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No adverse effect on the Indian economy after IAF strike on terror camps in Pakistan ? a comparative study
The Indian Air Force attacked the terrorist camps in Pakistani territory in the early hours of February 26, 2019, twelve days after the Pulwama terrorist attack.

Although the initial response of the financial market has been negative, it should be considered temporary. Such attacks done for the sake of the nation are unlikely to have a negative impact on the financial market as the situation of the Indian economy is currently strong. Even in the past such attacks have never adversely affected the financial condition of the country.

Impact of the Kargil War on the financial market

The Kargil War between India and Pakistan was fought between India and Pakistan from May to July 1999. During the above period, the major indices of the Indian stock market declined in the early stages, but in the following days they had seen improvement. Within three days of the start of the fight, the Sensex and Nifty went down 286 and 79 points respectively, but in the following days they saw a surge of 652 and 191 points.

During this period, the rupee declined by 1.2 per cent compared to the dollar, while the 10-year-old G-Secs had a minor change of 2 BPS. In fiscal year 2000, India's fiscal deficit was around 6 per cent. Interestingly, the rupee remained at roughly the same level during the years after the financial year 2000, indicating that the value of the rupee is highly affected by external factors.

As a whole, the Kargil War had a positive impact on the market. On the basis of base year 2004-05, the economy grew at a rate of 8% compared to an increase of 6.5% a year ago, indicating that no negative impact of the war was visible on the Indian economy.


    Market Indicators during Kargil War
 Indicators  26th May 1999  26th July 1999 Change 
 Sensex 3973 4625 652
 Nifty 1136 1326 191
 10-yr Gsecs(%)  11.76 11.74 -0.02
 Rs/USD 42.8 43.3 1.2%

The effect Uri Surgical Strike on the financial market

On 29 September 2016, India announced that it had carried out a "surgical strike" against terrorist launch pads located across the Line of Control in Pakistan-administered Kashmir and killed many militants. After the surgical strike, the major indices of the Indian stock market witnessed a decline for some months, but the situation soon became normal.

After three months, the Sensex and the Nifty were down 1462 and 491 points, respectively closed with a rise of 3456 and 1198 points respectively in the next one year. Not only that, after 1 year the value of the rupee was better than the US dollar at 2.36 per cent, while 10-year-old G-Secs increased 20 BPS. In this case, the overall effect of the Uri Surgical Strike on the market was positive.

      Market Indicators Post URI Surgical Strike
 29-Sep-16  29-Oct-16  29-Dec-16  29-Dec-17 Change (after 1 year)  
 Indicators  Strike Day  Past 1-Month  Past 3-Month  Past 1-Year  
 Sensex 27828 27930 26366 31284 3456
 Nifty 8591 8626 8104 9789 1198
 10-Yr Gsecs(%)  6.86 6.82 6.52 6.66 (-)20 bps
 Rs/USD 66.86 66.72 68.10 65.28 (-)2.36%

It may be said that the air strikes carried out by India on 26th February will not have any adverse impact on the financial market. Through this attack, India has made it clear that there is no attempt to take a test of its patience. Significantly, due to India's clear foreign policy stance, the financial market can adapt itself to the situation, which will surely have a positive effect on the economy.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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