Hurting the Pakistani economy

…shouldn’t be an objective in itself

R Vaidyanathan, a professor of finance at the Indian Institute of Management – Bangalore, suggests twelve steps to shock and awe the Pakistani economy. Many of them are, in and of themselves, powerful instruments to destabilise Pakistan. Many of them can make credible threats, because carrying them out will hurt India, albeit to a much lesser extent that they hurt Pakistan.

The problem, though, is that Prof Vaidyanathan’s arguments are premised on a stable Pakistan not being in “the interest of world peace, leave alone India” and that if “Pakistan is dismantled and the idea of Pakistan is gone, many of our domestic (religious) issues will also be sorted out.”

The counter-argument is that it is an unstable Pakistan—unstable since 1947—that is the cause of much of India’s, and the world’s security problems. It is the lack of an internal reconciliation, a sense of purpose beyond being India’s doppelganger and a lack of stability that lies at the root of its ending up as an “international migraine”. Plus, unless it is possible to be very sure that the post-Pakistan set-up will somehow be more stable, and less jihadi export-oriented, dismantling Pakistan cannot be in India’s interests. [See this article]

So while attempting to bring about a collapse of Pakistan is undesirable, many of Prof Vaidyanathan’s prescriptions lend themselves for coercive diplomacy. They allow India to pursue a variety of punitive and coercive policies in a calibrated manner, without raising military tensions. For instance, it would be untenable for the international community to disagree that all economic aid to Pakistan must be made contingent on its government meeting concrete deliverables, like extraditing terrorists that live in the open in its territory. In fact, The Acorn has long argued that the greatest failure of the “peace process” was that it distracted attention from the important objective of creating a range of flexible policy instruments that could not only be turned on and off, but also fine-tuned and targeted.

To modify B Raman’s words a little, the capability to cause “a divided Pakistan, a bleeding Pakistan, a Pakistan ever on the verge of collapse without actually collapsing—-that should be our objective till it stops using terrorism against India.”

39 thoughts on “Hurting the Pakistani economy”

  1. Nitin,

    I am not sure how a stable Pakistan is in India’s interest. Does your assessment critically rest on the fact that Pakistan has nukes?

    In fact, if that were so, the view of Pakistani strategists is interesting. it is quite obvious from the scale of their covert support to insurgencies all over India that they consider a united and stable India an existential threat to Pakistan. And their preferred way to counter this threat is to destabilize, and if possible dismember India. It does look like they have good reasons not to worry about a bunch of independent (possibly hostile) breakaway Indian states having nukes…

    I think a united Pakistan is in nobody’s interest – except China.

  2. How will these 12 steps prevent creation of more ‘non-state actors’ ?

    IMO: These will only drive down the supari prices because of increased supply of manpower – remember that poor momma’s boy, Ajmal, agreed to do what he did just for USD 1700 ? Worse still, they will get Peerbhoy like quality candidates at that price!!

  3. Nitin,

    It’s time we stopped dilly-dallying around what’s important for the region and the world and focus on what we intend to get out of this situation.

    There is no need to even debate whether a stable Pakistan is in our interests or not.

    A terror-free India is our only interest.

  4. Jay,

    Indeed. But if eating an omelette is in our interest then surely breaking the egg is too.

  5. Nitin,

    All this listing of available options is fine.Is there any indication at all that our govt, or the main national political formations (UPA/NDA) are thinking on these lines?

    So far, I don’t see even a hint of coercive diplomacy being practiced by the Indian Govt.Giving a demarche, and demanding extradition of suspected terror elements has been done many times before.

    Eventually, (let me do some wishful thinking here) after we succeed in weeding out the jihadi elements, and win the war on ideas against Wahabi fundamentalism, we would of course want our neighbors to lead a peaceful life in harmony with us.

    Is it possible to craft this as an end point, a dream, and sell the idea to Pakistani people? I know this is a dream, but if we can come up with an answer to the question: Whats in it (peace) for Pak Army, we will be closer to the solution.

