Following the deadly terror attack in Pahalgam on April 22, 2025, which resulted in the death of 26 people, mostly tourists, India has taken a series of assertive steps to isolate Pakistan diplomatically and economically. New Delhi has explicitly blamed Pakistan for the attack, although Islamabad has denied any involvement, calling for a neutral investigation.
In response to the attack, India has implemented a multi-pronged strategy. This includes a comprehensive strike of economic, diplomatic, and logistical retaliation. India has imposed a blanket ban on all imports from Pakistan, suspended mail exchanges, prohibited Pakistani ships from docking at Indian ports, and closed its airspace to Pakistan-registered aircraft. The Directorate General of Foreign Trade (DGFT) officially announced the ban on imports and exports with Pakistan on May 2. This directive prohibits any goods originating from or exported from Pakistan, even if routed through third countries. Exemptions would need government approval on a case-by-case basis. India has also suspended the Indus Waters Treaty and closed the Attari-Wagah land border.
Furthermore, India is seeking to economically weaken Pakistan by cutting off its access to international funds. Finance Minister Nirmala Sitharaman has urged the Asian Development Bank (ADB) to suspend all funding to Pakistan. India is also expected to raise concerns with the International Monetary Fund (IMF) regarding Pakistan's ongoing bailout package. Moreover, India is considering approaching the Financial Action Task Force (FATF) to include Pakistan in the grey list, which would make it more difficult for Pakistan to attract bailout funds or finance development projects. Separately, Sitharaman requested that Italy suspend all financial support to Pakistan and is engaging with other European nations to push for stricter oversight on international funding to Pakistan.
In addition to economic measures, India has also taken military steps. Prime Minister Narendra Modi has granted full autonomy to the armed forces to determine the nature, timing, and targets of India's response. The Indian Air Force (IAF) will carry out a mega military exercise in Rajasthan, along the International Border with Pakistan.
These actions reflect a significant shift in India's approach towards Pakistan, characterized by a more assertive stance and a willingness to take punitive measures. The international community is also taking note, with the United Nations Security Council holding closed-door consultations to discuss the escalating hostilities. While envoys have called for restraint and dialogue, India's actions signal a determination to hold Pakistan accountable for cross-border terrorism. Japan has also expressed solidarity with India and condemned terrorism.
Some experts suggest India could fund the construction of dams on Afghan rivers, such as the Kabul and Kunar, which flow into Pakistan's Indus River system, to exert economic pressure on Pakistan. This approach aligns with New Delhi's broader geopolitical strategy to isolate Pakistan and promote regional stability.
While the long-term implications of these actions remain to be seen, the immediate impact has been a sharp escalation in tensions between the two countries. Moody's has warned that sustained tensions could hamper Pakistan's economic growth and delay its fiscal consolidation efforts. The situation remains highly volatile, with the potential for further escalation.
