Moneycontrol Pro Weekender | The Right Time to Strike Hard: Why India must raise the stakes with Pakistan

The goal is to impose consequences so severe that the cost of abetting terrorism becomes unsustainable for Pakistan.

Dear Reader,

India’s objective in the ongoing conflict with Pakistan is unequivocal — to make it clear to the Pakistani establishment that continued support for cross-border terrorism will come at a steep price. The goal is to impose consequences so severe that the cost of abetting terrorism becomes unsustainable for Pakistan.

India has several options. One is the pursuit of peace and dialogue, a route India has explored multiple times, without success. In 2016, for instance, India even invited Pakistan’s Inter-Services Intelligence (ISI) to help investigate the Pathankot terror attack. That initiative, like earlier ones involving the submission of detailed dossiers to Pakistan, failed to produce any action.

Another strategy has been the use of special forces for targeted operations, as seen in the 2016 surgical strikes following the Uri attack. A third approach was the Balakot airstrikes in 2019, aimed at deep terrorist infrastructure within Pakistan.

Despite these efforts, terrorism continues—most recently highlighted by the Pahalgam attack. This attack had two clear motives: one, to derail the economic recovery in Kashmir spurred by a tourism boom; and two, to inflame communal tensions by targeting victims based on religion. The Pahalgam attack underscores the need for a stronger and more effective Indian response.

Yet, once again, India’s retaliation remained limited, focusing only on terrorist camps while consciously avoiding the Pakistan military. While blowing up terror safe houses might kill some operatives, others inevitably replace them. The ISI finds it easy to recruit from impoverished, jobless youth in remote villages. If India truly intends to curb cross-border terrorism, the focus must shift to the real power centre—the Pakistan Army, which funds, arms, and shelters these groups. Hitting terrorist camps is not enough; the Pakistan Army must be made to bear real costs.

This would naturally entail risks and potential casualties on the Indian side. But if terrorism is to be stopped decisively, India must demonstrate its seriousness—even if it means absorbing some punishment in return. The world must be shown that India is ready to act decisively and endure the consequences if necessary.

Alongside limited military actions, India has also activated non-military levers. These include suspending the Indus Waters Treaty and halting bilateral trade. Cyberattacks and the economic strain of increased military mobilisation are additional pressure points India can—and has—used to stress Pakistan’s already fragile state.

Pakistan's economy is in deep trouble. The IMF, during its loan deliberations, noted serious structural weaknesses, including a narrow tax base, poor governance, and a stifling business environment. Pakistan’s low investment levels and reliance on state interventions have hindered growth. The IMF also warned that deteriorating security conditions could erode investor confidence, reduce economic activity, and force the country into further fiscal instability, especially if military expenditure increases. As we wrote, a war could break the back of Pakistan’s already fragile economy.

India also holds other strategic cards. It can respond with tit-for-tat support for separatist movements in Baluchistan and among the Pashtuns, both of which have deep-rooted grievances against the Pakistani state. Diplomatic outreach remains a continuous effort, with India presenting its case to the global community and strengthening ties with Pakistan’s other neighbours, Iran and Afghanistan.

China, a behind-the-scenes player in the Indo-Pak equation, has thus far responded with restraint. Significantly, Beijing has reiterated its opposition to terrorism in all forms. The current global climate further favours decisive Indian action. With international trade and geopolitics disrupted by the unpredictable policies of U.S. President Donald Trump, most countries are preoccupied with their own domestic economic concerns. As FT columnist Martin Wolf said, the old global economic order is dead and ‘Donald Trump’s approach….is lethal for any co-operative global order’. China too, focused on its trade negotiations with the United States, is less likely to intervene on Pakistan’s behalf.

India also has room to manoeuvre with China. Trade incentives could be offered to keep Beijing neutral. In today’s multipolar world order, India enjoys more autonomy in crafting its strategic choices. The reduced dependency on any single global power gives India a freer hand to pursue bold action.

Of course, the spectre of nuclear conflict looms over any military escalation. However, India’s goal is not territorial acquisition but the degradation of Pakistan’s military capability.

Ultimately, the Indian leadership—both political and military—must evaluate the feasibility of delivering a significant blow to the Pakistan Army. If they judge the opportunity ripe, now is the ideal time: Pakistan is economically battered, and the international community is too distracted to mount a peace-keeping effort.

