Despite the suspension of military operations, India must not dilute its recently initiated economic measures
The recent four-day military confrontation on India’s borders with Pakistan ended almost as abruptly as it began on 22 April, when a group of Pakistan-supported terrorists cold-bloodedly killed 26 Hindus—nearly all of them innocent tourists— in Pahalgam. For this cessation to evolve into a sustainable peace, the underlying issues that led to this latest near-war—and the four previous wars—need to be addressed. Achieving success here would entail protracted negotiations and need to be backed by a reversal of the hardened attitude of hostility and the uncompromising stance on Kashmir adopted by the Army-run Pakistan, ever since it came to be created in 1947 purely on religious grounds. Having failed militarily, Pakistan’s generals have, since 1989, increasingly relied on the lower-cost option of crossborder terrorism in Jammu & Kashmir and beyond. India is right in insisting that an end to such terrorism is non-negotiable and a prerequisite for scaling down Operation Sindoor, which has taken a heavy toll on Pakistan.
It is in such context that India needs to take a call on the economic measures it recently imposed on its neighbour—a country that has rarely seen eye to eye with India on most matters. Taken together, the impact of these and a slew of equally effective diplomatic actions, can be sizeable. Assiduously pursuing the non-military options has become a worthwhile alternative—be it curtailing bilateral trade, pausing implementation of the Indus Waters Treaty (IWT) of 1960, securing international blacklisting of Pakistan-based firms and individuals, and working with global institutions to impose stringent aid conditions on Pakistan for its continued support of terrorism.
Pakistan’s economy is hugely stressed—its government struggled to pay for imported fuel and spare parts critical to sustaining military operations, which collapsed within just 88 hours of commencement. India’s precision strikes on nine terrorist command centres, followed two days later by simultaneous attacks on 11 strategic Pakistani military installations and rendering them inoperative had brought the country’s armed forces to their knees. Its dumbstruck Armed Forces and the beleaguered government were compelled to seek an unconditional immediate halt to the assaults. While agreeing to it, Indian authorities have categorically stated that they would not hold talks with Pakistan except on ending cross-border terrorism and the return of Pakistan Occupied Kashmir (POK). While unequivocally reiterating this position publicly on 12 May, Prime Minister Modi spelt out that continuing bilateral trade and letting water flow to Pakistan cannot go together with state-supported terrorism. In a well-articulated future strategy, he has taken Kashmir off the negotiating table and also asserted that Pakistan’s nuclear blackmail won’t work any longer. Under the new normal, no form of terrorism would henceforth be tolerated, and persisting with it would be deemed an act of war, entitling India to retaliate by hitting any target within that country.
PAKISTAN’S ECONOMIC FREEFALL
In recent years, Pakistan’s economic growth has halved to 2.7% per annum. Exports of cotton, rice, horticultural produce, cement, rock salt, textiles, and apparel have declined sharply. Foreign exchange reserves can barely cover three months of imports: 78% of its crude oil, almost all essential pharmaceuticals, basic industrial machinery, and a variety of defence equipment are imported. Unemployment amongst the youth has soared. Restlessness among them is visible across the nation and no longer confined to the impoverished and restless Baluchistan or the areas bordering Afghanistan, where the drug trade flourishes. Twenty-five bailouts since 1950 by the IMF have not helped Pakistan stand on its own feet. It is surviving on an ongoing bailout of $7 billion consisting of six annual reviews, and a fresh tranche is contingent on a performance review. Its aggregate debt of $80 billion—or a debt-GDP ratio of almost 75%—makes it highly susceptible to external forces. Huge amounts get spent annually on subsidies for agricultural inputs like electricity for pumping water, use of canal waters, seeds, fertilizers, and a minimum guaranteed price for certain produce.
Most of this ends up benefitting the influential big farmers, since 2% of farmers own 46% of cultivable land. However, it is the huge expenditure—$10.2 bn in 2024—on defence, constituting 14 % of its annual budget and 2.7 % of GDP, which is running down the economy. Since the US cut off arms aid to Pakistan during Trump’s first term as President, China has filled the void. Eighty-one per cent of military assistance received last year was Chinese. Beijing has extended $20 billion of commercial loans and got involved in the construction of critical infrastructure including the Gwadar port (where it has built itself a modern naval base), highways, and rail projects from the North to the Arabian Sea. With Pakistan’s inability to service the loans advanced under the Chinese Belt and Road Initiative, it faces the prospect of having to dilute its sovereignty on its national assets, as well as granting greater market access to China. Already, the Aksai Chin in POK stands acceded to China. It is little wonder that China continues to pamper Pakistan, referring to the country as its “ironclad friend” and “all-weather” partner.