  6. @Nitin

    You are right. Using economic levers would be an excellent tactic – in fact the most effective one – in coercive diplomacy. But it should be treated as such and not as a strategy to dismemeber Pakistan.

    In fact, I am quite surprised that we did not take advantage of ongoing economic turmoil in Pakistan to arm twist indirectly into lowering their military budget, to start with.

  7. R Vaidya offers reasoned and seasoned analysis. Economic warfare was certainly one of Pak’s aims behind the Mumbai carnage. They want not to lift up Pak’s economy to match India but to bring down India’s to pak’s miserable level. What are the roots of this rage?

    Recall 1998, post pokhran and chagai, when India and pak were ==. Now Pak has sunk so low, financially bankrupt, socially noncohesive and violently so, all development indicators like literacy, health etc worsening, investors and visitors fleeing, most terror plots globally traced back to pak, the Pak pasport an object of suspicion and mistrust almost everywhere and so on. Contrast that with where India has gotten. The gulf has widened so much that even if India stays where it is, in another 10 yrs, Pak is destined to get flushed down the tubes at the rate at which it is sliding right now.

    Here’s an anecdote. Poor Imran khan was so heartbroken to hear that England would resume its test tour in India he actually whined about it in the press.

    So yes, bring it on. Economic coercion is kosher. We gotta do what we gotta do. Force the fence-sitters among our trading partners to choose between an emerging India and a de-merging Pak. Except for PRC and KSA, everybody else should be able to see the light, IMHO.

  8. I don’t at all see what’s wrong with collapsing Pakistan. It’s not like the place would shatter like glass. It would naturally re-form into its component ethnic provinces – Punjab, Sindh, Baluchistan, and Pakhtunistan(reunified with Southern Afghanistan). Those ethnic states would be very stable, and much de-Islamized. Their peoples would finally be able to move forward with life, instead of staying trapped in the Islamism which Pakistan uses as a glue to hold its unwieldy patchwork together.

  9. India to give ultimatum to UN Security Council on Pakistan

    Not satisfied by Pakistan clamping down on the terror group Lashkar-e-Taiba (LeT) – blamed for the Mumbai blasts, including shutting down of their training camps in the Pakistan-occupied Kashmir (PoK) and alleged detention of senior LeT leaders – India is bracing to haul Pakistan over coal at the UN Security Council.

    It is an ultimatum of sorts by India, and it is expected to underscore that in case the international community fails to take urgent action, “India will take action that it deems fit to safeguard its citizens”.

    This is the strongest ever indictment of Pakistan by India, and moving away from the semantics New Delhi is expected to tell the world body that if enough pressure is not put on Pakistan to hand over those behind Mumbai attacks, besides the handover of fugitives like Dawood Ibrahim, then it will take appropriate action.

    Well, *something* is better than nothing. Am apprehensive about going to the UNSC though. Could get stuck in another quagmire. But right now, Dilli has little to lose and possibly lots to gain, so full steam ahead. At the very least, it could force some similing players to expose their cards when a vote is called. Much like PRC did at the NSG vote. Always good to know who our friends are and who aren’t.

  10. That was the most clearly articulated article on how to hurt Land of Pure for its relentless onslaught of massacres…But MEA needs permission from US to take a step to do anything apparently…

    Nitin, we already argued about this, many times. It is in India’s interest that Paki-land disintegrates into four or five states. For one thing, we get our PoJ&K back along with access to north Afghan and beyond (just this should be sufficient condition for Paki-land disintegration). And along with Afghan, Baloch will be close to us. The punny Punjab/Sind will still want parity with India. NWFP will naturally merge with Afghan as one Pashtun people…The individual states of paki-land will not as big to keep terror as state policy alive. There will still be Islamic terror – but that will truly be just bunch of radicals and can be taken care of without worrying about the fate of a strategic state…dismemberment is in global interest.

    So Pakiland Murdabad…

  11. @Chandra -what abt them nukes ? The generals will not be too pleased with the scenario you have outlined and might not be averse to dropping a few here and there. Even if we in India are not directly in the line of fire, the radiation side-effects will affect us too.

