Indiacators 26/04
Pahalgam attack, JD Vance in India
Pahalgam attack
India had its worst terror attack since the 2019 Pulwama attack, and one of the worst in the history of the Jammu and Kashmir conflict. The victims were tourists visiting a popular tourist spot. J&K has experienced a surge in tourism since 2020, when the former state came under centre rule and Modi proclaimed an end to the 36 year old conflict in the region. The Indian government quickly identified most of the terrorists as Pakistani. The attack came a week after Pakistan’s army chief described Kashmir as “our jugular vein, it will always be our jugular vein, we will not forget it.” It is likely they trekked for days through the mountains and carefully selected the site, which was inaccessible by road. The atrocity was timed to coincide with JD Vance’s high-profile visit and will have massive consequences.
After every previous major terror attack, relations with Pakistan have deteriorated. The diplomatic response has been fairly restrained with two major exceptions (as of April 24). Delhi closed the border crossing with Pakistan, gave Pakistani visa holders 48 hours to leave the country and expelled diplomats, cutting the total from 55 to 30 (they had previously cut from 110 after the 2019 Pulwama attack). The big move on the Indian side has been to suspend the Indus Waters Treaty, which prevents India diverting waters from the Indus flowing into Pakistan. Pakistan has suspended the 1972 Simla Treaty, in which Pakistan promised to respect the 1971 J&K Line of Control.
What will happen next? India has not yet launched airstrikes, but these are very likely, as this was how India responded to the Pulwama attack. The question is whether military escalation goes further, after Pakistan responds to the coming Indian airstrike. The power gap between Pakistan and India is growing – there is a chance Pakistan sees this as a last chance.
1. Pakistan to suspend peace treaty with India as tensions grow over Kashmir killings - FT
India had already downgraded diplomatic relations with Pakistan and suspended its participation in a crucial cross-border water treaty over the attack. On Thursday, India’s Prime Minister Narendra Modi vowed to “identify, track and punish” the backers of the gunmen responsible for an atrocity that shocked Indians and fanned fears of a conflict with Pakistan.
The Islamic republic’s National Security Committee denounced India’s suspension of the 1960 treaty under which the two countries share water from the Indus river system.
The committee also said Pakistan would hold “in abeyance” the Simla Agreement, which has governed relations between the two countries since it was signed after their 1971 war. The pact’s provisions included establishing the “Line of Control” along which they face off in Kashmir.
Michael Kugelman, a Washington-based South Asia analyst, said the Indus Waters Treaty and Simla accord had served as “safety nets” ensuring a baseline of co-operation and communication at times of high tension between Pakistan and India. “The relationship risks entering uncharted territory,” Kugelman said.
Note: India had begun the process of suspending/renegotiating the Indus Waters Treaty last year. Redirecting the Indus waters will take years, but India can now start building dams necessary to do that.
2. Pakistan warns India: Halting water flow would be 'act of war' - Nikkei
A day after India unilaterally suspended a bilateral water-sharing treaty and downgraded diplomatic relations following a deadly terrorist attack in India-administered Kashmir, Pakistan on Thursday announced countermeasures similar to New Delhi's and stressed that the country would consider any changes in the flow of water "an act of war" and respond with force.
For Pakistan, the main concern is the suspension of the Indus Waters Treaty. The water-sharing agreement between India and Pakistan was brokered by the World Bank and signed in 1960. Under the treaty, Pakistan gets about 80% of the waters from the Indus River system, namely the Indus, Jhelum and Chenab rivers.
"There is already a water crisis and shortage in Pakistan, and such actions are likely to aggravate those issues further," Tahir Naeem Malik, a professor at the National University of Modern Languages in Islamabad, told Nikkei.
In many a Kashmir crisis, a frequent invocation has been: “aar ya paar” — or the decisive final battle — between the two nations. Yet, each time, India and Pakistan have walked back from the brink.
Every round of conflict between India and Pakistan inevitably changed some things on the ground. Yet some elements of the relationship, such as the Indus Water Treaty, endured. Although Pakistan has long given up on the Shimla agreement, it has never formally discarded it. In other words, the slate of accumulated agreements and understandings between the two nations could well be erased as this crisis escalates.
