Skip to content

PAKISTAN/india – Fight Economic War

October 2, 2016

By
Asad Rizvi
@asadcmka

India should stop muddling and day dreaming to isolate Pakistan. It has a reckless habit of unnecessary adventurism and if it decides to impose war, India should be aware that Pakistan will not pelt stone or use sling shot to defend itself.

The courageous and determined Pakistani forces are prepared to respond to any kind of threat. Unlike past, in present times both the nation’s posses’ nuclear arsenals, but India should be well aware of Pakistan’s intention and its limitation.

However, with the passage of time, war tactic has surely changed and may differ to abide by the obligation and norms. Hence, in this modern era success can only be achieved by inflicting excessive damage to the hostile party by means of economic warfare based on game plan to weaken the enemy.

The most effective way to counter economic challenges, it is required to use appropriate business and financial clout at Domestic and International levels to obtain best result.

Let’s take a look at some of the events. In 2014, Russia in a tit for tat move reciprocated international sanctions by imposing ban on agriculture goods from countries (EU & USA) that acted against it. E.g., Poland was badly bruised and large quantity of its fruits and vegetables went in waste. Similarly, Russia’s consumer protection agency investigated McDonald’s cheeseburgers and milkshakes that must have given jitter to the American business interest.

Not long ago, in a South China Sea territorial dispute, China allowed bananas to rot in its port that must have given shiver to the Philippines government. So is the case with Taiwan, if any country recognizes it, China gets its claws out.

ECONOMIC FACT – INDIA

Pakistan is differently placed as it does not have enough economic arsenals in its sleeves to flex its muscles. Neither does India have enough to play its card to blackmail and corner Pakistan because of its tiny export volume.

Tough on paper India’s economy looks strong, but in real economic sense, India is certainly not very comfortably placed as much as it boasts about its overstated growth story because of its dependence on foreign funding.

To have a better sense, government spends 27 pct of the total domestic output and has a chronic budget deficit problem that has pushed Public debt to 65 pct of GDP

The changing global business realities are further going to dampen its buoyancy.

The size of India’s economy could be USD 2.2 Trillion. Two-third of its 1.29 Billion people lives in rural area in extremely poor condition. Its yearly per capita income is $ 1630, which is meager by global standard. Its Poverty rate is debatable, as huge segment is not in poverty count. Economist argue it range them between 35-50 pct.

50 pct of its population do not have shelter, 35 pct do not have direct access to water. 70 pct is have no proper toilets, 85 pct of villages are without secondary schools.

india’s Ambitious Economic Plan

India has a five year USD 1 Trillion plan (2012-17), is not attainable. Due to sizable trade gap, its current account deficit is heavily dependent on foreign money and its large inflow of remittances from Gulf countries, by combining both it is annually around USD110 Billion. It has FX Reserves of USD 368 billion.

UAE may have pledged to invest USD 75 Billion plus add another USD 30-50 Billion investment promises from the rest of Middle Eastern countries, China have promised USD 20 Billion investment, Japan wants to invest USD 35 Billion. These are not grants! They are all projected number against MOU’s, which is not commitment. Hence, unless investments are made, in my view good part is bully.

In 2005, POSCO South Korean Steel giant promised $ 12 Billion investment, it did not invest due to changing economic environment, as funding was not available.

PURPOSE of indian DATA

The purpose of this data is to give basic sense about the much hyped Indian economy, which may be growing at 7-8 pct, but the growth is not sustainable due to many risks attached. High Poverty Rate, highest level of income inequality in the region and investment freedom certainly poses many questions.

India may be competing with China against its population, as it is only a whisker away in numbers, but its economy is nowhere close to China’s economy that enjoys USD 3.21 Trillion Fx Reserves versus India’s USD 368 Billion.

The truth is that India is unlikely to get Gulf money due to oil price collapse. Neither Iran that for past so many years was blackmailed for cheap oil sale will provide oil at subsidized rates, as Iran is in desperate need of external funding.

While, India is already involved in a proxy war and in spreading terrorism in many parts of Pakistan, India is also well known for its hostile approach at home and it carries large list of enemies. They have a history of massacre controversies. There are more than 25 active separatist organizations and some of the most popular known movements are taking place in Kashmir, Assam, Khalistan. Neither Naxalites nor Maoist is bully boys.

From Pakistan’s perspective India is habitual to put blame on Pakistan for all of its dirty work at home and abroad, while it is always quick to point its finger on Pakistan for its entire wrong doings.

HOW PAKISTAN SHOULD RESPOND

I know questions will be raised, some may get uncomfortable, quite a few would dislike the idea and some may even think I am crazy.

