In This Economy… Truce And Transformation: The New Great Game In South Asia

Last week felt like a geopolitical thriller.

What started with missiles, jets, and artillery between India and Pakistan morphed into a surprise ceasefire—brokered, no less, by Donald Trump. Yes, that Donald Trump, who claimed he single-handedly averted a “bad nuclear war” that could’ve killed millions.

Meanwhile, Prime Minister Narendra Modi addressed the nation on Monday with a fiery warning. He promised a strong response to any future terrorist attacks and made it clear that India won’t tolerate “nuclear blackmail”. His message? “Terror and talks cannot go together… Water and blood cannot flow together.”

But just hours later, Pakistani drones were reportedly spotted back in Indian airspace. So much for calm.

The spark? A brutal terror attack on April 22 in Kashmir that left 26 civilians dead. India launched Operation Sindoor in retaliation. Pakistan denied involvement. The usual denials. But the nuclear stakes made this standoff the most dangerous since Kargil in 1999.

In parallel, critics question the effectiveness of repeated bailouts by the IMF to Pakistan and raise concerns about the potential diversion of funds towards terrorism. India abstained from the vote, citing Pakistan’s long history of IMF assistance and the influential role of its military in the economy.

Yet amid the conflict & chaos, an economic story is emerging.

Last week felt like a geopolitical thriller.

What started with missiles, jets, and artillery between India and Pakistan morphed into a surprise ceasefire—brokered, no less, by Donald Trump. Yes, that Donald Trump, who claimed he single-handedly averted a “bad nuclear war” that could’ve killed millions.

Meanwhile, Prime Minister Narendra Modi addressed the nation on Monday with a fiery warning. He promised a strong response to any future terrorist attacks and made it clear that India won’t tolerate “nuclear blackmail”. His message? “Terror and talks cannot go together… Water and blood cannot flow together.”

But just hours later, Pakistani drones were reportedly spotted back in Indian airspace. So much for calm.

The spark? A brutal terror attack on April 22 in Kashmir that left 26 civilians dead. India launched Operation Sindoor in retaliation. Pakistan denied involvement. The usual denials. But the nuclear stakes made this standoff the most dangerous since Kargil in 1999.

In parallel, critics question the effectiveness of repeated bailouts by the IMF to Pakistan and raise concerns about the potential diversion of funds towards terrorism. India abstained from the vote, citing Pakistan’s long history of IMF assistance and the influential role of its military in the economy.

Yet amid the conflict & chaos, an economic story is emerging.

Since the 1999' Kargil War, their economies have moved in opposite directions. Back then, India’s GDP was 5x Pakistan’s.

In over 20 years, India’s economy was way ahead of Pakistan’s. India had a nominal GDP of about $3.57 trillion, while Pakistan’s was around $338 billion in 2023. That means India’s economy was roughly ten times bigger—it’s a pretty huge gap!

India’s roaring ahead—with booming tech, high-end manufacturing (hello, iPhones), and infrastructure to match. Pakistan? Still stuck in a loop of debt, dysfunction, and dependence on foreign bailouts.

The fall of Kabul in 2021 only accelerated the divergence. As the West pulled back from the region, Pakistan lost its strategic leverage—and its financial lifeline.

Maybe. If the truce holds, it could be a game-changer—not just for South Asia, but for how it connects with ASEAN.

“This opens up real potential for things like cross-border infrastructure, smoother trade routes, and better alignment of rules and regulations between India and ASEAN,” says Atul Pandey, partner at Khaitan & Co. And that’s a big deal—ASEAN is home to some of the fastest-growing digital and consumer markets in the world.

India’s defence sector could also cash in. With a $6 billion export target by 2029 and ASEAN nations diversifying away from China, there’s a real appetite for India’s drones, naval systems, and defence tech. It’s not just about trade—it’s about building a more resilient and connected region for the long haul.

India had to navigate a tricky trio: Turkey, China, and Pakistan—three countries deepening ties, often in ways that rub New Delhi the wrong way. So, what’s India doing about it? Quite a bit, actually—and it’s playing its cards with both brains and balance.

