Do it yourself

In the early hours of Wednesday, the 07^th May 2025, Indian forces, led by the Indian air force (IAF) carried out precision strikes on nine targets in the Pakistan Occupied Jammu and Kashmir and Punjab province of Pakistan.

As per the Indian authorities, the targets were terrorist camps. The strikes have been purportedly carried out in response to the killing of 25 Indian and one Nepali tourist in the Pahalgam area of Kashmir, last month. The Indian government sources confirmed that (i) the strikes were carried out from the Indian airspace and international border was not violated; and (ii) no civilian or military installations were hit during the strikes.

Preceding the yesterday’s strikes, the Indian government had taken a series of economic and diplomatic measures against Pakistan for failing to prevent terrorism activities against India from its land, and providing active support to the terrorism ecosystem thriving on its land.

Pakistan also retaliated with some economic and diplomatic measures against India. Consequently, the trade between the two countries (valued at US$1.2bn in FY24) has completely stopped and all direct diplomatic channels of discussion are officially closed. Both countries have prohibited the use of airspace and port facilities to the civil and commercial carriers of each other.

The government of India has suspended compliance of the 1960 Indus Water Treaty (IWT). IWT is a water-distribution treaty between India and Pakistan, arranged and negotiated by the World Bank, to use the water available in the Indus River and its tributaries.

The government of Pakistan announced suspension of the compliance with the 1972 Shimla Agreement. The agreement has governed the diplomatic relations and all interactions relating to the matters of mutual interest and conflicts between the two countries, in the past five decades.

There have been reports of violation of ceasefire and persistent light arm firing across the line of control in Jammu and Kashmir from both the sides in the past ten days. After yesterday's strikes, the shelling has reportedly increased and heavy artillery is being used. There are some unconfirmed reports of civilian casualties due to the shelling.

Under these circumstances, investors in India, may like to ask the following questions and find answers to these:

·         Could the present conflict escalate into a full-fledged war between the two nuclear powers?

·         If the conflict does escalate to a full-fledged war, how long this war may continue, and what would be the implications for the Indian economy, and therefore markets?

·         Could a full scale war (first after 1971) with Pakistan have any adverse international diplomatic or economic implications for India?

·         How prepared investors and markets for a full-scale war?

This morning, it is very difficult to make an assessment of the likely intensity and duration of the present conflict between two neighbors who have been at loggerheads for the past 78 years. Nonetheless, prima facie it appears that the markets are complacent and unprepared for any further escalation. I shall share my views on the above inquisition next week.

Last week we travelled through seven districts spread across all three divisions of Himachal Pradesh. In five days we drove through Sirmaur, Solan Shimla Districts (Shimla Division); Bilaspur, Hamirpur and Mandi Districts (Mandi Division) and Una district (Kangra Division). The journey was mostly through lower Himachal, except few areas of Shimla district that lie in upper Himachal. The objective was to assess the current socio-economic and political conditions of the state and sentiments of the people ahead of elections scheduled in November 2022.

The following are some of the key observations made during the trip.

•  There are no signs of Covid-19 pandemic in the state. Masks are mostly absent from the faces of the people as well as shops. Only room service staff at expensive hotels are seen wearing masks while attending guest calls. The customary hand sanitizer bottles put up in hotel lobbies, shops and offices are mostly empty. Most of the people we spoke to remember Corona as a bad dream, but none appeared concerned about it any longer.
• The pandemic affected the services (mostly tourism and hospitality) sector of the state significantly. But most of it is recovering well now. The tourist arrival as well as spending has been strong since last holiday season (October-November 2021). Hotel occupancy presently is above the average.
• The horticulture (fruits and vegetable) sector of the state suffered in 2020 due to logistic issues. The sector has recovered well in 2021. Both the crop and realizations have been better than 2019.
• The roads in the state are mostly in good shape. The construction of highways and village (PMGSY) roads that suffered during the pandemic is back on track. Chandigarh-Solan route is now completely four lane. Solan-Shimla four laning is progressing well. The local people are generally happy with the widening of roads. The voices of dissent (on environmental issues) are few and feeble.
• The sentiment of people is generally positive, but not particularly ebullient. The efforts of the government to create local employment opportunities have not yielded the desired results so far. Even though the implementation of numerous government schemes is progressing well and corruption is not seen as a major issue in the state. Inflation is a key concern in towns, not so much in villages.
• Politically, there is no significant anti-incumbency in the state. No one seems to be vocal with complaints. Though people are not excited about the present state leadership. Most of the people we spoke to are expecting a change in the state leadership post election.
•  The ruling BJP has already started the election campaign, while no other party seems bothered about it as yet.
• The traditional monsoon forecasting mechanism of the tribal farmers has been significantly more accurate than the professional forecasters. I have been personally observing this for the past 25years. This time they are anticipating a good monsoon. This is good news for the farmers of Himachal Pradesh, Uttarakhand, Haryana, Punjab and Western UP at least.