  12. Of all the loony analyses being provided, Arundhati Roy’s perhaps takes the cake. You can listen to it here.

  13. Bobcat,

    Moi can’t stand that lady. And why her publicity anyway.
    BTW, kindly post some of the choice titbits onlee.

  14. Sanjay [#8] – While some of these nascent states especially, those under inevitable Indian tutelage, would be less Islamic in expression, others could very well move closer to the Wahhabi version 2.0. or worse, become a base for the People’s Liberation Army.

  15. If this is the caliber of Indian economists let alone strategic thinkers, color me unimpressed, disdainful even. All of the solutions are either unrealistic or self-destructive.

    1) An export subsidy on a food staple commodity? I have a feeling that the hundreds of millions of hungry Indian voters wouldn’t be too receptive to this proposal. A textbook case of cutting off your nose to spite your face.

    2) Arm twisting Pakistan’s leading arm suppliers is easier said than done. Vaidyanathan mentions Germany and Brazil but ignores the two largest, the United States and China. India quite simply doesn’t have the power to pressure this duo into doing anything, or at least India isn’t prepared to accept the cost of their acquiesance.

    3) Raise FDI limits? Has this so-called professor of finance been living in a cave for the past few months? There is a global financial crisis ongoeing and money for both technical (redemptions) and normal (safety) reasons are flowing into the U.S. His ideas aren’t so much “real politics” but grandiose delusions. Much of India’s strong growth in recent years has been financed by excess liquidity, the ongoeing liquidity crunch means that there is much less (read none) money to invest, particularly not in volatile emerging markets that are down significantly from their peaks with a real estate implosion on the horizon and great uncertainty. It’s good old 0% U.S. treasuries for most institutional investors who are more worried about preservation of capital. There is a reason for the Rupees rapid depreciation and huge outflows of money from India, and it isn’t because U.S. investors are upset about FDI limits.

    4) Printing counterfeit currency is the act of criminals and pariahs (see North korea). Doing so will do significantly undermine India’s financial stature in the eye’s of the rest of the world. Not to mention the fact that Pakistan can reciprocate tit-for-tat leading to a currency implosion in both countries. That is if this doesn’t lead to a war first.

    5) The conditions of the IMF loans are dictated by the creditor nations, of which India is not one. India can no more dictate the IMF’s terms to Pakistan than an individual can dictate the terms of a Bank lending to his neighbor.

    6) The Pakistani market has already fallen off a cliff. I don’t see what India could do to manipulate values unless it means massive liquidity injections to inflate another bubble which will subsequently collapse. All this ends up doing is throwing away good money after bad.

    7) I don’t understand how cricket or the Indian film industry have much of a relationship with Pakistan or Indian intelligence agencies so I cannot really comment here. Though it does sound like connect the dots conspiracy nonsense from my angle.

    8) Why whould the Pakistani academic elite want to emigrate to India when they can do so to the U.S. or Europe? High value productive labor is always in demand. The people in Pakistan who do want to move to India have merely to enter illegally, what need they of citizenship?

    9) I don’t believe Pakistan has much of an IT industry nor is it particularly vital to the health of the overall Pakistani economy. Besides, after the colossal clusterf*ck that India’s titans of industry (See Corus, Jaguar, Land Rover) has managed to self inflict I doubt they are in the mood, let alone have the capital, for more investments.

    All in all, the list of proposals were either empty bravura or incredibly self-destructive if carried out. While the Mumbai attacks have solicited an outburst of emotions (and emotional ranting), they haven’t had nearly as large of an effect on common sense or practical solutions.

  16. jewgar –

    #1 ) besides staples there are other sectors, like textiles and sporting goods, where india can use export subsidies to hurt pakistan’s economy.