That said, a purely punitive approach is unsustainable in the long term. After the stick must come the carrot. A recognition of the Line of Control (LoC) as the formal international border could potentially offer a lasting resolution. But that is a discussion for later. For now, what is required is a decisive show of strength—a big stick to drive home the message that India will no longer tolerate cross-border terrorism without severe consequences.

At the time of writing, the Indian equity markets are wary the fighting may be prolonged, and the rupee fell hard against the dollar on Friday. We had a number of articles analysing the impact of Operation Sindoor on the equity markets, including one on what the differing reactions of the India and Pakistan markets tell us about the future trend, on the impact on the tourism industry, whether it will affect the Indian market’s premium valuations, and on the international reaction to the conflict. And this defence stock was our tactical pick this week.

The other big events of the week were the US Fed’s decision on interest rates, India’s trade agreement with the UK and the much-hyped announcement of a US-UK trade deal. As this FT story pointed out, the Fed is worried about stagflation. We wrote that India gains ground as the Fed maintained rates and investors seek stability beyond the West. We pointed to the sliding dollar and asked about its impact on the rupee and on the stock markets.

On the Indo-UK trade agreement, we wrote it was a major win for India, and about which sectors gain and lose.

Commentary about the US-UK trade deal was much more adverse, with an FT piece calling it ‘closer to a protection payment to a mob boss than a liberalising agreement between sovereign countries.’ Countries like India that are negotiating with the US would do well to note that the 10 percent minimum tariff on the UK remains, even though the US has a goods trade surplus with the UK. We pointed out that Tata Motors emerges as a clear winner from the deal.

And finally, to guide you through these tumultuous times, do read my colleague Madhuchanda Dey’s article on how you should navigate Indian equities amid escalating tension and global uncertainties.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

eMudhra, Britannia, L&T, Radico Khaitan, Coal India, Kajaria Ceramics, Titan, Asian Paints, Himadri Specialty, CEAT, DCB Bank, Polycab India, Godrej Consumer, Dabur, Kotak Mahindra Bank, SBI, Marico, Mphasis, DMart, Ami Organics, Why this growth leader from Indian IT is a must add, Indian Hotels, Utkarsh Small Finance Bank, Mahindra & Mahindra, RR Kabel,

Markets

How Operation Sindoor can impact the Indian market

Defence stocks in focus after Operation Sindoor

What’s driving FPIs back to India? A solid economic signal

How NSE’s algo norms affect retail traders

March quarter earnings beat muted estimates, but growth may taper ahead

How to determine if a rally will sustain

Warren Buffett: Cathedral capitalism vs casino capitalism

Majority of biggest FPIs see huge erosion in India portfolio; Goldman Sachs, Govt of Singapore, Norges among those hit

Are market linked debentures the smart bet amid the current downturn?

Companies & sectors

Is Yes Bank ready for a big league backer?

Will commercial vehicles sales make a comeback soon?

Q4 performance of private sector banks

An unusually slow beginning to summer 2025 for power utilities

Low rated NBFCs saw growth, profitability plummet in FY25

Bank’s CD ratio back below 80 percent. What does it tell us?

The underbelly of digital piracy

Financial Times

China’s diplomatic charm offensive

Greg Abel faces tricky task leading Berkshire Hathaway after Buffett

Economy & Policy

Can India go from assembler to ecosystem player in mobile phones?

Why Supreme Court’s Bhushan Power ruling rattles IBC framework

SC judgment on Bhushan Steel bankruptcy is a blow to JSW and Indian business

Pro Economic Tracker

Geopolitics & Geoeconomics

America scores big in Ukraine minerals deal, Europe left out

Will Trump’s gamble on Iran’s nukes pay off?

How do you add punch to IPRs to tackle the patent punch?

Tech & Startups

As India-Pak tensions flare, IdeaForce says its drones are already in action

Hexaware reduced BPO workforce by 500 in AI-triggered hiring shift

TCS slashes variable pay for senior employees for third consecutive quarter

Surge in exits augurs well for PE/VC investments

Personal Finance

Not the time to panic or add to portfolio risk

Is gold a safe haven?

Others

Caste census more about votes than welfare

India beats global average in workplace engagement but falls short on life satisfaction