SUSPENDING IWT: INDIA’S LEGAL AND STRATEGIC JUSTIFICATION
India has fought three fullscale wars with Pakistan since signing the Indus Waters Treaty (IWT) in 1960, while enduring three dozen years of cross-border terrorism. In January 2023 and again in September 2024, India demanded a review and modification of the treaty—based on Pakistan’s consistent noncooperation in dispute resolution and its objections to even India’s meagre allocation of western river waters. The specious Pakistani objections and its dilatory tactics on dealing with Indian proposals for environmental and other clearances and have held back even the initial preparatory works at Kishanganga, Ratle and Pakul Dul run of the river HEPs for over two decades. In fact, India had also asserted that the prescribed dispute resolution mechanism under the World Bank has become dysfunctional, since in the case of Kishanganga and Ratle HEPs, the Bank had permitted the simultaneous use of two forums viz. a court of arbitration and a neutral expert review. Pakistan has reportedly taken cognizance of India’s demand for a review and modification of IWT just last week through its missive in reply to India’s official communication about holding IWT in abeyance. While holding the bilateral treaty in abeyance—a term not defined in international law—India has pointed out that the prerequisite of “a spirit of friendship and goodwill” stated in the preamble to IWT has long ceased to exist. While India has steadfastly adhered to it, with the incessant cross-border terrorism from across the border, Pakistan has not acted in good faith.
Accordingly, under Article XII of IWT India had sought a modification in its provisions with Pakistan’s consent. With such fundamental changes in circumstances having taken place, invoking Articles 60 and 62 of the Vienna Convention on the Law of Treaties, 1969, would also be a good starting point as and when the matter comes before the ICJ at The Hague . Till its final outcome, India can withhold datasharing, design approvals, inspections, and operational restrictions under the treaty. It can regulate flow volumes—retaining water during dry periods and releasing it during monsoons. If, however, Pakistan genuinely renounces terrorism and agrees to renegotiation of IWT—acknowledging climate change, groundwater depletion, demographic shifts, and technological advances—a new arrangement might be feasible. The fear of Pakistan launching a war against India for allegedly repudiating IWT has significantly receded after the recent conflict. Also, Pakistan is unlikely to make good on its threat of suspending the Simla Agreement, 1972. In seeking modifications to IWT, India is on terra firma. The shares determined in 1960—which gave Pakistan rights over the three major rivers, Indus, Chenab, and Jhelum—didn’t truly reflect the needs of the respective nations: neither the mouths to feed (India’s 445 million vs Pakistan’s 45.7 million in 1960, with the gap widening today) nor the size of the respective command areas. The three western rivers in whose waters India has under 3% share, account for 80% of the shared basin’s waters. Influenced by its American president and backed by the UK, the World Bank used outdated canal networks—not potential future command areas—to determine allocations. It ignored groundwater rights and overlooked subsequent infrastructure like the Indira Gandhi Canal in Rajasthan.
NASA now ranks the Indus Basin as the world’s second most water-stressed river system. Pakistan’s objections have blocked even minimal Indian usage (3.6 MAF compared to its 135.6 MAF) for non-consumptive uses on the western rivers. India has tapped just 3,482 MW of its 20,000 MW run of the river hydropower potential and created barely 1 MAF of storage. Without the dams, reservoirs, or barrages to divert waters, India lacks the hydrological infrastructure to hold back large volumes of their waters flowing to Pakistan during the high-flow periods. A back-of-the-envelope calculation based on past hydro project implementation in the young Himalayas suggests that it would take India a minimum of 10 years to harness the current treaty entitlements. Nevertheless, India could make strategic use of holding IWT in abeyance and use it as a major bargaining chip while negotiating with Pakistan about “credibly and irreversibly” halting cross-border terrorism. Additionally, this stance reinforces India’s insistence—enshrined in the Simla Agreement—that there will be no third-party mediation in Kashmir and the matter would be dealt bilaterally.
FOR PAKISTAN, INDUS WATERS ARE EXISTENTIAL
For Pakistan, a waterstressed country, the IWT waters are critical to its prosperity and are indeed its jugular vein. A public dispute has been going on for years between the leaders of its Punjab and Sindh provinces over the construction of six new canals—particularly the Cholistan Canal to irrigate the deserted Cholistan region of Punjab. Eighty per cent of the country’s cultivable land is irrigated by the waters of the Indus and other two rivers. Its relatively easy availability encourages growing the waterguzzling crops like wheat, paddy, maize, sugarcane, cotton, and a host of horticulture crops. As per a 2023 World Bank report, 23% of Pakistan’s GDP comes from agriculture, livestock, and horticulture. In 2023, 40% of all jobs were from these three vocations. The rural areas hold 61% of the country’s population.
Two out of three employed women find work in the agri-food sector. In terms of use of water, the report places it among the 10 worstperforming countries on agricultural productivity, with per cubic meter of water yielding a mere 130 grams of crop output, compared to 390 in India, 800 in China, and 1,560 grams in the USA. Years of over-irrigation have caused severe soil salinity, diminishing crop yields. Despite this, 90% of farmers have holdings under one hectare, while 2% control nearly half of cultivable land. Research and development spending is a mere 0.12% of GDP and fails to support innovation in high-value crops, livestock, or post-harvest technologies. Most subsidies are acreage-based and benefit wealthy landowners. With protracted IWT renegotiations on the horizon, Pakistan now has a rare window to remedy a few of the above anomalies. Given the state and predicament it finds itself in, Pakistan has few viable alternatives.
Dr Ajay Dua is former Chairman and Managing Director of the National Hydroelectric Power Corporation and served as Union Secretary for Commerce & Industry.