    #2] for all we know, india is already using her purchasing power to arm twist the united states. to wit: american analysts parroting,[some like rand’s fair, nbc’s cressey and cfr’s markey even changed their tune within 24 hours from “could be domestic, kashmiri, we don’t know yet” to “this is pakistani without any doubt”] without concrete evidence, indian claims that the mumbai attacks emanated in pakistan.
    china, on the other hand, is another story.

    #3) speaking of grandiose delusions, can you prove your assertion that, “Much of India’s strong growth in recent years has been financed by excess liquidity,”?

    #4) for all we know indian spooks are already doing it. and i would bet that the cia, gru, mossad and mi5 also have operations in place to print foreign currencies of various states. not to mention, the isi. btw, the only “criminal” act is to get caught.
    p.s. alternate methods, see soros vs. the ringgit and soros vs. the sterling

    #5) while i agree that india cannot, yet, dictate to the imf, i do, however, believe that india has donated a respectable, by emerging market standards, sum to the imf kitty.

    #6) see soros vs. ringgit; soros vs. the sterling.
    p.s. purnendu chaterjee, an iit grad was soros’ top lieutenant during his currency trading days, and i am sure, pc could be persuaded to help his mother land, esp, since his own fund has almost a billion usd invested in india.

    #7) “Though it does sound like connect the dots conspiracy nonsense from my angle.”
    this from someone who confesses to not understanding the connection between the indian film industry, gambling on cricket and the isi – muslim mafia nexus.
    once again, speak of “grandiose delusions”.

    #8) on this i will meet you half wa.
    top pakistani scientists have already left or are leaving for western shores, so what need do they have of india. and, in any case, given the lax security in india, it would be too risky to allow easy access to a bunch of pakistani scientists [remember nuke-mart ceo, a.q.khan was also employed by a dutch research facility].
    but actors, writers, cricketeers and assorted intellectuals is another matter.

    any actor wishing to work in the gargantuan indian film industry, particularly with priyanka chpra, preity zinta, deepika padukone, katrina kaifor aishwarya rai; any cricket player wishing to earn millions by playing in the indian premier league and possibly for india, and/or dating the above listed actresses; any writer yearning a larger market, not to mention more sophisticated, should be compelled to choose between indian or paksitani citizenship.

    #9) we could take steps to ensure that paksitani information technology remains exactly as it is today, i.e., non-existent.
    contrary to the financial times’ opinion, which you regurgitate here, the jury is still out on whether the corus, jaguar and land rover purchases have been sensible, synergistic acquisitions or as you say, “clusterf***s”.
    btw, the above listed companies were acquired by one titan only, not by titans.
    for the last time, speak of grandiose delusions.

  17. Trilok (from #15), PakPunjab might go Wahhabi, but Pakhtunistan wouldn’t be able to go more Wahabbi than it already is. And with PakPunjab much truncated and landlocked, it wouldn’t be able to do much to dominate Pakhtunistan, nor serve as a base for China. We’d have control over POK, reunifying it back with Indian J&K.
    Nobody in any of those states would be speaking Urdu anymore, and we Indians wouldn’t be taking back the Mohajirs, of course. So the Mohajirs would become the unwanted trash of these new states, and would spend their time in rebellion against them. This would spur these states and their majorities to focus on crushing them, which they would be able to do successfully with their new ethnic majority orientations.
    That’s fine by me – I’ll be grinning like Sharon was when the phalangists went into Shatila.

  18. About 2/3 the way down in that Stratfor article, they mention that the US’s main achilles heel in Pakistan is in the main port of Karachi, which it would not even be able to seize if Pakistan fell apart. Big deal, I think the US could seize Gwadar fairly easily, and then use Baluchistan as its supply corridor. Fine, it’s rough terrain, but it’s not totally intraversible.

  19. @anonymous coward,

    Let’s just say military assault isn’t the only way for Bharat to enable unraveling of Pakiland. Also there will be viable states, such as Punjab/Sindh, that I’d think already have strategic assets within their boundary.

    But as general point, the fear of nuclear weapons should not be end all to our response. We have weapons too. That doesn’t seem to stop the Islamic murders from spreading terror once every two months.