But I am deeply concerned with the Indian approach. We should not kneel down to any of its unjustified demand. India is the most undependable and untrustworthy neighbor. With malicious intention and by political maneuvering India is planning to isolate Pakistan. We should not succumb to any external pressure.

India succeeded to conspire in canceling SARC meeting. It has asked our film celebrities to leave the country. It has demanded ICC not to put Pakistan in same pool. India would continue to create problems frequently at our borders and away.

When, what and where is our contingency plan ? What are we going to do if India succeeds in its malicious intention ? Are we going to remain tight lipped or simply write a requesting letter to UN and OIC to look into the matter or as happened in past, ask our Pakistani elected representatives to make few trips abroad ?

Pakistan cannot be complacent and has to act to protect its people and homeland by responding back with a planed strategy. Though difficult and risk too, but it can be done by formulating a strategy.

Pakistan has to prepare and indulge in Economic War by combining with Policy of Doctrine of Isolating against India to create economic hurdles, which is the only way out to effectively respond.

I know isolation is never possible without international support, so focus should be to attack India’s economy in such a manner that foreign investors are either fearful of investing in India and or start losing interest in investing in India.

Prepare master plan that should provide guideline, as how to engage foreign investors in India to add pressure on its business community and its government ?

Since our trade with India is peanut, or USD 2.61 Billion, which is 0.24 pct of the total trade size. Pakistan’s estimated trading volume through non regular channels is roughly around USD 6 Billion. Therefore, Pakistan’s trade boycott poses no threat to a country that has a total trading volume size of USD 1.087 Trillion.

Because of its dependency on foreign funding/borrowings, Indian market is jittery and vulnerable to any Domestic/International unrest. Any such happening can lead to sizable outflow that will create negative economic impact on its economy, as funding is also required to cater its current account deficit.

IT and Tourism is key area that India cannot afford slowdown, as it is of immense helps in creating job its huge service industry.  Overall its service sector contributes 22 pct to the GDP.

There are nearly 3300 foreign company operating in India against Pakistan’s 500 (approx), which plays vital for the Indian economy. Foreign firms cannot afford instability in India and in the region because of its business structure and reporting format, which needs to be frequently updated.

Pakistan should simultaneously counter Indian propaganda by lodging protest with UN and other World organizations about its claim of successful surgical strike on Pakistan.

India’s declaration of attack on Pakistan is sheer violation of UN Charter, hence Pakistan should announce that it has every right to counter India and has decided to pay back in same coin and hence, will hit back any moment. It is our prerogative to decide time and place of our choice.

Nervousness and skirmish at borders is never acceptable to the Rating Agencies. For India such adventurism is not sustainable for longer duration, due to heavy foreign investment that carries extraordinarily high price tag. War of words should add pressure. Any such situation arising from Pakistani game plan is a win-win position that should teach good lesson to the oppressor.

Key to foreign investments in India is based on ratings allocated by the rating agencies, which is (Baa3 Moodys) and (BBB- S&P) versus Pakistan (B3 Moody’s) and (B- S&P).

In present scenario ideal yardstick to keep track of economic soundness is Credit Default Swap (CDS). As of now India’s 5-year CDS is 132, Pakistan’s 5-year CDS is 385. If relationship between the two countries continues to deteriorate, CDS of both countries is likely to move higher.

Therefore, it is an instrument that should be keenly watched because in any adverse circumstances it will be the first indicator to react negatively.

CDS is basically a Derivative financial instrument for swapping the risk of default, where seller will compensate buyer in the event of loan default. Its popularity rose sharply after Euro zone and US Financial crisis (2008), as Rating Agencies lost its credibility, after collapse of the Banking Industry.

One thing is for sure that India’s economy cannot sustain such a situation for extended period of time as its economy could face huge risk of flight of capital. For the time being Pakistan has almost nothing to worry in this area, as it left very little option? After winding of IMF program, Pakistani is comfortably placed as compared to the size of Indian stake.

In my view, Pakistan’s only fault right now is the timing of its announcement to raise USD One Billion through Eurobond. I am surprised by the optimism shown Ministry of finance, as it has announced road shows in the first week of October 2016. In current situation pricing will add risk premium due to Pakistan/India tension. FM Dar should announce delay of its plan as cost will rise substantially.

Finally, Pakistan has tough task in hand, as India is trying to distance it from the rest of the world. Its stance is yet not known and nation is waiting to gather information from the policy makers.

The nature of conflict is extremely serious and challenge is immense. Pakistan has to seriously decide its next line of action without further delay. A pro active stance is the need of the hour to halt India’s possible next futile attempt to destabilize our dear motherland.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction). 

Advertisements
One Comment
  1. I have noticed that your website needs some fresh content.
    Writing manually takes a lot of time, but there is tool for this time
    consuming task, search for: unlimited content Wrastain’s tools

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: