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From closing borders to lobbying FATF, India’s response to the Pahalgam attack reveals a new strategy: geo-economic warfare over gunfire.
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Image Source: Getty
In response to the Pahalgam terrorist attack, which claimed 26 lives, New Delhi launched a multipronged counteroffensive—‘Operation Sindoor’—combining kinetic and non-kinetic strategies. Although cross-border military exchanges between India and Pakistan ceased following the bilateral ceasefire agreed on 10 May 2025, India’s non-kinetic assault targeting Pakistan’s economy, trade, and connectivity has persisted, signalling a new normal in bilateral ties between the two South Asian neighbours.
India’s aim is to signal strategic pressure, leveraging its upper riparian status to compel behavioural recalibration in Pakistan.
India’s non-kinetic responses include holding the Indus Waters Treaty (IWT) in abeyance, halting all trade with Pakistan, closing the Attari-Wagah border, and curbing connectivity with Islamabad. In parallel, New Delhi is dispatching seven all-party parliamentary delegations to 30 countries and advocating for Pakistan’s re-entry into the Financial Action Task Force (FATF) Grey List. These actions aim to strain Pakistan’s fragile economy—risking food insecurity, power shortages, and fiscal crises—while reinforcing India’s zero-tolerance stance on terrorism and strategically isolating Pakistan through economic and diplomatic means.
India’s geo-economic warfare following the Pahalgam attack warrants a deeper analysis. This article analyses the strategic rationale and geoeconomic implications behind New Delhi’s ongoing non-kinetic counteroffensive.
New Delhi’s geo-economic campaign against Pakistan follows a three-pronged strategy: cutting off trade ties and suspending the IWT; closing Indian territories to Pakistani transport connectivity; and launching a layered multilateral effort to highlight Pakistan’s active role in fostering terrorism on Indian soil.
New Delhi is also sending seven all-party Parliamentary delegations to 30 countries to project India’s zero-tolerance stance on terrorism.
Following the terrorist attack, the Indian government announced the temporary suspension of the IWT with Pakistan on 23 April 2025, and a blanket ban on trade on 2 May 2025. These measures target Pakistan’s agriculture, industry, and hydropower sectors—critical areas heavily reliant on consistent Indus river flows, and direct and indirect Indian imports collectively worth US$ 11.2 billion, in FY24. India aims to signal strategic pressure, leveraging its upper riparian status to compel behavioural recalibration in Pakistan amid persistent security tensions and repeated cross-border terrorism. The blows to Pakistan’s transport connectivity occurred in the same timeframe. The same week, on 30 April 2025, India closed its airspace to Pakistan’s airlines and barred Pakistan-flagged vessels from docking at Indian ports. Mail and cargo exchanges were also suspended on the same day. These steps, the government stated, were necessary to safeguard Indian air and maritime assets amid heightened tensions with Islamabad.
On the multilateral front, India strongly protested the International Monetary Fund’s (IMF) decision to disburse US$ 1 billion to Pakistan, calling it a ‘mockery of global values’. New Delhi reportedly plans to submit fresh intelligence to the global terrorist financing watchdog, FATF, regarding terrorist infrastructure operating within Pakistan. Islamabad’s history with the FATF—greylisted first in 2008, removed in 2009, re-listed from 2012 to 2015, greylisted again in 2018, and finally removed in October 2022—makes this a potent diplomatic tool.
India’s geoeconomic offensive is likely to impose severe, multidimensional costs on Pakistan’s economy, energy security, and international standing.
