Operation Sindoor: Economic Impact of the 2025 India-Pakistan War

By: Narender Singh Shekhawat • Blog Publish Date: 11 May 2025

On April 22, 2025, the tranquil Baisaran Valley near Pahalgam, Jammu and Kashmir, witnessed a horrific terrorist attack. Armed militants, disguised in military fatigues, targeted a group of Hindu tourists, resulting in 26 fatalities and over 20 injuries. The assailants, affiliated with The Resistance Front—a Lashkar-e-Taiba proxy—reportedly segregated victims based on religious identity before opening fire. This incident stands as one of the deadliest civilian massacres in the region in recent years. (The Times)

In retaliation, India launched Operation Sindoor on May 7, 2025. This precision military campaign targeted nine terrorist hideouts across Pakistan and Pakistan-occupied Kashmir, including key Lashkar-e-Taiba and Jaish-e-Mohammed facilities in Muridke, Muzaffarabad, and Bahawalpur. The operation aimed to dismantle the infrastructure supporting cross-border terrorism, marking a significant escalation in Indo-Pakistani tensions. (India Today)

Background: From Historical Tensions to the Pahalgam Attack (April 2025)

India and Pakistan's fraught relationship, rooted in the 1947 partition, has been marked by multiple wars and persistent skirmishes, particularly over the disputed Kashmir region. Despite a ceasefire agreement in 2021, violations have been frequent, with both nations accusing each other of unprovoked aggression (NDTV).

On April 22, 2025, a devastating terrorist attack in Pahalgam, Jammu and Kashmir, claimed the lives of 26 civilians, including 25 Indian tourists and one Nepalese national. The Resistance Front (TRF), suspected to be affiliated with Lashkar-e-Taiba, claimed responsibility (Mint). This incident not only shattered the fragile peace but also reignited fears of escalating conflict between the nuclear-armed neighbors.

Trade Halts and Sanctions: India's 2025 Trade Ban and Its Impact

In response to the Pahalgam attack, India implemented a series of non-military punitive measures aimed at isolating Pakistan economically and diplomatically:

• Suspension of the Indus Waters Treaty: India halted data sharing and consultations under the treaty, affecting water flow into Pakistan and raising concerns over agricultural impacts. [Reuters]
• Closure of the Attari-Wagah Border: The shutdown of this key trade route disrupted bilateral trade worth approximately ₹3,886 crore (~$467 million USD) in 2023–24, impacting various sectors including agriculture and manufacturing. [Times of India]
• Airspace Restrictions: India closed 25 flight routes to Pakistani carriers, forcing them to reroute flights via longer paths — increasing average operational costs by an estimated ₹80–100 crore per month (~$9.6–12 million USD), and reducing regional connectivity. [Estimate based on industry analysis; exact figures may vary]
• Reciprocal Airspace Closure by Pakistan: In retaliation, Pakistan barred Indian carriers from its airspace, compelling rerouting of over 800 weekly flights. This led to increased fuel consumption, longer flight durations, and additional crew requirements. The estimated financial impact on Indian airlines is approximately ₹307 crore (~$37 million USD) per month. [Financial Express]

Operation Sindoor: Retaliatory Strikes and Initial Economic Shock

On May 7, 2025, India launched Operation Sindoor, conducting precision airstrikes on nine terrorist-linked sites across Pakistan and Pakistan-occupied Kashmir. The operation targeted infrastructure associated with groups like Jaish-e-Mohammed and Lashkar-e-Taiba, resulting in the elimination of key operatives (Livemint).

Pakistan condemned the strikes, reporting civilian casualties and accusing India of unprovoked aggression (The New Indian Express). The immediate aftermath saw heightened military alertness, with reports of cross-border shelling and drone deployments along the Line of Control (NDTV).

Financial markets reacted with volatility; the Sensex dropped by over 700 points, and the Nifty 50 fell by nearly 170 points on the day of the strikes (Goodreturns). However, historical patterns suggest such geopolitical tensions often lead to short-term market disruptions, with long-term economic trajectories remaining resilient.

