Thursday, April 16, 2009




    Two member states of the SAARC region – Afghanistan and Pakistan – are tethering on the brink of collapse. They face a clear and present danger of either being taken over by the barbaric Taliban, or else a bloody and devastating civil war to prevent such a takeover. The baleful impact of the 'descent into chaos' of the 'Af-Pak' region will not be limited to only these two countries. The rest of the world, particularly India and other South Asian countries, will have to contend with the frightening fallout of a meltdown of the state structures in both Afghanistan and Pakistan.

Until now, the attention of policymakers has centred on the strategic and security dimension of the deteriorating situation in the Af-Pak region. The enormous cost being incurred by the Western powers to fight this war is no more than a statistic for most South Asian countries which have so far not had to pay a price in a war that will decide the future of this region. But perhaps the time has come to start counting the direct and indirect costs of a conflict that not only doesn't have any closure in sight, but is becoming unmanageable with each passing day.

The brunt of the economic impact of an imploding Pakistan will be felt by India. Other SAARC states are relatively insulated from the fires raging in 'Af-Pak'. Given that intra-SAARC trade is still very low – around 5% - the exposure of most of the SAARC countries to disruption of their trade with Pakistan is limited, almost negligible. The bilateral trade numbers tell their own story: Nepal exports slightly over $3 mn to Pakistan, less than 0.5% of its exports; Sri Lanka's exports to Pakistan are around $100 mn and comprise less than 1% of its exports; Bangladesh exports to Pakistan are around $60 mn, less than 0.5%; and Indian exports of $ 1.5 bn constitute less than 1% of its total exports. Whatever these countries import from Pakistan can easily be sourced from elsewhere.

Any loss of trade with Pakistan could get compensated by the possibility of winning Pakistani customers for products in which countries like Bangladesh, Sri Lanka and India compete with Pakistan – textiles, garments, sports goods, agricultural exports like Basmati rice etc. There is also a good chance that some of the capital that is flying out of Pakistan in search of safer destinations could find its way to Sri Lanka and Bangladesh, where even today many Pakistani industrialists are reported to have set up operations. Moreover, FDI destined for Pakistan could be redirected to other SAARC countries.

If Pakistan collapses, the rest of the world will pump in money and material into other countries of the region to bolster them against the marauding Islamists and making them the bulwark against further spread of the Taliban virus. India and Bangladesh in particular can expect to benefit from the munificence of the West to combat radical Islamist forces within and without. Of course, 'blank cheques' issued for strategic purposes by Great Powers are a double-edged sword. The corrupting influence of endless free lunches has a bad habit of inducing a culture of dependency in the recipient country, which starts to believe that the world owes it a living. The resulting moral, political, economic and intellectual distortions eventually either pushes the country towards radicalism, or else transforms it into a mercenary state, something that Pakistan is witnessing today.

The negligible impact of disruption of trade with Pakistan, the possibility of capturing Pakistan's market share, the prospect of inflow of billions of dollars in military and economic programs will however be small comfort when compared to the cataclysmic effects of an anarchic situation on India's western border. The immediate impact will be a massive increase in defence and security expenditures. India will have to develop capabilities to pre-empt and deter terrorists from striking at the homeland. Although expensive, investing in a robust national security architecture is essential if India is to prevent more 26/11 type attacks. Incidentally attacks like 26/11 cost much more (some estimates put a number of over Rs 3000 Cr. in terms of damages to property and loss of business) than what it takes to put in place systems that prevent such attacks.

More worrisome than the spectre of unbridled terrorism that will flow from a 'failed' Pakistan is the real possibility of a sea of refugees streaming across the Radcliffe line to escape the internecine fighting in their country. Whether India hosts these refugees in its territory or whether India adopts a forward strategy and carves out safe enclaves for these people inside what is today Pakistan, the end result will be the same: an end of the Partition arrangement reached in 1947, an arrangement that despite all the heartburn it caused has been a blessing for India. The economic strain that will be caused by such a catastrophic political development will be quite unbearable.

Even worse will be the horrendous impact of the political instability on the business and investment climate. If Pakistan goes under, India's attractiveness as a safe, secure and profitable investment destination will become history. Even domestic investment will become skittish and could seek safety outside of India, leading to capital flight. The travel and tourism industry will be devastated. The IT sector will see a huge downturn. Export oriented industries, already under strain because of the global downturn, will see a massive loss of business because buyers will be chary of doing business in India. Rising security expenditure coupled with anaemic economic growth will burn a huge hole in the fiscal position of the government forcing it to cut back on social sector spending as also in infrastructure development projects. The spiralling effects of this on the national economy, and indeed national politics, will put paid to all the progress made in the last decade and a half.

Clearly, a 'failed' Pakistan will be India's worst nightmare come true, and this even without taking into account the horrible prospect of Pakistan's nuclear weapons falling into the hands of fanatics who live for dying, whether by the bullet or by incineration. Unfortunately, post 26/11, a deeply hurt India is revelling in Pakistan's discomfiture and ignoring the consequences of Pakistan either failing or falling into Taliban hands.


    <1050 Words>                    15th April, 2009



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