For decades, India’s response to cross-border provocations — wars, infiltrations, terror attacks — was defined by strategic restraint. From Partition to Pulwama, this restraint was often dressed in moral rhetoric.
The underlying truth was simpler: India lacked the economic capacity to sustain escalation. That is no longer the case. With an economy nearing $4 trillion and foreign reserves comfortably above $600 billion, India no longer hesitates when provoked.
The 2025 Pahalgam attack, which took 26 innocent lives, was answered in a manner that reflected this reality. Operation Sindoor was not theatre. It was a deliberate, calculated exercise of power, made possible because India can now bear the costs of action without destabilizing itself.
The market’s reaction told the story. The Sensex dipped momentarily but rebounded within hours. The rupee remained stable and global investors saw no cause for alarm. Pakistan, by contrast, reeled under its own economic fragility: a $375 billion economy, forex reserves scraping below $10 billion, double-digit inflation, and perpetual reliance on IMF bailouts. The strategic asymmetry was no longer just military, it was decisively economic.
While leadership styles and military capabilities matter, economic reform and discipline have been the game-changer. The inaction in the early years of independence on structural reforms constrained India’s strategic options, limiting its ability to impose costs.
In contrast, post-1991 growth — and particularly the macroeconomic consolidation since 2014 — has created the fiscal and external resilience to support calibrated military and diplomatic actions that were once unthinkable. This is not merely a story of defence policy. It is a case study of how sound economic fundamentals translate into strategic confidence, where deterrence is not declared but underwritten by financial credibility and global economic heft.
1947 to 1991: Fragility and Restraint
For the better part of four decades after independence, India’s strategic posture was shaped less by ambition and more by economic limits. The numbers were unambiguous: GDP crept from $30 billion in 1947 to $270 billion by 1991, a sluggish expansion that failed to match the demands of a rising nation. More tellingly, foreign exchange reserves rarely crossed $2 billion, leaving the economy exposed to every external shock, from oil crises to trade imbalances. Every conflict with Pakistan—1947, 1965, 1971 — unfolded against this backdrop of financial constraint.
In the 1947–48 Kashmir war, India turned to the United Nations not just out of high-minded diplomacy, but because it simply could not afford a prolonged conflict.
In 1965, India went to war while grappling with severe drought and food shortages, its foreign reserves depleted to just $0.6 billion. The conflict’s abrupt conclusion with the Tashkent Agreement was driven as much by economic compulsion as by geopolitical pragmatism.
Even the decisive victory of the 1971 Bangladesh Liberation War was bound by India’s economic limits. Though the economy had grown to $62 billion, and Soviet backing gave India crucial military and diplomatic leverage, the campaign itself was kept deliberately short, lasting just 13 days. The reason was plain: India lacked the fiscal capacity to sustain a drawn-out conflict. Victory had to come quickly, or not at all.
The war’s aftermath was far less controlled. The 1973 oil shock wrecked an already fragile economy. Imports became costlier, foreign reserves strained, and inflation surged well into double digits. Growth decelerated; fiscal deficits widened. Inflation grew, eroding purchasing power.
The economic impact was brutal on the common man—wages lagged while prices soared, which shrank real incomes year after year. By 1975, this economic strain had spilled into the streets, feeding political unrest leading to the Emergency.
While the clampdown was visible, the trigger was less so—an economy battered by global shocks and domestic policy failures, leaving the government with very few other levers.
Throughout the 1980s, this structural weaknesses persisted. Fiscal deficits widened, culminating in a 9.4 per cent deficit by 1990, while external debt ballooned.
India’s chronic balance of payments problems, and its reliance on foreign aid, notably PL-480 wheat imports from the US , repeatedly forced strategic caution.
By 1991, the economic vulnerabilities could no longer be papered over. Forex reserves collapsed below $1.2 billion, barely covering a few weeks of imports. Inflation soared to 13 per cent, public welfare eroded, and the government was left with no option but to pledge its gold reserves and seek an IMF bailout.
1991-2014: Reform and Dividend
India’s foreign policy restraint through the Cold War changed in 1991, when a humiliating currency crisis forced India to confront its vulnerabilities. The pledging of gold was not a reform by choice. It was economic compulsion. But compulsion delivered clarity. India had to open up. The License Raj was dismantled, and trade barriers came down. Industries were de-licensed, and the entire economic logic shifted from protection to competition.
In the decade that followed, the GDP growth accelerated from its historical “Hindu rate” to an average of 6 per cent and above. This resulted in increased per capita incomes, expanded government revenues, and most crucially, growth of foreign reserves crossing $100 billion by 2004.