🇮🇳 India: Immediate Economic Costs

• Operation Sindoor Expenditure: India deployed Rafale jets equipped with SCALP missiles and HAMMER bombs. Each SCALP is estimated to cost ₹30–35 crore (~$3.6–4.2 million), and HAMMER bombs ₹3–5 crore (~$360K–600K). The overall cost of the operation is estimated between ₹500–700 crore (~$60–84 million) covering munitions, fuel, and logistics. [India TV]
• Military Asset Losses: Pakistan has claimed the downing of five Indian aircraft—three Rafales, one MiG-29, one Su-30MKI—and 12 HAROP drones. However, no independent verification or official confirmation has been provided by the Indian government. Reputed media and fact-checking outlets have labeled the claim as unverified. [Financial Express]
• Daily Mobilization Expenses: With increased troop deployments, aerial patrols, and logistics, daily costs during heightened alert are estimated to be in the range of ₹200–300 crore (~$24–36 million). [Estimate based on defense analyst consensus]
• Defensive Measures: India deployed S-400 ‘Sudarshan Chakra’ air defense systems to counter aerial threats. Each S-400 battery is valued at approximately ₹10,000 crore (~$1.25 billion). This system intercepted multiple drones and missiles during peak alerts. [Vajiram & Ravi]
• Destruction to Property and Lives Lost: Pakistan’s retaliatory shelling caused infrastructure damage and the deaths of at least 15 civilians, with 43 injured, mainly near the LoC. [India Today]

🇵🇰 Pakistan: Immediate Economic Costs

• Destruction of Terrorist Infrastructure: Operation Sindoor destroyed 9 terror camps in Bahawalpur, Muridke, and Kotli linked to LeT, JeM, and Hizbul Mujahideen. Estimated financial damage includes loss of safehouses, weapons depots, training equipment, and vehicles — totaling approximately ₹150–200 crore (~$18–24 million USD). [Economic Times]
• Military Resource Losses: Pakistan fired multiple missiles in retaliation and deployed air defense systems and drones in active combat zones. Estimated daily operational and ammunition costs post-May 7 are around ₹60–80 crore (~$7.2–9.6 million USD), excluding long-term logistics and refueling expenses. [Estimate based on defense analyst reporting]
• Civilian Infrastructure Damage: Precision airstrikes damaged key civilian zones in Bahawalpur, including parts of Jamia Mosque. Satellite imagery confirmed damage to nearby housing clusters and roads. Restoration and compensation costs are estimated at ₹100–120 crore (~$12–14.4 million USD). [Hindustan Times]
• Loss of Overflight Revenue: Pakistan’s closure of its airspace to Indian airlines halted more than 800 overflights weekly. This move is estimated to cost Pakistan approximately $8–10 million (₹65–83 crore) monthly in lost air navigation fees. [ABP News]
• Trade Revenue Disruption: The closure of the Attari-Wagah trade corridor and breakdown of bilateral shipments impacted Pakistan’s exports (notably textiles, cement, agriculture). Estimated direct trade loss: ₹1,100–1,400 crore (~$132–168 million USD) since May 1. [Estimate based on April–May 2025 trade trend analysis]

Investor Sentiment and Stock Market Trends

The escalation following Operation Sindoor had immediate repercussions on investor sentiment and stock markets in both countries.

• Pakistan's KSE-100 Index: The index plummeted over 7.2%, leading to a temporary halt in trading. Overall, the KSE-100 has fallen nearly 13% since the Pahalgam attack (Moneycontrol).
• Indian Stock Markets: While Indian markets experienced a brief dip, they quickly recovered. Defense sector stocks, including Hindustan Aeronautics and Bharat Electronics, saw gains up to 3%, reflecting investor confidence in the sector (Business Standard).