Whatever the form of Indian use of force this time, there will be a Pakistani military response (as in 2019). The question, then is what India might do next. If the events of 2019 are any guide, unanticipated developments on the ground and the reaction of the international system complicate the escalation ladder.
For India, managing the military escalation ladder, knowing when and how to terminate the escalation, leveraging the international community, sharpening the internal contradictions in Pakistan will be the key to its effective use of force against the entrenched terror infrastructure across the border.
Note: Will the Pakistani response to India’s inevitable airstrikes comes, will it trigger war? India has been restrained so far, but some signals indicate that they could be willing to escalate further than in 2019. The official suspension of the decaying Indus Water and Simla agreements demonstrates that this attack is different.
4. The Kashmir attack will renew hostilities between India and Pakistan - Chatham House
For now, there are limited signs of external pressure on India to show restraint in its response to the attack. During previous periods of heightened tensions, the US has played a prominent role in de-escalating tensions, but not this time.
The US recently extradited a Canadian national convicted of complicity in a 2008 attack by Pakistan-based militants in Mumbai, something New Delhi had been demanding for many years. While this demonstrates the Trump administration’s more forthcoming approach to working with India on anti-terrorism cooperation, the US is unlikely to get involved beyond possible intelligence sharing.
Without significant international pressure to de-escalate, the only real restraints on both parties are concerns of a possible nuclear escalation and the impact of a conflict on their economies.
Note: Without an external peace broker, further military escalation is more likely than after previous attacks.
5. Why Kashmir is a point of tension between India and Pakistan - FT
7. Unmasking Pakistan Army’s Growing Frustration with Kashmir - ORF
8. Terrorist attack marks grim Kashmir milestone - Lowy Institute
The timing, choice of target, and the manner in which the attack was carried out suggest three strategic objectives that its planners had in mind.
First, the attack was designed to embarrass the Indian government at a time when Delhi’s global profile shines brightly.
Second, the perpetrators seek to reverse tangible economic and social gains that followed from Delhi’s decision to fully integrate Kashmir with the Indian state in August 2019 by revoking the region’s autonomous status.
Third – and as a corollary to the above two – the attack was fashioned to provoke a strong, possibly military, reaction from Prime Minister Narendra Modi’s government. Such a reaction would mire India in yet another conflict with Pakistan and reinstate, in a manner of speaking, Kashmir in global conversations about India.
Modi knows that not responding to the attack will embolden a newly-resurgent parliamentary opposition, which has already sought to portray the development as a failure of his Kashmir policy. But more importantly, he knows – especially given the pan-India casualties of the attack – that anything short of a visibly strong reaction will fail to assuage the Indian public. At the same time, if Delhi does opt for a muscular response, it risks inadvertently raising the international profile of the Kashmir dispute, something the Modi government has desperately sought to avoid over the past decade.
Note: There are no good options for the government here. They will be forced into a strong response which will risk reigniting the conflict, and complicate India’s strengthening relationships with gulf states. Modi will draw criticism from the opposition over the success of his J&K policy to date. This will not become a major point of political contention unless the government fails to respond forcefully to the attack.
9. Why Baisaran was the ideal spot to try to derail J&K’s journey to peace - Scroll
Note: Baisaran is one of Jammu and Kashmir’s most popular tourist destinations. Inaccessible by car (tourists rode up a hill on ponies) and bordered by dense forest and difficult terrain, terrorists could attack and knew help wouldn’t come. The site was carefully chosen and the terrorists probably trekked days through the mountains to reach it.
10. Pahalgam attack: Why the buck stops with the Modi government - Scroll
Note: A few interesting things here. It is clear, regardless of what the BJP says about the regional government, that the centre is responsible for security in J&K. The article also notes that there was an unprecedented public condemnation of the attacks in the Kashmir Valley.
Vance in India
JD Vance visited India with his family this week. As of April 22, the trip has been quiet by his usual standards without bombast or lecturing on civil liberties. Instead, some pleasantly anarchic photos of Vance deep in conversation with Modi at his residence, while his kids fight each other in the background. Embarking on a mirror trip to the US, Finance Minister Sitharaman said India hoped to finish stage one of a trade agreement by September. The profile of Vance’s trip is the key here, rather than any concrete negotiations, which are more likely to happen on Sitharaman’s trip. It will rekindle hopes, dampened by harsh American rhetoric, that a warm Trump-Modi relationship will be able to massage the knottiest parts of the trade deal.
