India’s Fiscal Math Faces a Challenge, But Growth Engine Keeps Running

Economists say that any increased tension between India and Pakistan could put a strain on India's fiscal deficit primarily by diverting funds away from capital spending into defense, but the net effect on economic growth will be limited if the conflict is contained.

Indian government's 4.4% fiscal deficit goal could be threatened by rising defense expenditure, but analysts say this is not likely to upset fiscal discipline if things don't turn around fundamentally.

Moody's and others point out that India's negligible economic linkages with Pakistan (under 0.5% of exports) cushion it against significant disruption, while solid public investment and healthy private consumption underpin macroeconomic resilience.

Conversely, more risks lie with Pakistan: rising tensions may inhibit its growth, jeopardize fiscal consolidation, and strain its already low foreign exchange reserves, potentially affecting its access to external funding and IMF assistance.

International investors are observing intently, worried about indirect spillovers such as airspace, trade, and technology investments disruptions, but the majority regard India's overall economy as comparatively insulated unless the conflict sharply escalates.

Sources: Business Standard, Financial Express, Asia Times