Proxy War in Kashmir & Pakistan's Economy

10 May, 2000    ·   352

Dr. Subhash Kapila points out that with their economy in total disarray, Pakistan can ill afford to continue the Proxy war in Kashmir

General Background

Pakistan  has always faced economic difficulties due to several  reasons – a basically agrarian economy, lack of industrial infrastructure and the sizeable diversion of  financial resources to the  maintenance of a military machine disproportionate to its legitimate defence requirements.

In the last 53 years of its existence, Pakistan launched four armed conflicts against India – 1947 – 48, 1965, 1971 and 1999 in Kargil. Pakistan has also sustained through its ISI  separatist movements  all over India, which requires sizeable  resources.

The Pakistani economy in terms of exports potential and foreign exchange earnings lost out heavily when East Pakistan seceded to become Bangladesh.  Pakistan is therefore, a state with limited economic means; negligible economic growth, no industrial infrastructure worth the name and yet vying to attain strategic symmetry with its powerful neighbour India.  Till lately, Pakistan was the  recipient of economic and military aid from USA  and  other advanced industrialised countries .

With the end of the Cold War, the down grading of Pakistan’s front line status and its increasing shift towards Islamic fundamentalism, these financial resources are  trickling off.

Pakistan’s Dismal Economic Picture

Pakistan’s economy is as the economic indicators below would highlight.

1.                   It's foreign debt amounts to $ 42 billion.  The domestic debt totals $ 70 billion.  The total  amounts to a figure which is $ 50 billion higher than Pakistan’s GDP.

2.                   Debt servicing amounts to 51% and military expenditure accounts for 28% of the budget.

3.                   Economic growth has been on a  decline from 6.8% per year in Ayub's regime to 6.5% in Zia’s tenure and 4.4% in Bhutto’s time.  It is much lower in 1999 – 2000.

4.                   Agriculture, which has been the mainstay of Pakistan’s economy, especially   cotton and other cash crops, has  declined from an annual growth of 5.1% in Ayub's time and 5.4% in Zia’s time to  only 2.7% in Bhutto’s time.

5.                   Pakistan owes more than 47% of its GDP to foreign financial institutions.

6.                   GDP growth of about 2.7% in 1992 – 93 has dropped to 1.3% in 1996 – 97.

7.                   The worst indicator is that Pakistani expatriate deposits in Pakistan totalled $ 11.2 billion.  Successive governments in Pakistan have spent  this money leaving no resources to pay the depositors.

Pakistani Proxy War in Jammu & Kashmir

Against the back drop of this dismal economic picture, Pakistan has been incurring sizeable  expenditure to promote its proxy was in J & K and sustain:

·                     Daily shelling incidents along the entire length of the LAC.

·                     Financial payments to Islamic fundamentalist mercenaries from Pak Madrassas, Afghan Mujahideen and mercenaries from other Islamic countries, to keep alive the proxy War in J & K.

·                     Financing  the ISI for its destabilisation activities in various parts of India.

·                     Acquisition of sizeable quantities of arms and explosives for its mercenaries in J&K and ISI in other parts of India.

·                     The exorbitant cost of the Kargil War.

·                     Nuclear weaponisation of Pakistan could run into thousands of crores.

Sources of Funds for Conducting Proxy War in J&K

This suggests that the  funds for conducting the proxy War in J & K and other destabilising activities in India cannot be found from within Pakistan’s own financial resources.

It is inconceivable that any of the Western countries, Pakistan’s erstwhile donors of the Cold War era, would supply funds.  Logically, the finger points at the following sources which Pakistan could be exploiting :

1.                   Islamic fundamentalist countries like Saudi Arabia and some of the Gulf Sheikhdoms.

2.                   Collections from Pakistani expatriates abroad on sentimental grounds.

3.                   Lastly,  the most lucrative would be  narcotics smuggling to Western countries which could yield sizeable  resources  not require public accounting.

It seems  that the  narcotics drug trade is being carried out clandestinely by  the Pakistan Army independent of the Government, and the  ISI provides the  financial resources for its anti-India activities.  In this, with the Talibanisation of Afghanistan  the potential for additional resources becomes more pronounced.

The possibility of covert Chinese military aid for Pak Army’s ventures is also a possibility.  Unthinkable,  but possible, in view of sizable recovery of Chinese origin weapons. 


An independent analyst would be hard pressed  to provide an accurate linkage of the cost of Pakistan’s Proxy War in J & K with the financial resources available to it. If Pakistan claims that India is spending crores of rupees a day in J & K to contain its activities,  Pakistan too is also spending crores of Pakistani rupees  for its proxy war against India, which it can ill afford. The lucrative  narcotics drug trade might be covering the expenses of  its proxy war in J & K.