With foreign aid no longer propping up the economy, India turned to what it had long neglected: exports, investment, and market-driven growth.
Foreign direct investment surged and exports became a serious engine of expansion. For the first time, Delhi had the fiscal breathing room to think beyond mere survival. This economic shift soon reflected in India’s strategic behaviour. The 1999 Kargil War was a clear departure from the past. India fought to reclaim territory, decisively, and without flinching financially. Unlike earlier wars, there was no panic in the markets. Forex reserves stood at a healthy $30 billion. Investor confidence held steady. The war was conducted on India’s terms; it was a sharp break from decades when every military move was shadowed by economic fragility.
The 2000s cemented the gains of liberalisation. By 2008, India’s GDP had crossed $1.2 trillion, and foreign exchange reserves touched $300 billion. For the first time, the government had both the fiscal headroom and strategic ambition to invest in defence modernisation and infrastructure at scale.
Yet, when the 2008 Mumbai attacks struck, India’s response was telling. Despite economic strength, the reaction was confined to diplomatic protests and global outreach. The reflex to avoid escalation lingered, even when the macro fundamentals had changed. Across the border, Pakistan’s economy continued to limp along. Aid, remittances, and IMF bailouts remained its lifelines.
By the early 2010s, the gap had widened dramatically: India’s economy was now eight times larger, its defence budget far ahead, and its global economic clout increasingly evident. The Reform Dividend of 1991–2014 laid the foundation for India’s strategic confidence. While political leadership and doctrine still shaped the nature of responses, the critical enabler was India’s economic resurgence.
2014-2024: Strategic Autonomy Through Economic Power
From 2014, India’s economic policy was driven by an unequivocal aim: to insulate the nation from external vulnerabilities and correction of the financial fragility. It was not about macroeconomic targets; it was a deliberate recalibration of power.
Fiscal tightening came first. From 4.5 per cent of GDP in 2013–14, the deficit was trimmed to 3.4 per cent by 2018–19 — a consolidation not without political cost.
Inflation, which had averaged in double digits, was dragged back to the RBI’s 4 per cent band, thanks to the formal adoption of inflation targeting. But the clearest marker of this shift was India’s external buffers. Forex reserves, which stood at $313 billion in 2014, crossed $600 billion by 2021, and reached $704 billion in 2024.
This time, reserves weren’t an accidental windfall or a crisis reaction. They were built by design to ensure India never again had to temper strategic choices because of an exposed balance sheet.
That design showed results. When provoked, India responded. The surgical strikes of 2016 and the Balakot airstrikes of 2019 were not merely military statements; they reflected an economic reality. A $3 trillion economy with deep reserves could afford the costs of escalation. Pakistan, saddled with a $300 billion economy and forex reserves scraping $10 billion, could not. With another IMF bailout inevitable, Islamabad’s fiscal weakness had become a strategic straightjacket.
After Balakot, the global reaction was revealing. Western capitals issued their routine appeals for restraint, but sanctions, once a certainty, never came. The balance of leverage had shifted decisively.
The gap only widened. By 2022, India was spending $81.4 billion on defence, fourth highest in the world. Pakistan’s defence budget was stuck at $8 billion. But this wasn’t just about military firepower. It reflected India’s broader economic capacity to invest in strategic depth — in infrastructure, maritime dominance, and cutting-edge technology — areas where Pakistan simply couldn’t compete.
India’s fundamentals were indomitable even through global shocks like the pandemic. The rupee, which was once among the “Fragile Five” in 2013 stood strong post pandemic. Pakistan’s fallacy of India’s economic vulnerabilities forcing its restraint no longer held true.
When India launched Operation Sindoor, while the world slept away, its strategic rebalancing was made unmissable. However, despite its restraint and precision in its response, the international patterns resurfaced.
Ignorant to Pakistan’s protracted record of state-sponsored terrorist activities, the world sympathised and the IMF approved yet another $1 billion bailout for Pakistan. Western media, too, defaulted to lazy equivalence, portrayed India’s calibrated response as just another round in the “India-Pakistan conflict”, blurring the line between aggressor and respondent.
But this time, the context was different. India no longer waits for global endorsement. With its economic muscle, India acted from a place of sovereign confidence. Operation Sindoor was not anomalous. It was the culmination of India’s transformation from a third-world country to an aspiring global power. Breaking away from the shackles of the need for external validation, India defined its red lines and enforced them. Quietly, firmly, and without asking.
