India resilient to economic fallout from escalating tensions with Pakistan

A day after smashing terror targets in Pakistan, India held civil defence drills, raised security at power plants and refineries, shut sensitive airports and girded up for potential cyberattacks, even as experts said the economy will weather any shock from the conflict unless there is a broader escalation.

The previous night, India conducted Operation Sindoor, a series of military strikes on nine terror camps in Pakistan and Pakistan-occupied Kashmir in retaliation for the 22 April Pahalgam attack, symbolizing justice for the victims' widows. Pakistan has termed the strikes an 'act of war'.

Key petroleum installations under enhanced protection include Reliance Industries Ltd’s Jamnagar refineries, Nayara’s Vadinar refinery in Gujarat, HPCL Mittal Ltd’s Bathinda refinery in Punjab, and Vedanta Ltd’s Barmer oil fields in Rajasthan. “All security protocols are active, and both security agencies and refinery managements are prepared to thwart any attempt by hostile entities,” a senior official said on the condition of anonymity.

A second official said refineries in Jamnagar and Panipat, secured by CISF, are under particularly stringent surveillance given their proximity to the border. “The Vadinar facility is especially sensitive as it is just kilometres away from the sea border. All emergency response protocols are in place,” the official said.

The Indian markets shrugged off the conflict, opening only slightly lower, and clawing back most losses to close in the green. The National Stock Exchange (NSE) and BSE Ltd have temporarily restricted access to their websites for overseas users, Reuters reported.

Also read | ‘Operation Sindoor’ jitters fade: Nifty, Sensex script a resilient green run

"While India has very limited economic exposure to Pakistan, its solid economic fundamentals offer a buffer against any external shocks,” an official said on the condition of anonymity. "The latest action by the Indian armed forces, unless escalated, is unlikely to have any impact on the economy, nor is it expected to impact investments," the person added. However, the development has raised worries that kharif sowing, and consequently, food security, may affected if the border tensions escalate.

Meanwhile, the government is preparing to invoke the Essential Services Maintenance Act (Esma) to prevent profiteering and ensure steady supplies of essential commodities, officials said. Esma empowers the government to prohibit strikes and ensure the uninterrupted delivery of essential services vital to public welfare.

During the day, civil defence drills simulating hostile scenarios like air raids, fire emergencies, and search and rescue operations were conducted across states and Union Territories.

Sirens were sounded at Delhi's Indira Gandhi International Airport and fire brigade teams rushed in along with a team of doctors and ambulances. Students and teachers across Delhi took part in the drill. In Mumbai, a civil defence team from the Central Railway organized a drill at the Chhatrapati Shivaji Maharaj Terminus, one of the sites of the 26/11 terror attack.

"Establishing long-term deterrence against Pakistan is critical. The latest military response is geared towards that purpose," said Sankalp Gurjar, assistant professor of geopolitics at Gokhale Institute of Politics and Economics. "India's response in Balakot in 2019 created deterrence that lasted about six years," he added.

Read this | Operation Sindoor: India on high alert for cyber attacks

India briefed key nations, including the US, UK, Russia, Saudi Arabia, and UAE, on the operation to clarify its anti-terror objectives and maintain diplomatic transparency, PTI reported. US president Donald Trump called the situation a “shame” and hoped for a quick resolution, while UN Secretary-General António Guterres emphasized “maximum military restraint.” Russia and China expressed concern as well.

A finance ministry spokesperson did not respond to emailed queries regarding the potential economic impact of an escalation in tensions with Pakistan.

On Monday, ratings agency Moody's had said that India’s macroeconomic stability may hold firm even if tensions with Pakistan escalate, citing its economic relations with Pakistan. "However, higher defence spending would potentially weigh on India's fiscal strength and slow its fiscal consolidation," the ratings firm had said.

‘Non-escalatory actions’

India's actions under Operation Sindoor were focused, measured and non-escalatory, the defence ministry said earlier in the day. "No Pakistani military facilities have been targeted. India has demonstrated considerable restraint in the selection of targets and methods of execution," it added.

Diplomatic ties with Pakistan had deteriorated rapidly since the Pahalgam massacre, with India suspending the 1960 Indus Waters Treaty, prompting Pakistan to retaliate by scrapping the 1972 Simla Agreement and closing its airspace to Indian carriers.

Read this | BSE, NSE cut website access outside India ahead of ‘Operation Sindoor’

India and Pakistan have fought four wars—1947, 1965, 1971, and 1999—mostly over the disputed Kashmir region. The flare-up is the latest in a pattern of recurring confrontations between the two nuclear-armed neighbours.

India’s economic growth slowed in FY25, with GDP growth moderating to 5.4% in Q2—the weakest in nearly two years; yet, its fundamentals remain strong, supported by resilient domestic demand, robust public investment, and a stable external sector. The government expects growth to stay at about 6.5% in 2024-25 and in the 6.3–6.8% range for 2025-26, underpinned by easing inflation and accommodative monetary policy.

Crude relief

Cooling oil prices are also expected to aid India, in a spot of relief for the economy that is navigating a raging tariff war. Cheaper oil could help India save  ₹45,000-50,000 crore in import bills, assuming consumption remains at FY25 levels and the rupee remains stable during the year, and average global crude oil prices remain at $60-65 a barrel.

“If crude prices remain low through the year, it will ease the import bill, support the rupee, and narrow the current account deficit, while creating fiscal space for public investment,” an official had earlier told Mint, adding that sustained low prices could also help curb inflation further and improve trade balances.

Manas Pimpalkhare, Rajeev Jayaswal and Prawesh Lama contributed to this story.