The temporary IWT suspension threatens Pakistan’s food and energy security needs, with 90 percent of its agriculture dependent on the Indus River for irrigation and 21 hydropower generation plants reliant on its waters. Pakistan’s agricultural economy employs 37.4 percent of the able workforce, contributes 22.9 percent to the country’s Gross Domestic Product (GDP), and nearly 24.4 percent to its exports—making Pakistan acutely vulnerable to the treaty’s suspension. Trade restrictions compound these pressures. Pakistan’s pharmaceutical industry, which imports 36.2 percent of its Active Pharmaceutical Ingredients (APIs) and intermediates from Indian-linked supply chains, may face a 20–25 percent rise in production costs. The textile sector—comprising 60 percent of Pakistan’s exports and 8.5 percent of its GDP—relies on Indian dyes, cotton yarn, and chemicals. This jeopardises Pakistan’s domestic output and export competitiveness. The fertiliser industry, dependent on chemical imports and natural gas, is also expected to face rising input prices, with urea and diammonium phosphate (DAP) shortages likely to impact the fertiliser exports.
The temporary suspension of the IWT threatens Pakistan’s food security, energy security and agrarian economy.
India’s logistical and transport connectivity bans further amplify Pakistan’s financial challenges. Reciprocal closures of Indian and Pakistani airspaces will mean longer reroutes over West Asia, increasing flight times by 90 minutes and fuel costs up to US$ 50,000 per flight. Moreover, the resultant ban will also result in overflight fee losses for the Pakistani government, which could amount to US$ 3.5 million per month. Revoking docking access to Pakistan-flagged vessels will also impact Pakistan’s trade-related transloading and regional distribution. Pakistani exporters will now face higher costs rerouting through distant hubs such as Colombo or Dubai, increasing shipping times by 3–5 days and reducing price competitiveness.
Strategically, India’s multilateral mobilisation compounds Pakistan’s economic distress. Besides protesting the IMF’s US$ 1 billion disbursement, India plans to simultaneously submit new intelligence to the FATF regarding Pakistan-based terrorist infrastructure. The prospect of renewed FATF greylisting—which previously cost Pakistan an estimated US$ 38 billion in GDP between 2008 and 2019—would jeopardise its IMF-supported macroeconomic recovery.
Chart 1: Economic indicators of the Pakistan economy
Sources: The World Bank Group, CEIC Data and the ONE Data.
India’s logistical and transport connectivity bans further exacerbate financial pressures on Pakistan.
The Pakistani economy’s poor economic growth record, excessive external borrowings, and dwindling foreign exchange reserves over the past decade will further accentuate financial pressures if FATF reinstates Islamabad in its grey list. Greylisting hikes the borrowing costs, restricts access to global financial markets, and deters foreign direct investment — key vulnerabilities for Pakistan, whose external debt stands at US$ 131.1 billion and foreign reserves hover around US$ 15 billion as of April 2025. Furthermore, India’s seven all-party delegations, comprising 51 members, to 33 capitals across the globe are further cementing Pakistan’s state-sponsored terrorism as a global problem. In the Middle East, the delegations are drawing parallels between the Pahalgam terrorist attack and the Middle East’s takfiri terrorism problems. These delegations also aim to sensitise and inform the public and political opinion on Operation Sindoor across the world’s capitals. Through this diplomatic effort, New Delhi also seeks to isolate Islamabad in multilateral forums and undermine its legitimacy amid its search for investment, debt relief, and international support.
Greylisting raises borrowing costs, restricts access to global financial markets, and deters foreign direct investment
India’s post-Pahalgam non-kinetic offensive marks a strategic shift from reactive diplomacy to calibrated geoeconomic coercion. By targeting critical nodes of Pakistan’s economy — agriculture, trade, connectivity, and financial credibility — New Delhi aims to impose cumulative strategic costs without breaching conventional military thresholds. These measures are not isolated reprisals but instruments of a sustained geoeconomic campaign to induce strategic behavioural recalibration in Islamabad. Concurrently, India’s multilateral outreach—via FATF and beyond—seeks to delegitimise Pakistan’s support for terrorism. Together, these strategies reflect a new normal in India-Pakistan relations, where economic leverage complements national security objectives.
Prithvi Gupta is a Junior Fellow at the Strategic Studies Programme, Observer Research Foundation.
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Prithvi Gupta is a Junior Fellow with the Observer Research Foundation’s Strategic Studies Programme. Prithvi works out of ORF’s Mumbai centre, and his research focuses ...
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