In the meantime, India has started anti-dumping measures on steel against China to prevent arbitrage.
12. Modi, Vance tout progress on India-US trade deal - Nikkei
Vance arrived in India earlier on Monday for a largely personal four-day visit to the country with his family, which includes visiting the Taj Mahal and making a speech in the city of Jaipur, U.S. officials said.
Modi and Vance reviewed progress in various areas of bilateral cooperation outlined in February when the Indian leader met President Donald Trump in Washington, their offices said. It includes "fairness" in their two-way trade and growing their defense partnership.
The Indian prime minister was one of the first world leaders to meet Trump after he took office, and Reuters has reported that his government is open to cutting tariffs on more than half of its imports from the U.S., which were worth a total $41.8 billion in 2024, as part of a trade deal.
However, the U.S. president has continued to call India a "tariff abuser" and "tariff king."
Neither the harshness of the tariffs nor the resulting damage to the global economy, however painful it might end up being, are central. Nor are the objectives of the tariff policy that range from eliminating the trade deficit, reshoring manufacturing, to raising revenue to fund tax cuts. Instead, what is salient is that it is a broadside against the extant global trading system that the US built under its own leadership over the last 60 years.
India’s aim of becoming a global manufacturing hub will need to be trimmed. Instead, domestic demand will need to become the bigger driver of growth. This is not an easy task, as we have learnt the hard way over the last few years.
We will have to consider things that are almost unthinkable in India. For example, raising consumption necessarily means lowering savings. The cornerstone of our policy framework since Independence has been based on the belief that India is a supply-constrained economy. Critical to easing that constraint is increasing savings to fund investment. The pervasive financial repression spanning banking, currency markets, bond markets, and insurance will need to be liberalised to raise household income and lower precautionary savings.
Note: A must read from JP Morgan’s Emerging Markets Chief Economist. None of the competing narratives on the effect of the tariffs have really grasped what the Trump administration is doing. India is certainly better placed to whether the storm than more open economies and perhaps the tariffs will induce significant liberalisation in certain high-profile industries (see telecoms and automobiles). What really matters though is the total overhaul of global free trade under American leadership – the average American tariff is now 25%, compared to 3.5% before Trump.
14. India under tariff pressure to give Amazon and Walmart’s Flipkart full market access - FT
India allows US ecommerce companies to operate only as online marketplaces for others to sell their products. Their Indian competitors can produce, own and sell goods through their platforms. Washington calls this a “non-tariff barrier”, alongside limits on foreign direct investment in retail.
“Since 2006, the US has been trying to open up India’s domestic market, and has been stymied successfully ever since,” said Arvind Singhal, chair of retail consulting firm Technopak Advisors.
“The attempt to pressure India into opening its ecommerce sector wider for American giants like Amazon and Walmart reflects a broader pattern of economic diplomacy aimed at securing market dominance for its corporations,” said Praveen Khandelwal, secretary-general of the Confederation of All India Traders and an MP with Modi’s Bharatiya Janata party.
Note: Non-tariff barriers have been creeping in under Modi. Looks like the Indian e-commerce giants will have to face new entrants from the US.
15. India imposes temporary tariff on some steel to stem cheap imports from China - Reuters
16. India's 110% car tariffs become harder to defend in the Trump era - Bloomberg
17. Elon Musk says he will visit India after talk with Modi - Nikkei
Most tariffs have been postponed for few months, and the US is welcoming offers to negotiate bilateral trade agreements. This gives New Delhi a chance to once again use its diplomatic skills to secure a reasonable deal with Washington. Amid US-China tensions, India will also be acutely aware of the opportunities presented by Trump’s increased focus on China’s unfair trade practices.
India has room to manoeuvre. For example, automobile tariffs are one of Trump’s key focuses. Indian tariffs on direct automobile imports are high, at more than 100 percent. New Delhi appears reluctant to lower them, partly because of fears that it could hurt India’s thriving domestic automobile and auto parts manufacturing sector.
