New Delhi - The prolonged conflict with Pakistan over Indian-administered
Kashmir was costing India about $4 million a day - an amount it could ill
afford, analysts said yesterday.
A military expert at the Institute of Defence Studies and Analyses
independent think-tank said the 170 million rupees (R24 million) a day
average did not include two fighter jets and a helicopter lost during the
fighting against Pakistani forces and what New Delhi calls Moslem
guerrillas that has raged since May 9.
KP Singh, president of the Associated Chambers of Commerce and Industry,
warned the conflict could add to India``s widening fiscal deficit.
He said with defence spending rising rapidly, India was unlikely to hit the
government debt target of 5,1 percent of gross domestic product (GDP) for
the year to March 2000.
The deficit has shot up 5,4 percent to $21,4 billion year on year to 6,5
percent of gross domestic product (GDP), in the last fiscal year to March
1999.
"The unfortunate confrontation in Kashmir could also lead to ... high
inflationary pressures on the economy, (push up) interest rates and crowd
out private investment," Singh said.
He said the flare-up in the Kashmir conflict had come at a time when the
"Indian economy had started showing signs of recovery".
Yashwant Sinha, India``s finance minister, exuded confidence and tried to
allay market fears after the rupee fell 12 paise to the dollar on Monday,
by promising to tighten expenditure.
"We are a strong economy. Our fundamentals continue to be sound, and
indications are that we are moving towards a revival," Sinha said.
He said the Kashmir conflict would have an impact on the budget, "(which)
we are still ascertaining.
"Prima facie it appears to be manageable," he said.
Finance ministry officials ruled out short-term measures like raising taxes
to meet higher defence spending arising out of the border conflict.
At $10,8 billion, India``s defence budget is around three times the size of
Pakistan``s $2,74 billion annual military expenditure.
But Pakistan``s defence budget, at 5,8 percent of GDP, is a far bigger
weight on the economy than India``s 3,3 percent.
While a prolonged battle would put strains on the Indian economy, analysts
said Pakistan, which had depended on repeated bail-outs by the
International Monetary Fund (IMF), could simply run out of money.
Islamabad is scheduled to receive $460 million from the IMF over the next
five months.
Jaswant Singh, India``s external affairs minister, told reporters: "For us
the battle will be a cut in the finger. But Pakistan will bleed itself dry
if it doesn``t see reason."
This confidence may stem from the fact that India``s foreign exchange
reserves are at an all-time high of $33,5 billion, while Pakistan has just
over $2 billion.
India may also be at an advantage as it has a strong defence industry which
directly employs 80 000 people.
"Most of our military equipment, including spares and ammunition, is
produced domestically," CH Singh, a retired major-general, said. "Our
Badmal ordnance factory could be the largest in Asia. "
Defence ministry sources said Denel of South Africa was likely to bag the
order to provide 25 000 rounds of 155 millimetre shells for $1 000 each. -
AFP