First up, China. The tension’s no secret. Between border flare-ups and economic rivalry, India’s response has been firm: beefing up military infrastructure near the LAC, modernising its forces, and saying “no thanks” to unchecked Chinese investments. The goal? Security, self-reliance, and serious deterrence.

Pakistan remains a known challenge. India sticks to its tough stance—think Balakot-style operations when needed, plus smart diplomacy to keep Pakistan on the defensive at forums like the UN and SCO. At home, the focus is on strong counterterror systems and resilience.

Then there’s Turkey, the wildcard. Ankara’s been cosying up to Pakistan and making some loud noises on Kashmir. India’s answer? Not yelling back, but building bridges elsewhere—deepening friendships with the Gulf (UAE, Saudi Arabia, Egypt) to cut into Turkey’s influence in the Muslim world and using its massive market to keep Ankara economically interested (and a bit more polite).

India’s also going global with its counter-punches—investing in cybersecurity, digital diplomacy, and calling out hypocrisy on issues like Islamophobia. When Turkey lectures, India reminds the world of its own issues with dissent and authoritarianism.

And the big picture? India’s anchoring itself with strategic partners—think Quad (U.S., Japan, Australia), France, Israel, and ASEAN. It’s not just about defence; it’s about shaping the global conversation.

In short, India’s not reacting—it’s recalibrating. Smartly. Calmly. Strategically.

The stark contrast between India and Pakistan also reignites the long-standing debate over the governance structure of global financial institutions like the IMF.

Pakistan continues to turn to the IMF for bailouts—often with little structural reform to show. Meanwhile, India, despite its massive economic footprint, remains under-represented in voting power relative to its GDP and global role.

IMF’s voting system Still stuck in the 20th century. Emerging economies now drive over half the global economy (PPP) yet hold less than 40% of IMF votes. India deserves a seat that matches its size. Pakistan, meanwhile, keeps returning to the IMF trough—without the reforms to match.

This isn’t just a pause in hostilities—it’s a potential inflection point. India is rising. Pakistan is fading. And the world is watching.

For South Asia, this could be the moment to reset—economically, diplomatically, and institutionally. From ASEAN ties to IMF reform, the momentum is shifting. The region’s story is being rewritten—and India is holding the pen.

1. SEBI plans to relax proposed limits on index options. Trading sources indicated that SEBI is leaning towards allowing a net end-of-the-day limit of Rs 1,500 crore and a gross limit of Rs 10,000 crore for index options, reports Charu Singh.

2. Centre forms panel to assess airline losses from Pakistan airspace ban. Pakistan shut its airspace to India's carriers, including Air India and IndiGo, which are facing higher fuel costs and longer journeys, especially for west-bound flights from regions like New Delhi, reports Sesa Sen.

3. US-China tariff truce: Indian exporters cautious, see room for gains. Though seen as a step towards de-escalation and more stability for the global trade scenario, Indian exporters are watching closely. Read the full report by Rishabh Bhatnagar.

4. India-UK FTA: A Mini Cooper for Rs 25 lakh? Maybe, just maybe. The Free Trade Agreement opens up the Indian market for UK carmakers and allows India’s EV makers to sell in the UK. Read the full story by Tushar Deep Singh.

5. Strong macros likely to continue supporting bond, rupee markets amid geopolitical concerns irrespective of India-Pakistan tensions. The rupee will likely remain volatile given global cues and evolving trade deals, reports Pallavi Nahata.

• Trump launched a paid self-deportation programme to end ‘invasion’. In a statement posted to the White House’s website, Donald Trump lashed out at immigrants, blaming “a full-scale invasion” of those who stay in the U.S. illegally for crime and violence.

All right then, the evolving trade situation between the US and China in parallels —marked by a pullback from the tariff frontier—could intensify competition for Indian exporters. Additionally, the Trump-era executive order on prescription drugs continues to weigh on Indian pharmaceutical companies. As global dynamics shift rapidly, India must adopt a more proactive stance in trade negotiations with the US, positioning itself as a reliable alternative sourcing destination.

Your author is closely tracking every development and will continue to decode it for you. Until then, stay safe and stay tuned.

Signing off, Shrimi