Rupee, PKR, and Forex Shocks

The currency markets reacted sharply to the heightened tensions between India and Pakistan.

• Pakistani Rupee (PKR): The PKR fell to a record low of 305.5 against the USD, exacerbated by eased import restrictions and increased demand for dollars (Business Standard).
• Indian Rupee (INR): The INR depreciated by 0.9%, closing at 85.37 per USD, influenced by geopolitical tensions and a stronger dollar (Reuters).
• Pakistan's Forex Reserves: The State Bank of Pakistan's reserves declined by $540 million, settling at $10.6 billion, due to external debt repayments and economic pressures (The Express Tribune).

Fragile Finances: Pakistan’s IMF Bailout at Risk

On May 9, 2025, the International Monetary Fund (IMF) approved a new $1.4 billion loan for Pakistan under its climate resilience fund and completed the first review of an existing $7 billion economic stabilization program, unlocking an additional $1 billion in cash (Reuters). Despite these financial infusions, the escalating conflict with India threatens Pakistan's ability to meet IMF conditions, as increased defense spending and disrupted trade flows strain the nation's fiscal stability.

• The IMF's $7 billion bailout program requires Pakistan to implement stringent economic reforms, including tax adjustments and subsidy reductions (SAMAA).
• Heightened military expenditures and loss of revenue from trade and tourism due to the conflict complicate Pakistan's ability to adhere to IMF targets.
• There is growing concern that continued escalation could jeopardize future IMF disbursements, increasing the risk of default without external support.

Global Reactions and Diplomatic Ripples

The international community has responded with a mix of concern and calls for restraint following Operation Sindoor and the subsequent ceasefire agreement between India and Pakistan.

• The United States played a pivotal role in mediating the ceasefire announced on May 10, 2025, with President Donald Trump highlighting American efforts in facilitating the agreement (New York Post).
• China expressed concern over the escalating tensions and urged both nations to resolve their differences through dialogue (DNA India).
• Turkey condemned India's airstrikes, labeling them as violations of Pakistan's sovereignty, and expressed support for Islamabad (Livemint).
• International organizations, including the United Nations and the IMF, have emphasized the importance of de-escalation and warned of potential economic repercussions if hostilities persist (Economic Times).

India vs Pakistan Economy: Who Bears the Bigger Brunt?

India and Pakistan's economic resilience amid escalating tensions reveals stark contrasts. India's robust economy provides a buffer against prolonged conflict, whereas Pakistan's fragile financial state heightens its vulnerability.

India's expansive economy and substantial foreign reserves offer a cushion against the economic shocks of conflict. In contrast, Pakistan's limited fiscal space and dwindling reserves exacerbate its economic fragility, making it more susceptible to prolonged instability.

Conclusion & Outlook

The recent escalation between India and Pakistan underscores a critical reality: prolonged conflict can severely damage the economies of both countries, overshadowing any short-term geopolitical gains. For Pakistan, the crisis has compounded pre-existing economic vulnerabilities, pushing the country closer to financial instability despite the recent $1 billion IMF bailout approved on May 9, 2025 (Reuters). For India, although the economy remains resilient due to substantial foreign reserves and broader diversification, the ongoing tension still poses significant risks to growth and investor confidence.

Ultimately, diplomatic dialogue and peace are vastly more beneficial than military confrontation. As the recent ceasefire mediated by the United States, effective from May 10, 2025, demonstrates, dialogue truly proves "cheaper than war" both economically and humanely, despite isolated reports of drone attacks and intermittent shelling afterward (BBC). The path forward must prioritize peace and stability, leveraging international diplomatic frameworks to ensure sustainable solutions.

Call to Action

Staying informed and engaged is vital in times of geopolitical tension. Share this analysis to raise awareness about the true economic and human costs of conflict. Encourage dialogue, support diplomatic efforts in your community, and advocate for peaceful resolutions. Together, informed citizens can actively shape a more stable and prosperous future.