth has stagnated. The nation is strapped for cash and on the last two occasions the Kingdom of Saudi Arabia has bailed out Pakistan. China has been a long time benefactor of Pakistan but they may be a little more cautious in this case considering that China runs a $60 billion trade surplus with India. Pakistan has already lost the MFN status in trade with India and any war would also squeeze the trade that is currently being routed through Dubai and Singapore. The stakes are just too high for Pakistan.
No war for India too!
With GDP growth faltering to 6.6% in Q3 and likely to dip further to 6.4% in Q4, India already has a problem on hand. It needs to build the growth gap over China and the war will not help. Also, war means a bigger hole in the budget, larger military outlays and a spike in the borrowings. For India, the fiscal deficit has spilled over and the ratio of government borrowings to GDP is getting into worry zone. There is an all-important election coming up and the government needs to focus on creating jobs and growth. The last it wants is the distraction of a war. The sooner wise counsel prevails, the better it will be!