    @Jew, you are missing the point. Economic sanctions may hurt Bharat, but they would hurt Pakiland more, especially because they are already hurting and because their economic size about a 10th the size of Bharat. And it surely will be cheaper than military invasion. But prof’s point is more than sanctions. One has to look at what the Chinese are doing to Europe when Sarkozy met with Dalai Lama to see how a country can put economic pressure to make it painful for another country.

    But then Pakiland has US as the client state – it’ll come to rescue of its master (after it gets its way).

  20. You guys are sick, in the guise of academics you propagate the same terrorist propaganda, the only difference is that they dun use economic or IR jargon.

    Keep up the work , but let me tell you, this wish of yours will never be fulfilled.


  21. A little OT, but relevant to the line Acorn has been pushing for India to get *more* involved in Afghanistan rather than less:

    Is that a position everybody *else* is hoping for and we’re being manipulated into? Apparently, US is eager to pull out of Afghanistan and would like to hand over the duties there to somebody else who can take the body count.

    We seem to have demonstrated competence in taking casualties without murmur. Even hits on our mainline cities, while we push a line that naturally aligns with US policy in the region… and for warm words of condolence and reassurance in return. Doesnt look like a good deal… for us at least.


    “….Historical evidence tells the US and its NATO allies that staying on in Afghanistan is a losing proposition.

    ‘Outsourcing’ of peacekeeping in Afghanistan as soon as the Al Qaeda [Images] threat to the industrialised north is contained or eradicated must appear to be a good proposition to the US. Skin and chunks of meat off India’s back is unlikely to attract any additional reaction from the US and NATO allies….”


  22. For Pakis nuclear weapon is a deterrent and terrorism is their most potent offensive element. Any Indian strategy needs to factor this first.

  23. Returning to natural boundaries of tribes seems to be the most appropriate approach for those lawless lands. Rather than focusing the language around damaging the Terrorist State of Pakistan, it seems like encouraging them to coalesce around ethno-linguistic lines would be the most stabilizing end game. This would be far preferable to having the current religion based model for the failed state. Instead of creating counterfeit currency, how about creating Pashtunis, Baluchis, Sindhis, etc. as valid local currencies exchangeable for hard goods/aid from India? Pick some martyrs of worth from their past, e.g. Khan Abdul Gaffar Khan (frontier Gandhi) etc. and put his face on these notes. It could have immediate acceptance.

  24. @Chandra: The Islamic murderers keep coming because they hear voices in their heads (apparently from God) to kill the kafirs. It appears that they are aided by the Pakistani establishment in their endeavors. When a large number of people in that country are willing to die for a ’cause’ to enjoy their 72 virgins, wouldn’t the N-bomb not deter them ?

    IMHO the N-bomb deters only with MAD – like in the cold war. Neither side was willing to give up this life for other-worldly pleasures. The N-bomb might be our deterrent against China, but not against a suicide bomber. The point I was trying to make about your argument was that in an unstable country, some nutjob might get hold of the button.

    I take back all my objections if the nuclear arsenal of Pakistan is under the safe custody of Uncle Sam. He needs to sell nuclear reactors to us, so he is probably not going to nuke us. In such a scenario, I whole-heartedly agree with you – just that we should annex a part of Sindh for the sake of completeness. ” … Punjab, Sindh, Gujarat, Maratha …” will sound much better.

  25. Let’s be clear here that pakistan is a “terrorist state” and never have any illusion that it is going to be any different.We have made a grave blunder by suggesting in the international fora that “Pakistan is also a victim of terror.” We should stop interviewing leaders from that country who mouth the same inanities that “you have not produced any proof.”Let us not fall into the trap of providing proof to the culprits. More than 100 acts/attempts of terror recorded in the world since 9/11 have had their roots in Pakistan. More than 40% of the prisoners in Guantanamo are Pakistanis.

    We should categorically, unambiguously, unequivocally boycott Pakistan in all aspects for a decade or more. Pakistan is the only territory in the world where an army has a whole country under its control. The state policy of Pakistan is terrorism and their single-point programme is to destroy India.

