Retaliation Cost Is Fiscally Affordable, Assure War Experts

New Delhi, May 21: | Updated: May 22 2002, 05:30am hrs
Fears pertaining to the economic cost of any military action India might take against terrorist groups in Pakistan-occupied Kashmir are vastly exaggerated, say defence experts who have studied the cost of previous Indo-Pakistan conflicts.

The statement from the credit rating agency, Standard & Poors, alerting India to the risk of a rating downgrade if tension escalates between the two South Asian neighbours is also being viewed as an exaggerated and ill-informed reaction, given the ability of the Indian economy to absorb such fiscal shocks in the past.

Standard & Poors may well have other reasons, including the roll back of many budgetary announcements and the slow pace of fiscal reforms at the state level, for its cautionary statement, but any Indian military action to deal with cross-border terrorism need not have an unmanageable fiscal impact, say strategic experts.

According to informed sources in the government, Standard & Poors may have already decided to signal a possible downgrade based on an assessment of the fiscal impact of the Union budget for 2002-03 and the forecast of low growth for another year. Against this background, S&Ps Monday announcement linking the downgrade threat to India-Pakistan tensions is being viewed in New Delhi as a political statement rather than an objective economic assessment of the real cost of conflict.

According to Mr Jasjit Singh, former director, Institute of Defence Studies and Analyses, and Consulting Editor on strategic affairs, The Indian Express group, The total cost of military mobilisation since December 2001 (after the attack on Indian Parliament), is unlikely to be more than Rs 550 crore. Any escalation at this stage can only have a marginal impact on the defence expenditure since the entire cost of mobilisation has already been incurred.

Mr Singh has estimated that between 13th December 2001 and 31st March 2002 the non-budgeted additional cost of Operation Parakram could not have been more than Rs 502 crore, to be precise. Since the armed forces have been fully mobilised, any military action at this stage can only be the marginal cost of ammunitions used and lives lost.

Mr Singh estimates that the entire Kargil war cost India not more than Rs 1,900 crore, which was no more than 4.0 per cent of Indias defence budget that year. With the defence budget at Rs 65,000 crore in 2002-03, the government has already made provisions for any border conflict. Moreover, say defence experts, the cost of Kargil was increased by the fact that the enemy was ensconced atop hills and the Indian jawans had to fight from the valleys. This contributed to increased time and cost, both in terms of ammunition and lives.

Any strike against terrorist targets in PoK this time will be more cost effective. Mr Singh says that both the 1965 and the 1971 wars with Pakistan did not cost more than 4.0 per cent of the defence expenditure in the relevant fiscal year. This time the cost is likely to be less since the military is preparing for targeted action only in PoK. If Pakistan widens the conflict to across the international border it will come under intense international pressure to back off.

Defence experts are, therefore, surprised by the nervousness demonstrated at the Mumbai stock exchange. Karachis reaction is understandable, since Pakistan is in a difficult economic bind. But there is no reason why Indian investors should be nervous, says a defence policy analyst at a strategic policy think tank in New Delhi. Indias measured and graduated action, in the face of extreme and high domestic pressure to act forcefully, also signals the governments intent to be responsible and not precipitate the pace of events.