SOURCE: AFI
In recent years, the fraught relationship between India and Pakistan has taken a more aggressive turn, with India adopting a bolder stance in response to cross-border provocations. The threshold for India to take decisive action—diplomatic, economic, or military—against Pakistan has noticeably lowered, driven by a combination of strategic shifts, domestic political imperatives, and regional ambitions.
This new approach, exemplified by actions such as Operation Sindoor in May 2025, has not only heightened tensions but also inflicted significant economic damage on Pakistan, with recent estimates pegging equipment losses at approximately $7 billion. The ripple effects of this damage, coupled with India’s multifaceted pressure tactics, threaten to further destabilize Pakistan’s already fragile economy. This article explores the dynamics of India’s lowered threshold for action and the economic consequences for Pakistan.
India’s approach to Pakistan has evolved significantly under the leadership of Prime Minister Narendra Modi. Historically, India has responded to provocations, particularly those linked to terrorism in Jammu and Kashmir, with measured restraint or limited military actions, such as the 2016 Uri surgical strikes or the 2019 Balakot airstrikes. However, the events of 2025, particularly Operation Sindoor—launched in response to the April 22 Pahalgam attack that killed 26 civilians—mark a departure from this pattern. India’s response was swift, targeting not only terrorist infrastructure but also critical military assets deep within Pakistan, including airbases and command centers.
This shift is underpinned by several factors:
- Zero Tolerance for Terrorism: The Modi government has adopted a policy of preemptive and retaliatory strikes against perceived terrorist threats, signaling that any attack, with or without definitive proof of Pakistan’s involvement, could trigger a response. Posts on X reflect this sentiment, with some claiming Pakistan acknowledges that “the threshold for all-out war is the lowest it has ever been.”
- Military Modernization: India’s defense budget, reaching $86 billion in 2024, dwarfs Pakistan’s $10.2 billion, enabling the deployment of advanced weaponry like SCALP-EG cruise missiles and BrahMos missiles. This technological edge allows India to strike with precision and depth, as seen in the May 2025 strikes on Pakistani airbases like Nur Khan and Sargodha.
- Economic and Diplomatic Leverage: Beyond military action, India has weaponized economic tools to pressure Pakistan. The suspension of the Indus Waters Treaty (IWT) in April 2025, a move Pakistan labeled an “act of war,” threatens its agrarian economy, which accounts for 22.7% of GDP and relies heavily on water from rivers governed by the treaty. Additionally, India has banned all direct and indirect trade with Pakistan, closed the Attari-Wagah border, and restricted Pakistani access to Indian airspace and ports.
- Global Influence: India’s growing diplomatic clout, particularly with the United States, Gulf monarchies, and international financial institutions, has enabled it to lobby against Pakistan’s access to critical foreign aid. Efforts to place Pakistan back on the Financial Action Task Force (FATF) gray list could further restrict its financial lifelines.
This lowered threshold reflects India’s intent to project itself as a regional power unwilling to tolerate security threats, while simultaneously exploiting Pakistan’s economic vulnerabilities to deter future provocations.
Economic Fallout for Pakistan: $7 Billion and Counting
The four-day conflict from May 6 to May 10, 2025, was economically devastating for both nations, but Pakistan bore a disproportionate burden due to its fragile economic state. Estimates suggest the conflict cost both countries $1 billion per hour combined, with Pakistan accounting for roughly 20% of this ($4 billion daily) and India the rest. The $7 billion in damages to Pakistani military equipment—jets, air defense systems, and infrastructure like airbases at Nur Khan, Rafiqui, and Sargodha—represents a significant blow.
Immediate Costs and Recovery Challenges
- Military Equipment Losses: The destruction of advanced assets, including Chinese-supplied J-17 Thunder and J-10C jets, has strained Pakistan’s defense capabilities. Replacing or repairing these assets will require substantial investment, estimated at $35.4 million to $249.6 million for the three-day conflict alone. With foreign exchange reserves critically low—covering only weeks of imports in 2023—Pakistan’s ability to fund recovery is limited.
- Trade Disruptions: The suspension of trade through the Attari-Wagah border, worth $451 million in 2023-24, has cut Pakistan’s access to Indian pharmaceuticals and agricultural goods, exacerbating shortages. Informal trade, estimated at $10 billion annually via third countries like the UAE, is also under pressure due to India’s ban on indirect imports.
- Indus Waters Treaty Suspension: The IWT’s suspension threatens Pakistan’s agricultural sector, which employs 40% of the workforce and consumes 95% of available water. Water shortages could trigger food insecurity and hyperinflation, compounding the economic fallout from the 2022 floods, which caused $30 billion in damages and required $16.3 billion for reconstruction.
- Market and Investor Confidence: Pakistan’s stock market crashed by 6,500 points during the conflict, reflecting investor panic. Ongoing tensions and the threat of FATF gray-listing could deter foreign investment, critical for a country reliant on IMF bailouts and Chinese debt rollovers.
Pakistan’s economy is uniquely vulnerable due to its structural weaknesses. With external debt exceeding $128 billion and reserves depleted, the $7 billion in equipment losses represents a catastrophic burden. The suspension of the IWT threatens long-term food security, while trade bans and border closures disrupt supply chains. India’s ability to strike deep into Pakistani territory, as demonstrated in 2025, raises the cost of any future escalation, forcing Pakistan to divert scarce resources to defense. Moreover, India’s diplomatic efforts to isolate Pakistan globally could choke off vital aid, pushing the country toward economic collapse.
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