India's economy emerged unscathed from Kargil war

As the India-Pakistan conflict widens, along with security concerns, there are worries about what a prolonged military action would mean for the Indian economy.

The last time the two countries went to war, in 1999, India's economy came out relatively unscathed from the Kargil conflict, with growth ending higher than the International Monetary Fund’s (IMF) prediction, a Moneycontrol analysis has shown.

The IMF had predicted a growth of 5.2 percent in its forecast in May 1999, days before the conflict broke out. In its October outlook, the multilateral lender raised it to 5.7 percent. The final growth came in at 6.8 percent.

It was the same in 2000. IMF raised the forecast for growth to 5.5 percent in October from 5.1 percent in May. The final number was even higher at 6 percent.

“We anticipate tensions to remain high over the next two to three weeks, with significant further military actions on both sides possible. However, the situation is likely to de-escalate following that, leaving little persistent negative impact on sovereign credit metrics. We expect India to maintain strong economic growth that allows gradual fiscal improvements to continue,” S&P Global Ratings said on May 8.

Follow our live blog for the latest on India-Pakistan war

India is predicted to log 6.2-6.3 percent growth in FY26, international agencies have said.

A World Bank analysis of military spending during the period shows a higher spend by India, as it saw an increase in terrorist attacks in the Valley and on Parliament in 2001.

While the Pakistani economy, too,  escaped the Kargil conflict without much damage, clocking higher growth than IMF’s numbers, its military spending increased at a faster pace in the years to follow.

Pakistan has historically spent a higher share of GDP on defence than India.

This time, the country will likely feel the impact, as India has kept the Indus Waters Treaty, which laid out the map for sharing the waters of the Indus and its five main tributaries, in abeyance.

The Indus River is the lifeline of Pakistan's agriculture sector, which contributes nearly a quarter to the country's GDP.  The treaty required India to keep its neighbour informed about the river water flow and related activities.

India’s decision came a day after 26 people were killed in a terror strike in Kashmir’s Pahalgam area on April 22. Two of the terrorists were Pakistani citizens.

Two weeks after the worst attack on civilians, India launched Operation Sindoor in the early hours of May 7, hitting nine terror bases in Pakistan and Pakistan-occupied Kashmir.

Since then, Pakistan has launched a series of attacks on India’s border villages and has also unsuccessfully tried to hit its military bases.