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June 19, 1999
Operation Vijay costs India more than Rs 100 million a day
George Iype in New Delhi
"For us the battle in Kargil will be a cut on the finger. But Pakistan will bleed itself dry if it doesn't see reason."
That was External Affairs Minister Jaswant Singh speaking.
"Pakistan cannot sustain the cost of conflict and will go bankrupt in the event of any escalation of the Kargil crisis. The Indian economy is much better placed to withstand and bear the cost of conflict."
And that was Finance Minister Yashwant Sinha.
Being good politicians, both gentlemen forgot to mention one thing: just what effect the crisis would have on India.
Notwithstanding their combined optimism, our research points out that the economic cost would upset the Atal Bihari Vajpayee regime's budgetary calculations -- worse, it may put on backburner many vital economic issues.
Expectedly, there's no official calculation available as to how much the government is spending on military operations. But rough estimates with the ministry of finance indicate that the conflict is costing India anything between Rs 100 million and Rs 150 million a day.
This includes maintaining some 35,000 soldiers in the area, moving the troops to the battlefront, constant air operations, compensation for lives and property lost, and rehabilitation of displaced people from the villages near the Line of Control.
"No government calculates the cost of war in the middle of a battle. But I would say that Operation Vijay is a very costly affair," a finance ministry official told rediff.com
The government, thus, must have already spent more than Rs 3 billion in the past one month -- an amount that is "within manageable levels."
"But the Kargil crisis can upset the finances if the operations escalate and continue for long," the official said.
Thus, if the conflict stretches on for another three months, the expenditure would skyrocket as military requirements are mounting day by day. The army headquarters is replenishing armaments and spares, and purchasing ammunition and sophisticated weapons.
The government has already cleared Rs 6 billion as 'additional military expenditure.'
The last four weeks have seen the army eating into its ammunition stock. Defence ministry sources said the government is now in the advanced stage of purchasing 100,000 rounds, worth Rs 2 billion.
In fact, for the past six months the government had been negotiating with Denel, a South African armament company, to buy 155 mm and 125 mm shells. The Kargil offensive is forcing the defence ministry to clinch this deal as early as possible.
Though India has a huge defence product manufacturing industry, sources said the economic sanctions imposed by the United States in the wake of the nuclear tests has virtually cut off all technical assistance.
Officials, however, maintain that despite the urgency, India's imports of spares, ammunition and weapons will not be very expensive.
Meanwhile, commerce bodies and an internal finance ministry assessment points out that a long haul in Kargil will considerably widen the fiscal deficit. As per the budgetary projections for 1999-2000, the government has a target of containing the fiscal deficit at 5.1 per cent of Gross Domestic Product. But according to projections with the Confederation of Indian Industry and the Federation of Indian Chamber of Commerce and Industry, the confrontation could push this to anything above 5.4 per cent.
Adding to this is the burden of the forthcoming general election in September, which is estimated to cost around Rs 10 billion.
Sinha and his economic advisors, for their part, are taking all possible measures to ensure that the fundamentals of the economy sustain the cost of any conflict. The Vajpayee government expects that the economic sanctions imposed on India by the US and other Western nations will soon be lifted, leading to the release of the funds locked in the World Bank and the Asian Development Bank.
Then, the government is expected to come out with a series of plans to keep non-plan expenditure within the budgetary limits, even while meeting the unprecedented rise of defence expenditure.
Already, the finance minister has had a series of meetings with the finance secretary, expenditure secretary and officials in the Prime Minister's Office to chalk out a strategy to fund the needs of the country.
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