  26. What if a Jamaat-Ud-Dawaa is banned, they just have to look for another name and there are plenty of it. It could be a Al-Ulema or a Harkat-Ul-Jihadi or yet another Jamaat-Al-Takriki.
    C’mon lets not get fooled with all this cosmetics. We got to be kidding if we believe that this will put an end to the terror menace originating from Paki land. If just banning would do the trick, then UNSC should have just banned Al-Qaeda and Taliban and the USA should have been happy and contended with it.

  27. I’d say this is more probable (and possibly a more effective tool) than a military strike (however “surgical”) against Pakistan. The question though is what the fallout will be. Pakistan as a country today is really just Punjab and Sindh. Balochistan and territories in NWFP are de facto independent.

    If Sindh and Punjab collapse, the whole area from Helmand, Afghanistan to Wagah will be in a state of anarchy, and no one really knows how many nuclear weapons Pakistan has or who has control over them. This is a nightmare scenario for India and no sane government can even consider going through with this.

  28. I think a stable Pakistan (or stable broken up pieces of Pakistan ) will only be friendly to India if the actual rulers truly believe in respecting all religions equally and renounce Jihad (and hence stop being fundamentalist)
    Most of the factors unravelling Pak are outside India’s control, we need to gameplan how to handle each scenario – stable, unstable, total anarchy in Pak.

  29. Many commentators have spoken about the effect of a stable or unstable Pakistan on India. What is not clear is what these commentators mean when they say a destabilized Pakistan. Do they mean political unstability? Or a Pakistan riven by internal strife? As the professor points out in his article, the army virtually controls Pakistan. Any vacuum or instability will only provide it an excuse to overthrow the civilian government and seize power. So would that be in India’s interest? Also, I am not sure how anyone can be so sanguine about how a hypothetically unstable Pakistan would pan out. Analysts are not astrologers.

  30. Before the Delhi attacks I had no particular issues with Indians. But the reaction of most indians and even their “intellectuals” gives me the impression that most indians are “wanna be” nouvo riche individuals who simply do not know how to behave in a civilsed manner. I say “wanna be” because unlike the nouvo riche americans india still IS NOT rich. 70% of its popultion is still below the poverty line. Millions of children in india are underfed. Hundreds of farmers commit suicide every years due to economic distress. There are dozens of attacks by hindu extremists on both muslims and christians (usually state sponosred) in various parts on India.
    And yet the indians behave as they are the next upcoming superpower of the world. Mark my words India will muddle along just like it always has. Stop pretending to be something you never will be. Further more even if you were a nouvo riche superpower like USA you would still not be respected just like they are not. The world only respects those who respect others. Arrogance is not a quality to aspire to.

  31. Mustafa,

    Do you even know what “nouvo riche” means? Do you even understand that “nouvo riche” is a derogatory term used to describe people who, in becoming rich, haven’t shed the social manners of the “lower class”? You’ve thrown the word around, attributing it to a nation – America, of all places – like it’s a highly desirable title. Poverty exists in large numbers in China too, yet China is a global power, if not a super power. There’s no reason why it should be any different for India’s case.

  32. will some of the readers kindly find out why a reserach scientist in JNU in Delhi always spits anti Indian and anti hindu rubbish in the arab and pakistani newspapers.. that great scholar is DR.ABDUR RAUF COLACHAL. google his name and there is a wealth of anti indian articles.. why doesn’t he leave india and go to pakiland…

  33. mustafa ko jalan ho raha hai.. every british and american prime minister and president hails India as a major power… and gordon brown says most of the world terrorists are pakis.. in pakistan there is no good university, and still they have established a world class university of terror, with highly skilled professors whose knowledge in terrorism is second to none…

    nobody denies india is still a developing nation, and still indians are respected, in UK, indian children, alongwith the chinese, are far better than the average white children, and the pakistani children are at the bottem of the scale, no wonder forty percent of UK adult muslim males are without any jobs…

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