However, India will not be an easy market for US automakers to break into, even with low or no tariffs. Both General Motors and Ford, who had entered the Indian car market and established factories in India to compete more effectively, found that not all their products well suited the market. Even if India removes tariffs, it is difficult to imagine US manufacturers competing effectively in India.
Note: Strongly recommend giving this a read. Cuts through tons of hot air and cites a few chips India holds in the ongoing trade negotiations. In summary, even if tariffs are cut, Indian business doesn’t necessarily have to worry about US competition, it can cut the trade surplus by importing more US oil, invite US nuclear power investment and buy F-35s. JD Vance said exactly this in his Jaipur speech on April 22.
19. India Has a Golden Opportunity to Capture U.S. Business From China - Wall Street Journal
Governor Malhotra-headed Monetary Policy Committee (MPC) had reduced the short-term lending rate by 25 basis points to 6 per cent on April 9. A similar reduction was done in February.
"When consumer price inflation is decisively around its target rate of 4 per cent and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum. This is specially so amidst an uncertain global environment, which has amplified downside risks to growth," said the minutes of the MPC meeting released by the RBI on Wednesday.
"Going forward too, considering the evolving growth-inflation trajectories, monetary policy needs to be accommodative," he said.
"When consumer price inflation is decisively around its target rate of 4.0% and growth is still moderate and recovering, monetary policy needs to nurture domestic demand impulses to further increase the growth momentum," RBI Governor Sanjay Malhotra wrote in the minutes.
Note: The MPC’s minutes, released a fortnight after the meeting, confirm the RBI’s newly accommodative stance.
India-Bangladesh relations take a dive
Relations with Delhi were already in a poor state before Bangladesh’s leader Muhammad Yunus visited Beijing in March. India is widely known to be hosting Sheikh Hasina, the ousted leader, which whom Delhi maintained a close relationship. Under Yunus, abductions and killings of Bangladesh’s Hindus have become more common. Things got worse when Yunus referred to India’s northeast (wedged dangerously between Bangladesh and China) as landlocked. India responded by removing transshipment rights from Bangladeshi companies. Since 2020, they had been able to export through Indian ports. No longer. The fall of Sheikh Hasina’s regime, India’s decision to host her, and the new Yunus government’s pivot towards China (and to a certain extent, Pakistan) form a qualitative shift in the previously settled India-Bangladesh relationship.
21. Tensions mount as India revokes transshipment access for Bangladesh exports - Nikkei
22. India Halts Bangladesh Transhipment: What it Means for Regional Trade and Security - ORF
Dhaka Airport and the Chattogram port are the only air and oceanic routes available for Bangladeshi exports. Other connectivity facilities such as the Pangaon container terminal in Dhaka and the Mongla and Ashuganj ports handle very limited capacity of commodities and containers and are not suitable for ready-made garment exports which is a JIT (Just-in-Time) industry. On the other hand, India’s New Delhi airport’s 150-acre cargo facility, equipped with integrated terminals, a logistics centre, and extensive airline connectivity, is linked to Bangladesh via road and rail through Kolkata. Despite domestic resistance and potential terminal congestion, India offered this advanced infrastructure to Bangladesh at no cost, covering environmental expenses as a goodwill gesture towards a coveted neighbour.
The termination of this facility will have wide-ranging ramifications for Bangladesh in the long-term scenario. Bangladesh’s RGM industry is already reeling under the shocks of the Red Sea supply chain crisis and the Ukraine war, (due to which shipments to Europe and North America have to be rerouted through the Cape of Good Hope instead of the shorter Suez canal route) alongside the disruptions faced due to the regime change in Bangladesh and the US reciprocal tariffs (currently stalled).
23. Bangladesh Changes Shape Under Yunus - Foreign Policy
This attachment to a parochial form of Islamism stems from both historical and contemporary sources. When Bangladesh was part of a united Pakistan, adherence to orthodox Sunni Islamic precepts was an important component of the political culture. And a radical Islamist party, the Jamaat-e-Islami, has been an important political force in both pre- and post-independence Bangladesh, even though it lacks significant electoral clout.
