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Pakistan and India's economies are both facing challenges. The PTI government inherited an ailing economy riddled with massive burden of debt, rupee value depreciation and major fiscal imbalances. It opted in favour of an IMF programme and restructuring of its economy. In short term, the investment and consumer sentiments will remain low; these are likely to stage a comeback in the next two years once the reforms are well embedded in the system.

The BJP government has opted to increase taxes on the corporate sector. This has shied away investors and consumer. This strategy has caused an adverse impact on India's economy. Very lately, in panic, the Indian government withdrew the increase but the damage had been done.

The ongoing Pakistan-India standoff and the worsening situation in occupied Jammu and Kashmir will have its consequences on the economies of the two countries.

Its impact will be much harsher will be more harsher on India than Pakistan on account of India's deployment of reportedly 900,000 troops in Indian held Kashmir who would remain there for a long time to come, internal communal tensions which are on the rise, growing divisions in the civil society and looming political internal and external turmoil.

Business sentiments are driven by return on investment and security of investment. With a growing consumer base in both countries the return on investment is promising but security of investment is under potential threat. The Indian economy has dipped to 5 per cent in the year's second quarter - the lowest in the last six years.

Annual GDP growth slumped to 6.8% in the 2018-19 fiscal year from 7.2% in the previous fiscal year. Economists argue that GDP growth in 2019-20 could be even lower than this year. This has raised alarm bells for the Modi government.

This 2 percent year-on-year drop has led to job cuts, freeze on fresh hirings, rise in unemployment, factory shutdowns and suspension of production.

The economic slowdown is being felt across sectors including real estate, agriculture, automobile, manufacturing, and financial services.

There are clear signs that the automobile sector, which employs nearly 3.7 million people and contributes 12% to the national economy is facing its worst crisis in two decades with nearly 350,000 employees losing their jobs and nearly 300 showrooms and dealerships shutting down.

Industry association Society of Indian Automobile Manufacturers (SIAM) said that about a million jobs have been hit in the auto component manufacturing industry after the onset of a slowdown.

Real estate is another important sector suffering from a huge slowdown and any spike in sales for the rest of the year is unlikely. The hit is impacting ancillary industries such as cement, steel, bricks, paints, furniture and electricity, besides rendering a huge workforce without a job. Also, the total unsold housing inventory in India's major cities has increased. Moreover, with sales plummeting, builders don't have money to finish under-construction projects.

The tension on borders is the worst deterrent for foreign investment - specially in relation to a border having nuclear states on both sides of it. The grim situation has begun to have its effects and red flag travel advisory notifications in some cases have been rolled out which will further cause a dent on the Indian economy.

Pakistan, too, is facing similar economic issues in its automobile and real estate sectors. There are clear indications that border tensions will escalate and so will the communal tensions in India.

Pakistan should continue to persevere. It needs to ensure that there will be no threat to its food security, step up diplomatic offence and secure borders.

(The writer is the former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2019

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