On April 22, 2025, the terrorist attack at Pahalgam, Jammu & Kashmir, murdered 26 Indian tourists and over 30 security personnel. It marked a turning point in South Asian political affairs. In response, India undertook a broad spectrum of diplomatic and economic measures including suspending important bilateral treaties with Pakistan. Closing trade lines and putting the Indus Waters Treaty (IWT) on hold were two of the most significant occurrences.

Particularly in Pakistan, which is already coping with rising inflation, debt, and a sluggish economy, these actions have greatly impacted the economy.

The trade shutdown’s immediate impact

One of the first things India did following Pahalgam was shut the Attari-Wagah border, the only commerce line still operational between the two nations. Though it was a sign, this closing really damaged the economy.

1. Trade Value Loss: Trade via the Attari route was worth ₹3,886.53 crore, around $470 million in FY 2023-24. Shutting it down not only stopped the flow of goods but also removed a means for small merchants to earn money.

2. Goods Impacted: Overnight, Pakistan ceased providing India dry fruits, cement, and herbs. India also ceased exporting food products, plastics, and pharmaceuticals to Pakistan at the same moment. Businesses depending on these products have to seek for more costly substitutes.

3. Effects on Jobs: Mainly in Pakistan’s border regions, thousands of jobs in transportation, logistics, and storage were destroyed.

The suspension of the Indus Waters Treaty endangers agriculture and electricity.

One of the most significant consequences is India’s abandonment of the 1960 Indus Waters Treaty. The Indus River system determines Pakistan’s agricultural watering requirements.

1. Decline in Agriculture: The breadbaskets of Pakistan, Punjab and Sindh, are likely to run out of water. This might lead to crop failure, higher food costs, and rural employment loss for many people.

2. Hydropower Shortfalls: Pakistan’s large dams, such as Tarbela and Mangla, draw their power from the Indus River. Decreasing flows are causing less energy to be produced, which raises costs for individuals and companies.

3. Economic consequences: According to economists, continued treaty freeze might cause GDP growth to fall by 1.5% to 2%.

The confidence of investors and the capital exodus

Political disengagement of India and growing border tensions have led to a decline in foreign direct investment (FDI) in Pakistan.

1. Bond Market Hit: The value of Pakistani government bonds fell by 4% within days of the event, indicating global investor fear.

2. Risk in the stock market: The Pakistan Stock Exchange (PSX) dropped significantly, erasing billions of dollars in investment worth. Many portfolio purchasers are now hesitant to make long-term commitments.

Pressure on the currency and high costs

Economic pressure has also had an effect on Pakistan’s currency and inflation rates:

1. Decline of Rupee: The value of the Pakistani Rupee has fallen versus the dollar, which increases the cost of purchases. Rising food and energy prices combined with inflation projections of 18% indicate the crisis won’t end soon.

2. Living Cost Crisis: For ordinary people, this translates into higher costs for groceries, petrol and medications, which complicates family financial management.

Strategic and diplomatic isolation

India’s actions have left Pakistan in a poor political state:

1. Suspension of SAARC Engagements: India has sent personnel home and ceased participation in SAARC-led talks. This has halted all regional collaboration.

While Pakistan’s political power is declining, India is gaining greater sympathy and support all around.

2. Global Image: This makes it much less challenging for manufacturers and companies to reach overseas markets.

The Bigger Picture: An Economic Independence Call to Action

India’s fast and several-sided reaction has revealed how poor Pakistan’s economy is:

1. Over Reliance on commercial routes: The supply lines of many Pakistani businesses have been impacted by the shutting of only one border crossing. India is no longer an export choice, thus Pakistan must go for other trading partners, which usually expenses more.

2. Gaps in Water and Energy Security: Its reliance on a common water source puts Pakistan in danger of long-term food and energy generation. To have a more stable financial future, individuals and businesses must be prepared for outside world shocks.

Planning ahead amid a crisis

India’s choice to withdraw following the Pahalgam assault has significantly damaged Pakistan’s economy, and it could be several years before the nation recovers. From economic concerns to diplomatic isolation, every sector of society is seeing the effects of the outcomes.

On the other hand, the crisis offers an opportunity to reconsider economic policies, strengthen trade links, and stabilise the domestic economy. Individuals and companies both require expert assistance to navigate these waters.

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