Owing to both domestic and international factors, Hasina sought to contain Jamaat-e-Islami during her tenure. At home, she needed to court the vote of Bangladesh’s Hindu community. From an external standpoint, taking a tough stance against the Islamists played well in India. Not long before her ouster, Hasina’s government banned the party and its youth affiliate outright, citing what she described as its growing willingness to resort to violence.
But Yunus has taken a more indulgent approach to Jamaat-e-Islami, including by lifting the ban imposed under Hasina. And with the interim government not confronting these Islamist forces, they are increasingly asserting themselves into public life. Among other matters, mob violence has targeted members of Bangladesh’s Hindu minority as well as a Muslim minority sect, the Ahmadiyya.
24. China makes a show in Bangladesh - Deccan Herald
25. Bangladesh and Pakistan are finding new areas of convergence - Indian Express
The first breakthrough came when Yunus met Pakistani Prime Minister Shehbaz Sharif at the D-8 Summit in Egypt in December 2024. Yunus’s recent visit to China and the reported Chinese plans to construct an air base at Lalmonirhat, near India’s Northeast, were met with concern in New Delhi.
Understandably, the post-Hasina political environment in Bangladesh reflects a new mood, but this does not mean that the country’s youth and civil society have forgotten the trauma of the past. Despite public anger towards the legacy of Mujibur Rahman and his family, the genocide and mass rape of Bangladeshis during the 1971 war remain deeply etched in national memory.
In the current phase, military ties are also strengthening. Bangladesh recently participated in Pakistan’s multilateral naval exercise, AMAN-25, and, according to media reports, has expressed interest in acquiring the JF-17 fighter aircraft. While Bangladesh has long relied on China for defence procurement, it now seeks to diversify its options.
26. India should reconsider its decision to shelter Sheikh Hasina - Indian Express
Note: The article says India should consider making concessions to the new Bangladesh regime to prevent the emergence of a China-Pakistan-Bangladesh axis. India has maintained close relations with Bangladesh since the war of 1971.
In other news:
BluSmart Scandal
The electric Uber alternative BluSmart is ubiquitous in major Indian cities. Their owners have become embroiled in an embezzlement scandal. SEBI is making an example of them.
27. BluSmart breakdown - how Uber's EV rival in India collapsed - BBC
The fortunes of India's BluSmart, a popular electric ride hailing service and once a formidable rival to Uber, have quickly unravelled, with the company halting new cab bookings.
The decision to halt services in the three cities it served - Bengaluru, Mumbai and Delhi - came after Indian market regulator, the Securities and Exchange Board of India (Sebi), alleged that BluSmart's founders Anmol Singh Jaggi and Puneet Singh Jaggi were diverting loans from another firm they owned to buy luxury apartments and golf equipment. The loans were meant to help BluSmart lease new cars.
Unlike traditional cab aggregators who lease their vehicles from individual drivers, BluSmart leased its fleet from companies - in particular from one firm called Gensol Engineering Limited (GEL), a stock market listed solar energy and EV leasing firm which is also run by the Jaggis.
Last month, credit ratings agencies CARE Ratings and ICRA downgraded the investment rating of GEL after they found that BluSmart had defaulted on its payments to the company.
The promoters of GEL and BluSmart publicly denied allegations made by the ratings agencies, but they were damning enough for India's market regulator to launch its own inquiry which found that the company's problems ran much deeper than just loan defaults.
Enforcement directorate goes after the Gandhis
Note: TLDR – the National Herald corruption case is a stick that the BJP has used since it took office in 2014 to hit the Gandhi family (who lead the opposition Congress party) with. The ED filed a chargesheet on April 9, and the matter is set to be heard May 2, according to the latest news. In 2010, a firm owned by the Gandhis is alleged to have acquired an expensive plot of land (USD 500m) belonging to the Congress party newspaper for pennies in 2010. The original legal case petered out and this is a slightly different case involving the initial (allegedly) corrupt allocation of the land to the Congress newspaper by the government back in 2005.
And other news
29. How India Is Turning Into A Popular Medical Tourism Hub - IndiaSpend
30. T20 diplomacy? The virtues of Test cricket in uncertain times - Lowy Institute
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